Thinking about moving away from Lifestyling

Loubylou13

Currently, my pension is invested in a life styling option so, as I move closer to retirement, the investments weighting automatically changes from a higher percent of equities and more towards a higher percent of core bonds and gilts. At retirement, 37 percent is supposed to be invested in core bonds and 37 percent in gilts. The bonds and gilts investments have done well over the years however I have heard about how bonds are possibly in a bubble and I am concerned about whether they are actually the low risk investment I thought they were supposed to be. I have been considering taking more control of my pension, moving away from life styling and now (3 years away from retirement ) allocating a higher percentage of my pension to cash, perhaps 60 percent cash with perhaps 10 percent in each in core bonds and gilts, 10 percent in UK equities and 10 percent in global equities. I've tried to ask a few financial advisors about this but they don’t seem much interested in giving any advice. Would anyone reading this be able to point me in the right direction for more information or advice about making these pension changes.

coyrls

It's an interesting question, how to "life style" with the new flexibilities. The argument for going into gilts as you approached retirement was not just about the safety of gilts, it also allowed some additional stability in purchasing an annuity, as annuity rates tend to follow gilt yields. So if gilt yields go up, your gilt fund will go down but annuity rates will go up to compensate. If yields go down, your gilt fund will go up to compensate for the reduced annuity rates.

If you don't plan to buy an annuity then the reasons above don't apply and your "life styling" should progressively move you to an asset mix appropriate for your deaccumulation phase.

However, the argument for this approach to life styling is undermined if you have to transfer (e.g. from an occupational DC scheme that doesn't offer flexi-drawdown). The transfer may well have to be done in cash, if, for example, the funds are specific to the occupational scheme can cannot be transferred "in specie".

I find myself in the position I've described above and don't want to take the risk of a sudden switch into cash that is not under my control and so I am progressively moving everything to cash (or to be strictly accurate my scheme's money fund) prior to the transfer. Once the transfer has taken place I will then move from cash to an appropriate asset mix. I haven't decided if my move from cash should be a "big bang" or done progressively in the same way as my move into cash.

TH1878

Loubylou13 wrote: »

Currently, my pension is invested in a life styling option so, as I move closer to retirement, the investments weighting automatically changes from a higher percent of equities and more towards a higher percent of core bonds and gilts. At retirement, 37 percent is supposed to be invested in core bonds and 37 percent in gilts. The bonds and gilts investments have done well over the years however I have heard about how bonds are possibly in a bubble and I am concerned about whether they are actually the low risk investment I thought they were supposed to be. I have been considering taking more control of my pension, moving away from life styling and now (3 years away from retirement ) allocating a higher percentage of my pension to cash, perhaps 60 percent cash with perhaps 10 percent in each in core bonds and gilts, 10 percent in UK equities and 10 percent in global equities. I've tried to ask a few financial advisors about this but they don’t seem much interested in giving any advice. Would anyone reading this be able to point me in the right direction for more information or advice about making these pension changes.

What you suggest seems quite sensible (I'm not a fan of lifestyling funds for this exact reason) but how are you going to take benefits when you do draw them?

Annuity, FAD or a mixture?

jamesd

Avoiding lifestyling is a good thing. It will typically start move to low growth investments way too early and assume an instant need for all of the money at a single age.

The bond question is a tough one because it requires predicting the future and while possible it's hard for an IFA to do it. It's also contrary to many inclinations which are to match investments to a risk profile and not do timing based on such objectives.

You do have a range of alternative solutions that can be more profitable than cash:

1. Commercial property funds.

2. You're presumably 55 or older so you can take a 25% tax fee lump sum and reinvest in things not cheap to hold in a pension, like P2P. Or in the alternative VCT wrapper.

3. You can also take out some or all of the remaining 75% though your pension money purchase annual allowance will be reduced to 10k from 40k if you take even a penny of this portion. Income tax is a vital consideration for this also because it is added to your taxable income in the year you take it so taking a large amount as a lump sum can cause far higher income tax bills than would be necessary if doing it more slowly.

kidmugsy

How old are you; what is your State Pension date?

peterg1965

My new employer DC pension scheme is run by Standard Life, they automatically enrol new entrants into their Lifestyle plan with an assumed retirement age of 65.

I have already opted out of Lifetsyle and, for good or bad, selected a range of funds for my pension investment. The options are limited to about a dozen SL funds and some external ones. Given that this pension will complement my SIPP and my main Final Salary pension (which is already in payment) I was content to select a portfolio of global and UK equities with a small % in strategic bonds and the same amount in a SL property fund.

I have a 7-8 year plan to full retirement and this fund will ultimately be transferred to my SIPP and will largely remain I. drawdown when I eventually take the lump sum.

I hope this is the right course of action, as I am sure Lifestyle is not the way forward for me. It's a one size fits all approach.

jamesd

Those seem like quite sensible choices.

arbster

jamesd wrote: »

...it requires predicting the future and while possible it's hard for an IFA to do it...

Wow. I never realised you guys can do that too...

gadgetmind

arbster wrote: »

Wow. I never realised you guys can do that too...

Tosh, anyone can predict the future. What's hard is predicting it accurately!