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    • ukjoel
    • By ukjoel 3rd Oct 17, 9:45 PM
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    ukjoel
    Pensions Fund change query
    • #1
    • 3rd Oct 17, 9:45 PM
    Pensions Fund change query 3rd Oct 17 at 9:45 PM
    Evening,

    My work pension has historically been invested in Friends Life cautious index which has performed reasonably with low fund costs and have been happy with this.

    On the back of the pension freedoms our online benefit provider are now recommending that I move to 'Friends Life My future target draw down.'

    The only key difference that has been explained is the new one has a 15 year derisking strategy compared with a 5 year derisking strategy for the old one.

    I am 45 (and planned to retire between 57 and 60) so the derisking would start straight away for me.

    Any thoughts on optimal derisking length of time.
    Appreciate the markets are volatile but 15 years seems a little excessive (and 5 years a little short) in my view.

    Thanks
Page 1
    • AnotherJoe
    • By AnotherJoe 3rd Oct 17, 10:26 PM
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    AnotherJoe
    • #2
    • 3rd Oct 17, 10:26 PM
    • #2
    • 3rd Oct 17, 10:26 PM
    Friends life cautious sounds FAR too cautious to me, so in that context, you can guess my views on a "derisking" approach on top of that.

    More generally, this is an old fashioned approach, perhaps 5 years out of date now. It's based on the expectation that at age 65 (or whatever) you will buy an annuity and therefore don't want to be hit by a stock market decline just before that happens.

    However, almost no one buys an annuity these days, you could easily stay invested for 10-15 years after that, drawing down your investment, in which case it makes no sense to go into very very very cautious even at retirement because you'll need the growth.

    OTOH maybe the cautious approach suits you and you'd freak out if there was a decline as you retired and so losing money gradually to inflation is preferable (and that's not being sarcastic, I mean that literally, not everyone has a high risk tolerance).

    So, each to their own, there isn't an "optimal derisking strategy" since it depends on each persons circumstances and tolerances, but from what you've said it seems as if 5 years might seem to fit you a lot better than now (which frankly seems crazy to me) so you should stay as is and review in say 10 or so years.

    Ps to put my views in context, when I showed the FA at my company my investments (split into cautious and risky areas) and said "this is my cautious fund" he said " oh, this is what we recommend for people taking the most adventurous option" . I say that just so you see where I'm coming from, maybe I take too much risk.

    Even so I think you'll find very few people these days recommending derisking at R-15, and indeed my company started a review process whereby those people who were now being moved into this strategy because of choices they made 10 years previously, when perhaps it was appropriate, were now being asked to reconsider if that was what they really wanted.
    Last edited by AnotherJoe; 03-10-2017 at 10:32 PM.
    • Linton
    • By Linton 3rd Oct 17, 10:34 PM
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    Linton
    • #3
    • 3rd Oct 17, 10:34 PM
    • #3
    • 3rd Oct 17, 10:34 PM
    Do you plan to buy an annuity or base your retirement on drawdown? If the former, then derisking makes sense as you get plenty of warning as to your future lifetime income.

    However, if you plan to drawdown then the situation is much less clear. After all, half your pot may well not be touched for 15 years, plenty of time for taking higher risk for higher return. Actually if may be more than a bit of a gamble. With future inflation unknown, a larger investment return may prove essential.

    Rather than derisking as a drawdown based retirement approaches you may be better advised not to derisking your investments at all but rather build up a cash buffer so you can avoid selling your investments when prices are low.
    • ukjoel
    • By ukjoel 3rd Oct 17, 11:35 PM
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    ukjoel
    • #4
    • 3rd Oct 17, 11:35 PM
    • #4
    • 3rd Oct 17, 11:35 PM
    Thanks Linton & Another Joe,

    Useful advice.


    I have a separate Final Salary Pension from a previous job which combined with state pension means I wont starve or freeze.

    Drawdown seems the best option with this pension and therefore makes sense to leave it where it is and accept a derisking window of 5 years.

    They seem keen to move people to the 15 year window scheme and are making it compulsory for new starters and then moving everyone across in 2 years unless they opt out.

    I think I will opt out.

    I wonder if these changes are being made by our pensions provider to protect themselves from potential litigation. Hard to sue someone for being overcautious with your money......
    • dunstonh
    • By dunstonh 4th Oct 17, 1:35 AM
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    dunstonh
    • #5
    • 4th Oct 17, 1:35 AM
    • #5
    • 4th Oct 17, 1:35 AM
    I wonder if these changes are being made by our pensions provider to protect themselves from potential litigation. Hard to sue someone for being overcautious with your money......
    The FCA has told providers to review their lifestyle funds now that annuity is the minority option.

    The period of derisking varies with different companies. There is no set norm. Friends Life no longer makes the commercial decisions on its plans. That is Aviva. Aviva may have a different view to Friends Life (or Friends Provident or AXA Sun Life depending on who you were originally with).

    There is no risk of them being sued because they are not giving advice.
    Even so I think you'll find very few people these days recommending derisking at R-15,
    You effectively see it on this forum when some people suggest the Vanguard funds.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • AnotherJoe
    • By AnotherJoe 4th Oct 17, 6:23 AM
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    AnotherJoe
    • #6
    • 4th Oct 17, 6:23 AM
    • #6
    • 4th Oct 17, 6:23 AM
    Can you explain that latter comment DH? The VLS funds dont change allocation according to the age of the holder so that isnt derisking.
    • Linton
    • By Linton 4th Oct 17, 7:56 AM
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    Linton
    • #7
    • 4th Oct 17, 7:56 AM
    • #7
    • 4th Oct 17, 7:56 AM
    Can you explain that latter comment DH? The VLS funds dont change allocation according to the age of the holder so that isnt derisking.
    Originally posted by AnotherJoe
    VLS funds don't consistently change allocation over time. The fairly new Vanguard Target funds do. It s a bit odd Vanguard introducing such funds at the same time as derisking towards retirement makes less sense.
    Last edited by Linton; 04-10-2017 at 7:59 AM.
    • coyrls
    • By coyrls 4th Oct 17, 12:36 PM
    • 922 Posts
    • 967 Thanks
    coyrls
    • #8
    • 4th Oct 17, 12:36 PM
    • #8
    • 4th Oct 17, 12:36 PM
    I agree with the comments about “Lifestyle” funds but Friends Life claim that the “Target Drawdown” option is:
    Designed for people who intend to take an income by making withdrawals directly from their savings pot while remaining invested through a drawdown arrangement
    So, it is not designed for taking an annuity. After the 15 year transition, the fund will be between 30% and 50% in equities and so it is very much like the Vanguard Lifestyle funds that are also designed for drawdown.

    Personally I don’t get the reason for this de-risking and the Friends Life material that I’ve briefly looked at doesn’t really attempt to give a justification.
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