Lifestyling

Havent_got_a_clue

Hi
I’d be very grateful for some clarity and guidance on the following:

My work pension is currently in year 2, phase 2 of a lifestyling fund which was set up prior to pension reform. I want to retire in 3 years time, which is 5 years earlier than originally planned, and I haven’t as yet informed my provider of this hence still being in phase 2.

The fund is designed for taking an annuity, which is not my intention, however I am low risk and I had assumed that it was safe option as the pension is now being “derisked.”
I now have a bit more understanding of how they are moving the funds, but I am concerned that this may not be right for my circumstances.

I intend to take over half of this pot (currently £130,000) in the first 3 years of retirement before my DB kicks in so, probably wrongly, I haven’t given much thought to the 4% rule. The remainder can mainly be invested for growth as I will have a healthy lump sum to draw from.
I estimate that a further £100,000 gross will be added over the next 3 years. £40k (£24knet) of which will be from my net salary and I am considering a cash SIPP to gain the tax relief, and have a cash buffer. I pay HR tax.

I am at a total loss and would really appreciate some help on what I options I could pursue. I don’t have the experience or knowledge to handle my own investments and will need to seek financial advice, but I am restricted to this provider as it is a work pension. I can, however, move it into another fund, or provider, once the contributions have been paid in.

Any thoughts or guidance would be most appreciated, as I believe I need to do something, I just don’t know where to start

Marcon

Havent_got_a_clue wrote: »

I intend to take over half of this pot (currently £130,000) in the first 3 years of retirement before my DB kicks in so, probably wrongly, I haven’t given much thought to the 4% rule. Beware - it isn't 4%, it is £4,000.
I estimate that a further £100,000 gross will be added over the next 3 years. £40k (£24knet) of which will be from my net salary and I am considering a cash SIPP do you have the option to pay more to your workplace pension? If so, and it is cheaper in terms of charges, you might think about doing thatto gain the tax relief, and have a cash buffer. I pay HR tax.

I am at a total loss and would really appreciate some help on what I options I could pursue. I don’t have the experience or knowledge to handle my own investments and will need to seek financial advice, but I am restricted to this provider as it is a work pension. I can, however, move it into another fund, or provider, once the contributions have been paid in. Check first - if you move the funds to another provider, you may find you have effectively 'opted out' of your workplace pension and will lose the employer contribution until they let you re-enrol

Any thoughts or guidance would be most appreciated, as I believe I need to do something, I just don’t know where to start : (

I'm sure there will be people along shortly to give you some ideas, but for a general natter (NOT financial advice), free and impartial, try TPAS https://www.pensionsadvisoryservice.org.uk. Might also be worth making an appointment with PensionWise: https://www.pensionwise.gov.uk/en

Albermarle

Normally for a workplace pension you should be able to change the funds your money is invested in at any time. So if you wanted to move out of this Lifestyle fund you should be able to do that now. There may not be a huge alternative funds but there will be some .
Regarding the current lifestyle fund it will derisk you in line with the proposed retirement date you originally supplied ( or maybe it defaulted to 65) . So as you are 8 years away from that date then I guess the money will still be mainly invested in medium risk investments . Even by the time you retire in three years it will still be invested as if you have five years to go .
For a modern workplace pension you can have direct access yourself on line to change funds , maybe not for an older one and maybe have to be done another way.
However if you are unsure about investing then first try and learn more and in the meantime just leave the money where it is .

Paul_Herring

Marcon wrote: »

I intend to take over half of this pot (currently £130,000) in the first 3 years of retirement before my DB kicks in so, probably wrongly, I haven’t given much thought to the 4% rule.

Beware - it isn't 4%, it is £4,000.

Huh? Looks to me like they're talking about the SWR, not the MPAA.

Marcon

Paul_Herring wrote: »

Huh? Looks to me like they're talking about the SWR, not the MPAA.

Probably a good idea to keep both in mind!

Havent_got_a_clue

Thank you all for your quick replies.

Marcon- I did mean the 4% swr, but I didn’t make that clear.
I can pay more directly into the workplace pension fund,but I am having doubts as to whether it’s the right fund for me,so was contemplating keeping this separate as cash in case my timing is way off.
I thought that HL didn’t charge for holding cash so
I will need to look into that further. Thank you for the links.

Albemarle- The pension provider is Aviva and they have many and varied option to choose from. I am just in way over my head, so will need to get some advice.
With phase 2 of this lifestyling fund, they invest new payments into a low to medium risk fund (0-35% shares) and move existing funds from 40-85% shares fund into the 0-35% fund.
I think this is where I take issue: they do this regardless of market performance, so are they selling shares which are currently low, in order to purchase predominantly bonds and gilts which are also low value? In which case is this not a poor strategy, and one I should be wary of?
As I said, I’m in way over my head and I could have this all wrong, but I thought bonds were no longer considered a safe option. I agree that I will leave it where it is until I understand it better.

