Pension advice

PetrNem

Hi,

I recently graduated from Uni and have started employment. One of the benefits I am able to opt into is a pension scheme provided my employer. I have already opted in and just "guessed" which are the best options for me, knowing that I can chenge the options a couple of times per year without penalty.

A little more background info: I'm 22, earn 32k pa and will be making my first contribution from my October pay.

A brief bit about the plan...

The ARSP (the "Plan") is a Defined Contribution Plan, which is also known as a Money Purchase Plan. With a Defined Contribution Plan, the contributions that are paid by both you and Accenture are invested on your behalf and the resulting 'pot' of money is used at retirement to provide a cash lump sum (if you elect this) and purchase pension benefits.

Employer contributions are capped depending on your age. In my case (beung under 25), the maximum they will contribute is 3% if I contribute a minimum of 1%, so I have just elected to contibute this minimum, giving me 4% overall.

The bandings are as follows:
Age, Employee contributions, employer contributuion.
Under 25 1% of salary 3% of salary
25 - 27 1% of salary 4% of salary
28 - 31 1.5% of salary 5% of salary
32 - 33 2% of salary 6% of salary
34 3% of salary 8% of salary
35 - 37 4% of salary 10% of salary
38 - 39 4.5% of salary 11% of salary
40 - 49 5% of salary 12% of salary
50 - 60 6% of salary 14% of salary


Eventually I'd look to increase my contribution, or perhaps keep my contribution the same but invest monthly into an ISA or similar, but in the short term have some debts I'd like to clear so would rather sort this before contributing a larger amount.

I am also buying company shares with 1% of my sallary per month. This is done in 6-monthly periods, with the money accruing over 6 months and the shares being bought in the 6th month at a 15% discount. A bit of a risk but it's not a huge amount and as I'm young this doesn't bother me too much.

The area I'm really in need of advice about is the "Investment strategy" I had to chose for my pension.

I can chose to invest in any combination of the following (allocating any percentage to each, up to a max of 100%):

Passively managed funds:
HSBC Life Amanah Pension Fund %
L&G Bond Fund %
L&G Cash Fund %
L&G Corporate Bond Fund %
L&G Ethical Global Equity Index Fund %
L&G Ethical UK Equity Index Fund %
L&G Global Equity Fund %
L&G Overseas Equity Fund %
L&G UK Equity Fund %

Actively managed funds:
ARSP Global Equity Core Fund %
ARSP UK Equity Core Fund %
ARSP UK Equity Growth Fund %
GMO UK Equity Fund %

I have chosen 25% into each of the actively managed fund, under the assumption that an actively managed fund would be better, but this is a total guess, I really don't know. At some point I'll speak to an IFA, but don't really have time at the moment so would just like a few pointers or general comments.

I also contributed out of S2P, given my age I have a lot of time to build up my own investments before retiring and am not convinced the state pension will amount to much when I eventually make it to retirement.

There are also 3 "lifestyle funds" which seem to be targetted towards people nearer to retirementy age, as they automatically move your investments to less risky areas as you get to 55 and 60.

The pension is managed by Mercer if that makes any difference.

I'd really appreciate any advice anyone can offer. Thanks.

jonathon_hart

In theory an Actively managed fund should beat an equivalent Passive fund. This is because the Active fund manager is looking for ways to beat the performance of whichever market they are using for the benchmark, whereas a Passive (Tracker) fund attempts to match the performance of the benchmark.

However theory does not always equal practice...

janinefulton

Also - Actively managed funds tend to charge higher annual management fees than passively managed funds so this should also be considered when choosing between them.

Hope this helps

EdInvestor

Hi PetrNem

Perhaps you could advise what "ARSP" and "GMO" stand for, then we could look up the funds and see if they are any good.

dunstonh

on pension funds there is usually no difference in charges between passive and active.

To be honest, the range of funds available is very poor. They are mostly variations of the same theme.

PetrNem

Hi

ARSP is the name given to the pension plan by my employer (Accenture Retirement Savings Plan). There was a recent newsletter that detailed how the ARSP options are invested, and if anyone would care to look it I have uploaded a copy here: http://www.nemeiksas.com/rspnews14.pdf - there is a short paragraph about each of the options.

EdInvestor

dunstonh wrote:

on pension funds there is usually no difference in charges between passive and active.

To be honest, the range of funds available is very poor. They are mostly variations of the same theme.

Agreed

You might like to have a look at the performance of the top 10 funds in the whole universe in the same categories to get an idea of what can be done:

https://www.citywire.co.uk/Funds/Home.aspx

Still, it's free money.

jamesd

Contributing what it takes to get the full employer contribution looks like a good idea, though I don't thnk much of the range of fund choices.

Might ask them if you can pay by salary sacrifice and whether you get all the benefit of both your and their national insurance share, since that's more free money. See the topic discussing this at the top of the topic list.

I tend to view S2P as some useful diversification, worth having to reduce risk, rather than for its inherent performance or lack of performance.

dunstonh

Someone needs to have a word with the trustees of the scheme to ask them why there are so many duplicates and such a poor range available. They should take notice of the Sandler report into sector allocation with pension investing and allow their members to have a suitable fund spread to achieve that.

PetrNem

I have the contact details for the trustees so may well fire off an email asking what the reason behind the choice of funds is.

In the meantime, of the options above are there any that look to be worth avoiding, or are they all really so similar there will likely be nothing between them?

dunstonh

They are mostly similar. I would be inclined to look at the active managed.

If you do contact them, then you should ask them why there are no:

UK Equity Income
European
North American
Far East
Japan
Property

There are variations within those and others available but you would want those as minimum. L&G do have a much larger range available and it may just be a case of the trustees getting the administrators to arrange it with L&G.