Smart Pensions versus ISA's

fizio

having decided to maximise my Smartpension I'd be interested in peoples thoughts on which funds to go for as we have a limited choice :
15 year Gilts
Global Equity 60%(UK)/40%(WW)
World ex UK
UK Equity Index
Annuity Protection

I'm looking at a 10 year horizon so was thinking
30% Gilts
40% UK
30% World exc UK

jamesd

Forget 15 year gilts at the moment. Their yields are at record lows, meaning prices are at record highs. It's the worst time so far in their recorded history to be buying them and pretty much guarantees a significant loss.

I'd use something like 80-90% World ex(cluding) UK and 10-20% UK equity index for the moment.

If you don't like the choices, ask about the ability to transfer money out periodically to get a better range of investments. It'll probably be doable. If it's not then you'll have to choose between the gains of salary sacrifice and the investments you want. If it's just the 2% employee NI you'd lose it's not too tough to decide in favour of the investments and telling HMRC about your regular pension contributions. gets harder if your employer is sharing some or all of their saved employer NI. Their potential NI saving is why they have an incentive to make it possible to transfer money out periodically.

atush

I agree with James, Gilts are expensive now, and yieids low. And you have too much in the UK market.

DavidLaGuardia

jamesd wrote: »

I'd use something like 80-90% World ex(cluding) UK and 10-20% UK equity index for the moment.

I'm not sure I entirely agree with this one point.

This may be close to an investment along the lines of the size of the UK's stock value (capitalisation) vs the rest of the world, but overseas investing requires either additional currency risk or hedging to combat it.

Also, the UK stock market itself is very global so there isn't the need to weight so much on facour of overseas markets. I would personally have at least 50% of equities in the UK.

jamesd

The UK is around 9.8% of the developed market capitalisation (PDF, see country breakdown of MSCI (developed) World index) so all the numbers I mentioned are overweight for the UK.

The UK market has some significant global players but a FTSE All Share Index Tracker is a very poor way to get true global exposure because the value is concentrated in natural resources (oil, mining) and financial services (banks, insurance companies). Since the high market cap (value) companies are global they are also exposed to exchange rate risk. You get less of it in the capital value but it still shows up a lot in the incomes and subsequent valuations. Still there is less exchange rate risk.

The main lacks of what I mentioned are emerging markets and bonds, which aren't available in the list of funds. Commercial property would also be nice. I'm not happy with the list of available funds and would be looking to be able to move money out periodically to get a better range.

I wouldn't and don't have 50% in the UK. I don't think it's where the best global growth will be seen. The exchange rates will go up and down but those are relatively short term effects. Long term growth should really be the focus until closer to retirement.

middlepuss

jamesd wrote: »

The

I wouldn't and don't have 50% in the UK. I don't think it's where the best global growth will be seen. The exchange rates will go up and down but those are relatively short term effects. Long term growth should really be the focus until closer to retirement.

I agree with your approach. Developing economies are growing much faster than matures western economies, so over the long term their stock markets should do better than ours. And as their economies get stronger their currencies may well appreciate, so there could even be a double benefit.

fizio

It does seem like the general consensus (given the limited fund choice) is to split between uk and ww funds.
Having read the commenst i looked into exactly what countries the ww fund was investing into and found that it was a 'developed world equity index' fund so
USA-60%
Europe - 20%
Asia pacific-10%
japan-10%

It looks like none of my fund choices has any 'emerging markets' exposure.
The UK fund is 'FTSE All Share Index'

I'm dubious about europe in 2012 and not overly confident in the USA either - though if both those have problems then UK will also be in the ditch.

But - on the flip side my purchase will be monthly so that will even out any big falls etc plus the markets have already fallen so may be near the bottom. I'm looking at a 10 year investment so a blip here or there will hopefully smooth itself out.

My current thinking is 50% UK and 50% developed world.
I do have the option of changing my choice of funds pretty much anytime but would like to try and avoid too much change.

middlepuss

haf63 wrote: »

It does seem like the general consensus (given the limited fund choice) is to split between uk and ww funds.
Having read the commenst i looked into exactly what countries the ww fund was investing into and found that it was a 'developed world equity index' fund so
USA-60%
Europe - 20%
Asia pacific-10%
japan-10%

It looks like none of my fund choices has any 'emerging markets' exposure.
The UK fund is 'FTSE All Share Index'

I'm dubious about europe in 2012 and not overly confident in the USA either - though if both those have problems then UK will also be in the ditch.

But - on the flip side my purchase will be monthly so that will even out any big falls etc plus the markets have already fallen so may be near the bottom. I'm looking at a 10 year investment so a blip here or there will hopefully smooth itself out.

My current thinking is 50% UK and 50% developed world.
I do have the option of changing my choice of funds pretty much anytime but would like to try and avoid too much change.

Have you looked at Investment Trusts? Templeton Emerging Markets or JPM Emerging Markets for example.

fizio

middlepuss wrote: »

Have you looked at Investment Trusts? Templeton Emerging Markets or JPM Emerging Markets for example.

I am investing in various specialist investment funds via my ISA allowance inc emerging markets but for various company specific pension reasons my SmartPensions can only be in the above L&G funds.

fizio

I've been reading the 'Pension versus ISA' thread and spotted something relevant to my situation. I started this thread by saying that I wanted to maximise the 40% tax benefit of 'salary sacrifice/smart pension' and was therefore considering sacrificing all my non-essential salary this way .
The info on the above thread states that only earnings above 40% tax threshold are eligible for the full 40% relief so if I was earning say £60k then I would only get tax relief on £18k i,e 60-42k tax break. I should not sacrifice anymore than the £18k then?
I assumed I would get 40% on any amount but now I'm not so sure.

If the above is true then my strategy will have to change to maximising smart pensions upto 40% benefit point and putting the rest into ISA etc.