Your Fantasy Pension

Up_the_Creek_4

Hello,

After reading another thread I wondered what people would consider their ideal pension fund structure, so not blocking someone else's question I through I would post the question here. After being on the sideline of futures and options I know what 1 person believes in, another will have an opposing view.

So how would you spread your ideal pension portfolio, assuming still have 30-20 years left before retirement? Will be interesting to see people's attitude to risk and thoughts about pension planning.

Paul_Herring

I'd (well I do):
1) Assume there will be no state pension when I retire. If there will be one I'll take it as a bonus.
2) The larger of:
2a) Assume I'd need a pension fund large enough (in today's money) to supply me with a pension that would give me the tax free allowance for a pensioner (in today's money using today's compulsory purchase annuity rates.)
2b) Any extra earnings that take me into the 40% tax bracket to be put into the pension
3) Any extra pension savings to be put into ISA's (with a view to buying an purchased life annuity with it) up to the annual limit
4) Any contributions above that purchase what I'd buy in the ISA, outside of an ISA.

Up_the_Creek_4

How would you split your pension as a % of UK equities, European, emerging markets etc?

jon3001

I think some of my posts may have seeded this thread so I'll add to here for discussion...

It's basically an 80/20 split between volatiles and cash/bonds with annual rebalancing across all allocations.

The bucket of 80% volatiles are to be split the following way:

30% UK Stocks

• 10% Blend
• 10% Value
• 10% Small Companies

30% International Stocks

• 4% USA Blend
• 4% USA Small Companies
• 4% Euro Blend
• 4% Euro Small Companies
• 2% Japanese Blend
• 2% Japanese Small Companies
• 3% Pacific Blend
• 7% Emerging Markets

20% Property

• 5% UK REITs
• 5% UK B&M
• 10% Global REITs

20% Commodities

• 10% Commodity Futures
• 5% Resource Stocks
• 5% Precious Metals

So when I apply the 80/20 weighting it'll look like this:

• 20% Cash/Bonds
• 24% UK Stocks
• 24% International Stocks
• 16% Property
• 16% Commodities

The following book had a big influence over the high-level portfolio make-up:
"Asset Allocation, 4th Ed: Balancing Financial Risk", Roger C. Gibson
http://www.amazon.co.uk/Asset-Allocation-4th-Balancing-Financial/dp/0071478094

Gibson asserts that spreading your investments over multiple asset classes (e.g. domestic stocks, international stocks, property, commodities) is statistically less risky with higher returns.

You can read an article by Roger Gibson here:
http://www.tuveinvestments.com/pdf/Investing/AssetClass%20Investing.pdf

But this graph is the basic summary:


Another good book on building portfolios, exploration of the 'efficient frontier' and how mixing risky assets reduces overall risk is this one:

"The Intelligent Asset Allocator", William Bernstein
http://www.amazon.co.uk/Intelligent-Asset-Allocator-Portfolio-Maximize/dp/0071362363

MikeJones_2

Up_the_Creek wrote: »

...After being on the sideline of futures and options I know what 1 person believes in, another will have an opposing view.

So how would you spread your ideal pension portfolio, assuming still have 30-20 years left before retirement? Will be interesting to see people's attitude to risk and thoughts about pension planning.

Curious, and slightly offline (because you assumed DC as your pension option and I'm wearing my usual devil's advocate hat)? If you could choose between a defined benefit scheme and a defined contribution scheme what would you prefer (using only like-for-like contributions as the main parameter)?

Mike

Up_the_Creek_4

I have not chosen either yet as I am a pensions newbie, I posted this to see what other people's attituded to pension planning would because asking the question on another page got me to investigationg alternate planning options. I thought it would be interesting to look at the rational betweeen fund splits in the existing environment.