Protect my pot

UncleZen

I have about 5 years to go until I will retire.
My DC pot with Scottish Widows has no lifestyling (I think thats the name). I thought funds were moved into less volatile investments as you approach retirement. But ISTR a SW adviser saying that they dont do that if you are planning to draw down the pot.
Does that sound right? Should I consider asking them to protect the pot?

dunstonh

My DC pot with Scottish Widows has no lifestyling (I think thats the name). I thought funds were moved into less volatile investments as you approach retirement.

They have lifetstyling options on their plans from the mid 2000s onwards but not before.

Lifestyling has gone out of fashion because you only do it if you are buying an annuity. Not if you are going into drawdown.

But ISTR a SW adviser saying that they dont do that if you are planning to draw down the pot.

It is unlikely it was an adviser. More likely a call centre worker.

AnotherJoe

What are you planning to do when you retire?
Drawdown on the pot for the next 30 years?
Buy an annuity?

UncleZen

dunstonh
It was a SW FA (no I) not a call centre worker. This is because I was approached by the adviser to change the plan in what amounted to the same thing but with less charges, about 3 years ago (apparently they were doing this across the board to certain policies). Plan was started in 2003.



"Lifestyling has gone out of fashion because you only do it if you are buying an annuity. Not if you are going into drawdown."
Why is that?


AnotherJoe
I plan to draw down this plan at about 500/m theres plenty in the pot to cover that now. It won't be my main pension income as I also have a DB plan.


I was thinking that without protection theres a risk of loss if the stock markets go bad.

AnotherJoe

UncleZen wrote: »

"Lifestyling has gone out of fashion because you only do it if you are buying an annuity. Not if you are going into drawdown."
Why is that?

Because if you buy an annuity imemdiately you retire (as happened "in the old days") what you didn't want was your pot massively decreasing in value just a few years or even months or weeks before you bought it. So the idea was to tail it down gradually and convert to cash over the last few years. Often (arbitrarily) five years but could be any period.

UncleZen wrote: »

AnotherJoe
I plan to draw down this plan at about 500/m theres plenty in the pot to cover that now. It won't be my main pension income as I also have a DB plan.

Theres a trade off and it depends how much you are going "safe" All in cash? Some bonds? A % cash, bonds, funds?

When you move safer you are also limiting the upside. If there's "plenty in the pot" and you also have a DB pension to fall back on / underpin your drawdown you can be riskier with your pot and therefore, all other things being equal get more growth because you have time. Yes there will be downturns but if you are invested the next 20 years say, the upsides should exceed the downsides.


If you went with a "standard" lifestyle, you'd end up 100% in cash which means your pot is guaranteed to lose probably 30-50% its real value in the next 20 years. Now, some might say that if at a reduced 50% its enough for to drawdown to your needs you why take the risk, but that depends, you could probably drawdown 2x as much with a medium risk portfolio as from a 100% cash one with virtually no chance running out. (and by the time you do run out your spending will likely have dropped anyway, most peoples spending drops quite radically after age 75 or so.

dunstonh

dunstonh
It was a SW FA (no I) not a call centre worker. This is because I was approached by the adviser to change the plan in what amounted to the same thing but with less charges, about 3 years ago (apparently they were doing this across the board to certain policies). Plan was started in 2003.

Yes, they do this but the plan they move you into is rather out-of-date compared to other providers. So, paying SW to do is not normally a good move.

"Lifestyling has gone out of fashion because you only do it if you are buying an annuity. Not if you are going into drawdown."
Why is that?

Buying an annuity means you exchange the pension value for a secure income for life.

Whenever you invest and intend to draw the money out on a given date, you should reduce your investment risk as you get closer. A typical stockmarket crash can take upto 2 years to recover. An extreme one could take longer. So, if you are drawing it out in full before then, you wont have time for the recovery. Hence why you reduce risk as you get closer.

With drawdown, you are going to remain invested for another 25-30 or so years. You will probably see another 5 or 6 crashes during that period. So, no need to reduce risk.

I was thinking that without protection theres a risk of loss if the stock markets go bad.

Not if but when. Stockmarkets have bad periods regularly. Not as frequent as the good periods but if you are going into drawdown, then there is no need for lifestyle risk reduction. Indeed, it would be more damaging.

Lifestyling is not about making the most money. Statistically, you are more likely to end up with a lower pension fund if you use lifestyling. Its about protecting what you have as you are drawing it all on a defined date. That is not the case with drawdown. (caveat applies as you may draw x% as a lump. in which case, you could lifestyle risk reduce on that x%)

kidmugsy

dunstonh wrote: »

(caveat applies as you may draw x% as a lump. in which case, you could lifestyle risk reduce on that x%)

I've often wondered if it would be a natural thing to protect one's 25% TFLS in that way? I suppose that depends on whether you propose to take it out as an initial lump or draw it gradually over the years.

I also wonder whether the current law on bequeathing a pension creates an incentive to draw down the last of a lump sum on the day before your 75th birthday.

OldMusicGuy

You need to plan what your pot is going to do for you over the next 30 years and then see if it is big enough already. If it is big enough, you might move into lower risk investments. If it's not big enough, you will need to get some growth which means staying invested in higher risk investments. Until you make a plan about how much money you need in retirement, it's impossible to say what you should do.

You can't ask them to "protect your pot" if that's what you want to do. You will have to decide how to do that and then issue instructions (maybe by changing the investments you have or transferring to a different provider).

FWIW I have plenty in my pot so have gone heavily into cash and lower risk investments, which I suspect most people on here wouldn't do but it suits me fine given my 35 year financial plan and risk appetite.

bostonerimus

UncleZen wrote: »

I plan to draw down this plan at about 500/m theres plenty in the pot to cover that now. It won't be my main pension income as I also have a DB plan.

Are you including inflation and are you sure your investments will support that drawdown.
Classically with an equity and fixed income balanced portfolio you might be able to withdraw 3% to 4% in retirement....so at 500/month that implies a DC balance of about 150k. Is that close?

UncleZen

bostonerimus
DC Balance is nearer 250k at the mo.

xylophone

Have you obtained a new state pension statement?

https://www.gov.uk/check-state-pension