Turning 40, pension worry

marathonic

Jack_Griffin wrote: »

http://www.thisismoney.co.uk/money/pensions/article-2059074/Millions-face-pension-shortfalls-wildly-exaggerated-official-forecasts-4-growth-norm.html

The example in that article uses a person retiring with only 15 years contributions (and, in looking at the FTSE 100 chartes, the worst 15 years on record).

However, it does show that you can't assume anything and should diversify as much as possible.

Personally, I'll be aiming to have a mortgage free house, mortgage free rental property and a pension fund large enough to replace half my pre-retirement salary.

Regarding the pension fund, I'll be putting large percentages of my salary in when the stockmarket is in a downturn (as I've been doing since 2007) and reducing the percentage during stockmarket highs (I'll be reducing my contribution next month).

When my pension contributions are reduced, the extra funds are going to overpay my mortgage.

jimmybrid

Sellifant wrote: »

I upped my pension contributions last year at work (Salary Sacrifice £260 a month AEGON scheme). My fund value and contributions are higher than last year, but projected annual income has dropped from 6k to 4.5k. I also have 20k in previous pensions. I would never cancel my pension, but I also invest in ISAs (£300 per month - half cash / half funds), utility stocks occasionally, and have a small amount in an inflation linked bond. I also try to overpay the mortgage (now at 70K). With a young family and a cautious outlook I am worried my pension is going to turn out to be a white elephant! What would you advise considering I have 20 years at least to go before retirement... am I doing the right thing but worrying needlessly, or should I change tact? Thanks

I'm in a not too dissimilar position with regard to age, family circumstance etc and it sounds like you're doing a lot of the right stuff. I wouldn't worry too much at this stage about the projected annual income as it's all based on generic assumptions, the main thing is that your fund is growing and hopefully giving a good return on investment.
Personally, I think you should be investing some of your pension payments into potentially more lucrative (but higher risk) funds as you already have the cautious investments taken care of with mortgage overpayments and the cash ISA.

I would also take a view on the cash ISAs as to whether you are using these as a short term investment or genuinely as a long term investment as part of your retirement portfolio. If they are genuinely for the long term then you would likely be better off putting them into your pension scheme. You say you are putting 150/month (1800/yr) into cash ISAs, which I assume are earning maybe 2-3%. If you are a basic rate taxpayer then you would need to earn £2250 before tax to make those savings. If you can put this amount into your pension via the salary sacrifice and avoid paying the tax on it then you will be considerably better off (by about £400/yr without doing the maths exactly) even if the pension investment doesn't grow at all. But remember that your pension is locked in, so if you think you may need to use the ISA cash before you retire then you might want to leave it where it is.
Hope you find this useful.

Sellifant

Thanks jimmybird. My investment isa is monthly £50 in cheap trackers worldwide indexes and £100 m&g recovery per month. I had been investing into jpm natural resources until 3 years ago but the wild fluctuations put me off! I was wondering on switching isa investments into a popular income fund (accumulation units for the near term) like the invesco , as they seem to deliver solid capital growth too. How long do you guys tend to stick with one fund before changing... or do you run the all alongside and divvy your expenditure accordingly?

jimmybrid

I'm currently investing in four different funds within my pension, spreading the risk by having the investments in different geographies and different risk ratings also. I review them every once in a while and if they are performing well I'll stick with them, if not I'll find some alternatives.
Just been looking at Aegon myself as my employers are looking to change our provider (currently Friends Life) so I know how some of the Aegon funds have been performing and I would say you did well to get away from the JPM funds, they aren't performing well. The lower risk investments of bonds have been performing really well (check out bonds from Kames available through Aegon), even up to around 7% annual growth, but I think this is likely to drop back to more normal lower levels if interest rates start rising in the not too distant future, although I could easily be wrong (the value of your investments can go down as well as up).
The Invesco (cautious managed?) fund you mention has been performing weel and some higher risk funds that have been performing well include First State Asia Pacific Leaders and BlackRock UK Smaller Companies.

Please note I am not a financial adviser, just a hardworking guy looking to get the best out of his investments who puts a bit of time and effort into managing his pension investments. Too many of my colleagues I know are just sitting back with their pension in a default fund, not manging it and just expecting to get a good fund when they come to retire. I don't want to leave it to chance.