OldMusicGuy

Have a read through this thread:
https://forums.moneysavingexpert.com/discussion/5948700/any-point-in-a-cash-buffer-in-pension-drawdown-account&highlight=buffer

Lots of good discussion about how to structure funds in drawdown and what would be an appropriate SWR.

You can manage your own investments if you want - read "Investing Demystified" by Lars Kroijer and "DIY Simple Investing: A Guide to Simple But Effective Low Cost Investing" by John Edwards to get you started. You made some really good points about the Aviva fund and why lifestyling may not be appropriate for you. You clearly have some understanding already.

shinytop

With phase 2 of this lifestyling fund, they invest new payments into a low to medium risk fund (0-35% shares) and move existing funds from 40-85% shares fund into the 0-35% fund.

I was in the same position as you. If your pension is similar to mine the lifestyling option will move funds to 'safer' investments gradually (rather than in large chunks) as you approach your nominated retirement age. I opted out of lifestyling and moved my existing investments and set future investments to my own choice. My pension has a reasonable choice but my choices were the same funds (which are global trackers) but in different proportions than the lifestyling default. FWIW I'll be retiring in less than a year and have 2 years before DB pensions start so I have that 2 years and a bit more in cash/bonds (mostly cash) and the rest (which I'll draw down over the next 20 years) in equities.

Albermarle

With phase 2 of this lifestyling fund, they invest new payments into a low to medium risk fund (0-35% shares) and move existing funds from 40-85% shares fund into the 0-35% fund.
I think this is where I take issue: they do this regardless of market performance, so are they selling shares which are currently low, in order to purchase predominantly bonds and gilts which are also low value?

The funds will adjust to lower risk /lower equity % automatically as you get nearer the stated retirement age . Also these funds are globally diverse in what they invest in As market performance will be unpredictable then this is not taken into account.
If you read more on this and the investments forum , you will see that the advice is to ignore market performance or predictions and not to try and time investments etc as it is very difficult to get right,

Havent_got_a_clue

Thanks again guys for taking the time to reply.
Albemarle- I take your point about not trying to predict the market, but isn’t it a better move to sit tight and not move the investments, which is effectively what is happening with the fund I’m in. I think I’d be happier with something more stable so that I can ride any storm knowing that it was not being messed with on a monthly basis.

I will try and engage with Aviva again, as I believe that I am somewhat committed to them.

Shinytop- very interested to see that you were in the same situation. I was wondering if it’s beneficial to split my current funds (presently 61% is in the 0-35% fund) and have them transferred proportionately (no idea if this would even be possible) into the same investments , ie 61% in 0-35% equities, and 39% into 40- 85% Equities but without the constant movement of lifestyling. Does that make sense? Is this something similar to what you did, or Am I just proposing something very similar to what is happening in whilst lifestyling? Is there any benefit to having 2 funds? I’m thinking that it gives me choices when withdrawing heavily in the first 3 years. More questions for Aviva, I think.

Oldmusicguy- Thank you- I had read that thread a couple of weeks ago but need to get up to date with the latest postings. I believe the OP was questioning the value in having a cash buffer? I am still inclined to do this with the money that will be handled by me and not go through my payroll. I know it will be eroded by inflation, but the tax relief is very welcome, and I will feel happier knowing that I am not 100% at the mercy of market performance when I I don’t really understand what’s happening or why (need to buy that book)

shinytop

Shinytop- very interested to see that you were in the same situation. I was wondering if it’s beneficial to split my current funds (presently 61% is in the 0-35% fund) and have them transferred proportionately (no idea if this would even be possible) into the same investments , ie 61% in 0-35% equities, and 39% into 40- 85% Equities but without the constant movement of lifestyling. Does that make sense? Is this something similar to what you did, or Am I just proposing something very similar to what is happening in whilst lifestyling? Is there any benefit to having 2 funds? I’m thinking that it gives me choices when withdrawing heavily in the first 3 years. More questions for Aviva, I think.

I'm not qualified or even knowledgeable enough to give advice and others here are much more so but... you'd really have to look at the combined result of being invested in the two funds in the proportions you are and decide whether that does what you want, i.e overall, how much in equities, bonds, cash, etc. And for your funds, you need to know where the money is that isn't in equities. The way my main pension does lifestyling is that it uses 3 funds - one 100% equities, one bonds and cash and shuffles between them so slightly simpler for me.