Works Pension Lifestyling

Doglegger

Hi folks. Would really be interested in people’s thoughts on company pension lifestyling in general and my situation in particular.
The DC part of my works pension has 3 selections for its lifestyling choices. These being the default “Drawdown”, “Cash” or “Annuity”. I’ve left mine in the default as I will wish to transfer to drawdown. In this selection, investments are switched over a 7 year period to your chosen retirement date. I have 5 years until then with the current make up of the portfolio as such:-
5% IL gilts, 10% Consolidation Fund, 25% Diversified Growth Fund, 35% Global Equities & 25% UK Equities. This will continue switching until the final portfolio consists of 25% Cash, 15% IL gilts, 25% Consolidation Fund, 25% Diversified Growth Fund, 5% Global and 5% UK Equities.
Is this a sound strategy for a works scheme? I’m concerned about the severe reduction in equities and also the performance of the Diversified Growth and Consolidation Funds. The performance of both has been dire since their introduction with the DGF performing consistently in the negative.
I do have the option of self selection. Is there something better I could be doing or is what’s being done for me a sensible approach.
The DB part of the pension will make up the bulk of my pension requirements, so I can carry a bit more risk with this pot. Thanks for any opinions.

MallyGirl

I opted for self selection as I didn't like the Lifestyling approach. I do not intend to buy an annuity so I don't need to be ultra cautious and cash heavy at the point of retirement. I am hoping to be invested for another 30 years at that point. I also want to retire earlier than the 65 it uses for retirement date.

dunstonh

I do have the option of self selection. Is there something better I could be doing or is what’s being done for me a sensible approach.

Self selection can result in better returns if done correctly but lower returns if done badly. Do you have the knowledge, experience and prepared to give it the ongoing reviews, rebalancing and adjustments it will need if you move to single sector funds?

Doglegger

dunstonh wrote: »

Self selection can result in better returns if done correctly but lower returns if done badly. Do you have the knowledge, experience and prepared to give it the ongoing reviews, rebalancing and adjustments it will need if you move to single sector funds?

Well, there is the fear that you make a total mess of it but the list of available investments is as the list above so it's fairly unsophisticated and not open market.

Although this lifestyle is the less cautious of the three it still looks very conservative to my eyes. There's also the matter of the Diversified Growth Fund not living up to part of it's name at least that sticks in the throat. This has a med-high risk profile yet returned below the benchmark consistently and unfortunately makes up 1/4 of the pot.

Albermarle

As already said ; DIY picking of funds is fine as long as you know what you are doing and can spend the time on research etc . If you are not an expert then best to get professional advice or stick with the default fund options. You might not get the highest /optimal result but you are also unlikely to have any major downsides.
One thing that has caught a few people out with the lifestyle funds is having an annuity one when in fact they plan to drawdown and/or having the wrong retirement age being used,

bostonerimus

Albermarle wrote: »

As already said ; DIY picking of funds is fine as long as you know what you are doing and can spend the time on research etc . If you are not an expert then best to get professional advice or stick with the default fund options. You might not get the highest /optimal result but you are also unlikely to have any major downsides.

The problem with these pre-packaged options is that they don't take account of the individuals other finances. The OP says that the DB plan is the main part of their pensions and this might allow the DC plan to be aggressively invested.

Beyond an understanding of strategic asset allocation there's not much need for research if you stick to multi-asset or index tracker funds. Many people will be well served by a 60/40 mix of equity and bond indexes as historical markets have shown this to be an "efficient" asset allocation.

Albermarle

bostonerimus wrote: »

The problem with these pre-packaged options is that they don't take account of the individuals other finances. The OP says that the DB plan is the main part of their pensions and this might allow the DC plan to be aggressively invested.

Beyond an understanding of strategic asset allocation there's not much need for research if you stick to multi-asset or index tracker funds. Many people will be well served by a 60/40 mix of equity and bond indexes as historical markets have shown this to be an "efficient" asset allocation.

Yes you are right I was not really clear . What I meant was that researching specific individual niche funds was for the experts and if you stick to the standard mixed assets/bonds/default /lifestyle funds you should not go too wrong, as long as you have some idea what you are trying to achieve.

dunstonh

This has a med-high risk profile yet returned below the benchmark consistently and unfortunately makes up 1/4 of the pot.

Is the benchmark like for like though. For example, the 40-85% equity sector has funds with just 40% equity and others with 85% equity. A fund with 40% equity will perform under benchmark in periods of growth but above in periods of decline.

If its in the volatility managed sector of flexible sector then the benchmark of those means nothing as they are catchalls across all risk levels.

So, are you looking at the benchmark in line with the volatility for the fund and comparing on a like for like basis?

Doglegger

dunstonh wrote: »

Is the benchmark like for like though. For example, the 40-85% equity sector has funds with just 40% equity and others with 85% equity. A fund with 40% equity will perform under benchmark in periods of growth but above in periods of decline.

If its in the volatility managed sector of flexible sector then the benchmark of those means nothing as they are catchalls across all risk levels.

So, are you looking at the benchmark in line with the volatility for the fund and comparing on a like for like basis?

I have no idea what any of that means but each of the Quarterly Briefs tells me "Disappointingly, the Diversified Growth Fund has underperformed the benchmark....." so, someone's not happy with it and I'm happy to go along with them.

dunstonh

I have no idea what any of that means

Which means you are not ready to build a portfolio. unless you understand risk/reward and volatility, you are not going to be ready.

so, someone's not happy with it and I'm happy to go along with them.

Someone probably jumped off a cliff today......

Doglegger

dunstonh wrote: »

Which means you are not ready to build a portfolio. unless you understand risk/reward and volatility, you are not going to be ready.



Someone probably jumped off a cliff today......

There's been a few cliff jumpers round my way over the years but I'm still here.;)

I don't need a degree in meteorology to tell me it's raining though.The fund is losing me money year on year. I don't like it regardless of what it's in there to do. I think it would be better served in in one or any of the other options.