New auto-enrolment pension - Legal & General fund options?

sandspider2000

Hi all

I'm a little confused (first pension), and hoping for some advice please. My company is enrolling us in a work place pension, to which they will contribute. All well so far. However, the pension has to be with Legal & General, though we can choose a specific fund. (I'm not sure if there are limitations on available funds - the default fund is an actively managed fund - I'm trying to find out if we can also select an index tracking fund, or even an ETF or something instead).

The default fund is "Legal & General (PMC) Multi-Asset Fund 3". This apparently comes with charges of 0.37% of pension contributions for handling the money and bureaucracy, and a fund management charge of 0.13%. There are other charges such as "buying and selling costs, custody costs etc."[FONT=&quot][/FONT] I can't find any more information on likely costs for this, nor can I find a TER (total expense ratio) for this fund.

I looked at the suggested fund, and judging by it's performance, it just follows the ABI sector: "ABI UK - Mixed Investment 40%-85% Shares-Pen" but at a lower rate due to management charges. Would I be likely to be better off going for an index-tracking non-managed fund with hopefully lower fees? Such as the L&G UK 100 Index Trust? But when I look at that, the fees appear to be higher - 0.82% - though the 3 and 5 year performance seem better. Why should the fees for an unmanaged fund be so high? :eek:

I suppose a simpler question would be, what pension fund with L&G would people recommend for best value? I.e. I don't mind if the charges are a bit higher if the likely return is better. Are the extra fees for an actively managed fund worth the (hopefully) increase in likely return?

My contributions are unlikely to be huge, but I'd like to make the best of them. Many thanks for any thoughts.

SS

bigadaj

In terms of charges then the Amc is normally the same as the ocf for a oeics or unit trust so that should represent all the charges and cost, 0.5% all in isn't bad.

The multi asset series from l& g are similar to vanguard lifestrategy or black rock consensus, so made up of a range for trackers investing in shares and bonds with a range of weightings to match different risk levels. They normally cover world stock markets and bonds, though the l & g is slightly different as it includes a property element and is more active rather than passive for the other alternatives.

You wouldn't want everything is the ftse 100 as that has been a poor market to invest in, if you're happy to take on more risk which effectively means more in shares rather than bonds, then go for one of the higher number multi asset options, maybe 6 or 7. They should perform better over a longer time period but will be more volatile, the costs shouldn't vary much between the different funds.

dunstonh

Would I be likely to be better off going for an index-tracking non-managed fund with hopefully lower fees? Such as the L&G UK 100 Index Trust?

investing in a single sector fund is a very bad way to invest. It will likely lead to lower returns over the long term.

Also, the L&G UK 100 index trust is a dire fund to select. Hopefully you were using it as an example rather than something you were giving consideration to.

But when I look at that, the fees appear to be higher - 0.82% - though the 3 and 5 year performance seem better. Why should the fees for an unmanaged fund be so high?

You cant compare a single sector fund with a multi-asset fund. A single sector fund is designed to be held in a portfolio of other single sector funds which you give appropriate weightings to each to match your risk profile, capacity for loss and investment strategy.

I suppose a simpler question would be, what pension fund with L&G would people recommend for best value?

Charges are a secondary consideration. Investment strategy and asset make up are primary. If you went with the cheapest then you would probably end up with a 100% cash or gilts fund and that is not ideal.

Multi-asset funds are designed for lazy investors or inexperienced investors (who dont want to do the work themselves).

sandspider2000

Thank you both.

I understand some of what you're saying!

The L&G UK 100 was just an example, but I'd be interested to know why it's a particularly bad fund? Too narrow a focus? So you think the multi asset fund is the better of the two options I've mentioned?

I am indeed an inexperienced investor, hence trying to choose the "best" fund of the L&G options available... My risk appetite is low-medium I suppose - this is my only pension and I'd like it to be worth something decent in 30 years time. But I don't want to risk losing my capital for an extra percent or so of return, or to have that extra percent return eaten up by management charges.

I may be lazy too, but my understanding is that if I go for a SIPP (or other self select pension) rather than the options offered by work, then work will no longer contribute.

I will not rely just on this pension in future I should point out - hopefully anyway.

Thanks again.

LHW99

As bigadaj suggested, a multi-asset fund with a higher level of equities may be best for you as a start, depending on your age / length of time to retirement.

From what you say, a SIPP would not help, as you are inexperienced, and significantly wouldn't get the benefit of extra contributions from the employer.

Once you have watched the fund you choose for a year or so, you could always look at some of the more specialised funds on offer, see how it would look if you decided to split your contribution between them, and compare volatility / value in a kind of "virtual portfolio".
As you get to understand more, you could always start a SIPP alongside the company scheme.

Linton

sandspider2000 wrote: »

.....
The L&G UK 100 was just an example, but I'd be interested to know why it's a particularly bad fund? Too narrow a focus? So you think the multi asset fund is the better of the two options I've mentioned?
....

A fundamental aim with setting up a long term investment portfolio is diversification. Your fund(s) need to be invested in as many different things as reasonably possible. This ensures that you arent hit too badly when a specific company or sector performs particularly badly and yet have some exposure to anything that performs particulalrly well.

The FT100 fund invests in the 100 highest valued companies that choose to place their shares on the London Stock Exchange. Unfortunately it is very unrepresentative of the world economy with an over-high % allocation in some industries and a low % in others.

For example Oil and Gas is around 12% of the FTSE 100 and 6% of the FTSE World Index. Conversely Technology is 1% of the FTSE100 and 11% of the FTSE All-World index. So the FTSE100 was hit significantly by the fall in oil prices and has not gained much by the growth in Internet based companies.

Another thing to look at is the indexes' dependence on specific companies. The 5 largest companies in the FTSE 100 make up 23% of the total. Anything bad happening with one of those can have a significant effect - the largest company is HSBC at about 5.5%. Looking at the FTSE World Index, the 5 largest companies together are about 5.5% of the total. Even if the most valuable company in the world, Apple, went bust the direct effect on the World Index would only be about 1.5%.

The net effect is the the FTSE100 is more volatile than a globally based fund and has performed significantly worse in recent years.

dunstonh

My risk appetite is low-medium I suppose

Words dont mean much without context. However, that puts you at a low equity content. The FTSE100 tracker would be right at the top end of the risk scale (for conventional investments).

For 30 years, you do want to be equity heavy but there is no point if you are going to panic and make bad decisions every time a 25% loss comes in.

I am indeed an inexperienced investor, hence trying to choose the "best" fund of the L&G options available

Stick with the multi-asset options then.

sandspider2000

Thank you one and all, that makes sense.
:beer: