Pension MoneySaving: Buy a different way to boost returns Article Discussion Area

alanwk43

I suppose I am saying that I feel like going into a low risk fund to protect what I have but am not sure whether to stay with FP or to go elsewhere. Is it daft to go low risk or will my shares bounce back at some point? I need to keep my asset from shrinking much further and I read that the downturn is only just getting going. appreciate the quick response and great summary ad

dunstonh

am not sure whether to stay with FP or to go elsewhere.

If the contract is set up as they normally are then it should be fine. You are using external funds and these will be more expensive than the internal funds.

Is it daft to go low risk or will my shares bounce back at some point?

cant tell you when, cant tell you how much and cant tell you that they wont go down more before they recover.

However, investments go up and down all the time. The FTSE dropped 43% at the start of the millenium after the dot.com crash, Sept 11th and US accountancy scandals. Events like these happen quite frequently. Going back to the 80s, drops in excess of 10% happen on average every 2 years. Its the zig zag nature of the markets.

Remember that risk is a sliding scale. You have more scope then to go from from high risk to cautious. You can pick a level in between. You have no downside protection in your current funds so you have seen the full extent of the drop. Equally, you would see the full extent of the upside when it comes which you wouldnt do if you were 100% in non stockmarket investments. You need to fine tune to your risk profile and not mine or anyone elses. At the moment, you are almost certainly higher than you ought to be based on what you say.

Ask FP to send you a funds list. Get it diversified more across the funds and think about your risk level.

alanwk43

i thank you for the time and the advice - which I know you don't have to give. Gives me confidence to get on with sorting things out a bit. Cheers dunstonh - Martin should give you another medal

Nearlyapensioner

I am due to retire next year and pay £750.00 a month into a Norwich Union private pension, arranged by my financial advisor. Needless to say, as a result of the current situation the value of it has dropped considerably.

The pension is split between a Balanced Managed Fund and a Property Fund. I have been advised by my IFA to switch all of my holdings from the Property Fund to the Balanced Managed Fund, and redirect future contributions to the BMF on the basis that stocks and shares are likely to recover more quickly than commercial property.

Is this good advice? Should I go ahead with this, or is there a better option? Help please.

dunstonh

I am due to retire next year and pay £750.00 a month into a Norwich Union private pension, arranged by my financial advisor. Needless to say, as a result of the current situation the value of it has dropped considerably.

If you are in the balanced managed and proeprty fund then the drop shouldnt be considerable. Although one has to question why you were not moving into lower risk areas before all this considering your short timescale left.

Is this good advice?

Its a punt. Only time will tell. If you fancy the punt and it pays off you will think it good advice. If it doesnt pay off then you will think it bad.

If you know that its a punt and are willing to take the risk and consequences then its not bad advice. That is making an informed choice.

jamesd

Nearlyapensioner wrote: »

I have been advised by my IFA to switch all of my holdings from the Property Fund to the Balanced Managed Fund, and redirect future contributions to the BMF on the basis that stocks and shares are likely to recover more quickly than commercial property.
Is this good advice? Should I go ahead with this, or is there a better option?

It's reasonable. It may not turn out to be true, since predicting the future is notoriously hard.

A balanced managed fund has a limited equity component. You might discuss whether a higher equity component might be suitable to increase the amount by which you gain from any recovery in the equity markets.

You might also consider using income drawdown rather than buying an annuity as soon as you retire. That would give additional time for markets to recover. While it's more risky than annuity purchase, at the moment it would reduce the overall level of risk that you're subject to because of a fixed deadline at which you must sell the investments.

It's also worth discussing phased retirement, using the 25% tax-free lump sum from part of the pension pot and placing the remaining 75% into income drawdown. The remainder of the pot stays without benefits being taken. This can be a more tax efficient way to take income from some of the pension pot, still leaving most invested through the likely market recovery. In subsequent years you repeat this with a bit more of the pension pot.

If you haven't discussed whether income drawdown or annuity purchase, or a combination of the two, is best for you you should also have that discussion. In theory the optimal time to buy an annuity is around age 75 for a person in average health, if you consider purely financial aspects, but the increased certainty of annuity income compared to income drawdown often makes buying an annuity with at least some of the pension pot attractive. For example, you might buy an annuity to cover only your minimum income needs and use drawdown for the remainder, so that the annuity provides a core of certainty while the investments in the drawdown portion provide the possibility of higher income.

