Funds for pension investment

bobmorley

I've been considering what to do with my companies defined contribution pension scheme that I have joined. The pension is managed through Aegon and I can access the investment options via their portal.

Currently my investment is in the default fund which is 'Aegon Default Eq&Bd LFS Pn ARC', but I am considering my options in order to maximise my returns.

Firstly what is the difference between a pension fund and a mutual fund? For example how does this default fund compare to say Vanguard lifestrategy 100% which is a mutual fund? Is there any benefit to keeping my pension investments in pension funds only or are mutual funds also a good choice for pension investments.

Secondly what is considered a good investment strategy to take for a very long term investment such as a pension? I am 28 so won't be retiring for about 40 years. I have a high appetite for risk if it means better long term growth but with lots of volatility, hence why I want to change out of the default fund which I assume will be more conservatively managed. I am thinking a mix of emerging markets and small/medium cap, which I would gradually transfer over to safer investments the closer to retirement that I get.

SabNys

To help you to pass the time until the A-team arrive, you could have a look at this guide from H&L:
https://www.hl.co.uk/free-guides/guide-to-investing-in-funds

H&L have no attraction for me, but the guide is free and seems to be well recommended. Strangely, the word "mutual" doesn't seem to appear.

IMHO, the "fund" in "pension fund" simply means a store of money. So, your pension fund could include mutual funds.

westv

bobmorley wrote: »

I've been considering what to do with my companies defined contribution pension scheme that I have joined. The pension is managed through Aegon and I can access the investment options via their portal.

Did the company not offer to provide any financial advice regarding fund selection? For my DC schemes I had interviews with an IFA at the company's expense.

Daniel54

Is this the default fund?

https://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=IDF00&univ=P

What are the charges in your group pension?

In my view you might want a globally diversified equities only fund ( or funds) with less home bias than this one and without a bond allocation at this stage.A mix of EM and small/medium cap would be poor investing as you would be omitting most of the largest companies in the world,and dividends from these companies would provide the compound growth needed to grow the pension pot

dunstonh

Firstly what is the difference between a pension fund and a mutual fund?

The term mutual fund has come from the US and it not widely used in the UK. Some have used it here but we typically refer to them using the correct names. Such as unit trusts or OEICs (and possibly SICAVs too) to reflect what they actually are as we have different versions that could fit the mutual fund terminology.

Pension funds are different to Unit trusts/OEICs but only in legal status and consumer protection/regulation. The principles are the same as in them all being unit linked funds.

It is possible to hold unit trusts/OEICs within a pension but it is not possible to hold pension funds in another tax wrapper.

or example how does this default fund compare to say Vanguard lifestrategy 100% which is a mutual fund?

VLS100 is a an OEIC.
So, less consumer protection (max £50k compared to 100% of value with pension funds). The risk rating and volatility of the two funds is quite a lot different. VLS100 can lose about 50% in 12 months whereas the other would be around 20%. They have different assets and a different strategy.

Secondly what is considered a good investment strategy to take for a very long term investment such as a pension?

There is no one best option. The best would be the solution that suits the circumstances, risk profile, behaviour and knowledge of the investor, capacity for and timescale along with a healthy dose of opinion and due diligence/research.

bobmorley

Thanks dunstonh, your explanation of the differences between unit funds (to give them their correct name) and pension funds was very useful. I've noticed that the default pension fund I am in has a very low AMC of 0.05%, much lower than a similarly allocated unit funds have. Is there a reason for this? I wouldn't want to neglect pension funds if they have an inherent advantage that makes their AMC cheaper than unit funds.

dunstonh wrote: »

The term mutual fund has come from the US and it not widely used in the UK. Some have used it here but we typically refer to them using the correct names. Such as unit trusts or OEICs (and possibly SICAVs too) to reflect what they actually are as we have different versions that could fit the mutual fund terminology.

Pension funds are different to Unit trusts/OEICs but only in legal status and consumer protection/regulation. The principles are the same as in them all being unit linked funds.

It is possible to hold unit trusts/OEICs within a pension but it is not possible to hold pension funds in another tax wrapper.



VLS100 is a an OEIC.
So, less consumer protection (max £50k compared to 100% of value with pension funds). The risk rating and volatility of the two funds is quite a lot different. VLS100 can lose about 50% in 12 months whereas the other would be around 20%. They have different assets and a different strategy.



There is no one best option. The best would be the solution that suits the circumstances, risk profile, behaviour and knowledge of the investor, capacity for and timescale along with a healthy dose of opinion and due diligence/research.

dunstonh

I've noticed that the default pension fund I am in has a very low AMC of 0.05%,

The ARC pension is on a platform. So, there would be a platform charge on top that. However, it is still likely to be quite low as a total cost.

Is there a reason for this?

It is an internal fund (i.e. own brand). Pension in-house funds tend to be cheap. Also, larger employers with more members are likely to have negotiated better terms than the standard. So, whereas an individual pension may have tens of thousands and low hundreds of thousands, a large employer scheme could be millions.

You may find that this is not the only internal fund that is low cost. There may be other ones across the risk profile range with similar or same charges.