If it turns out that you're comfortable with income drawdown long term that substantially reduces the time pressure and risk that you're facing now.

bobsbit

Hi I was interested in your comments about taking 25% of the pot and leaving the rest to be taken later.
Both my husband and I are seething about the 6 (!) small pensions we were (talked) into buying. Some more than 20 years ago. The figures over the years just didn't and still don't, stack up. Now at the ripe old age of 51, I have finally had enough. I have requsted the 25%, but have been quoted annuity figures for the remaing sums. Not once have we been told the money can remain. Can you explain? We don't have anything to do with financial advisors anymore, we have been conned so many times! The paperwork and examples of mis selling we have in our posession would make a very good book on why not to take out a pension with a so called provider. They are simply a con! How come all these banks and instititions can fund big buildings, cars, and £16 million company pensions when my pension only pays £36.10 a month. I have paid in thousands....sorry, I'm a bit cross:mad:
Suzanne

EdInvestor

bobsbit wrote: »

Hi I was interested in your comments about taking 25% of the pot and leaving the rest to be taken later.Both my husband and I are seething about the 6 (!) small pensions we were (talked) into buying. Some more than 20 years ago. The figures over the years just didn't and still don't, stack up. Now at the ripe old age of 51, I have finally had enough. I have requsted the 25%, but have been quoted annuity figures for the remaing sums. Not once have we been told the money can remain. Can you explain?

Yes, you need to move this money to a pension which allows "income drawdown".Typically a SIPP is the easiest and cheapest type of pension to choose. You transfer the pensions over to the SIPP and then the SIPP provider will pay out the 25% tax free cash.You then invest the rest as you see fit.

If you want to take an income from the drawdown fund, you can - up to 120% of the annuity rate - but if you want to take zero income that's also fine.

Some possible SIPP providers:

https://www.h-l.co.uk
https://www.sippdeal.co.uk
https://www.alliancetrust.co.uk

jamesd

bobsbit wrote: »

Now at the ripe old age of 51, I have finally had enough. I have requsted the 25%, but have been quoted annuity figures for the remaing sums. Not once have we been told the money can remain.

The law lets you do this but nothing forces the individual pension providers to do it. What you can do is transfer the pensions to a single place that does allow this and then do it.

It is not always a good idea to do it, though. Some older pensions come with guaranteed annuity rates that are far above the rates you can get today. Switching them can lose a significant amount of value and for those it might be better to leave them with the pension provider until you want to take the whole of that pension - either now or later.

A guaranteed annuity rate is a guarantee that say 8% or 12% of the pension pot value will be paid each year as the annuity income. They are usually a lot higher than the rates available in the open market today, so losing a guaranteed annuity rate can be expensive.

It's really best to use an IFA for this because of the possibility of guaranteed annuity rates and because if any do actually need an annuity the commission from the annuity purchase will pay for the cost of finding the best annuity deal for you. It's rare for that to be the place where you start out with the pension money.

SIPPs are one way to do this but they are usually not the best way because, if bought in the same way, the SIPP will usually be more expensive than a standard modern pension. It does depend on what you want to invest the money in, since SIPPs are intended for those who want to use lots of different investments and do lots of active managing of them. EdInvestor has mentioned some direct sale SIPPs that can be cheaper than some of the more expensive SIPPs but may not be cheaper than a standard pension.

You rarely find IFAs in banks or building societies, just plain financial advisers there, without the obligation to consider the whole market or pay you redress if they recommend the wrong product type. The place to find real IFAs is unbiased.co.uk .

This is getting ahead of things, though. Why do you want to take the 25% now? Roughly what is the total pension pot value across all of the pensions?

EdInvestor

jamesd wrote: »

SIPPs are one way to do this but they are usually not the best way because, if bought in the same way, the SIPP will usually be more expensive than a standard modern pension.

Not the case with drawdown, where IFAs tend to charge high starting commissions on the lump sum transfer.Low cost SIPPs are much cheaper and the paperwork is easy to organise, you don;t need advice for this.[Check original documents and ask provider about guarantees first.]

EdInvestor has mentioned some direct sale SIPPs that can be cheaper than some of the more expensive SIPPs but may not be cheaper than a standard pension.

A standard pension will often not offer drawdown.Transfer at high cost will be required.