Pension plan change of funds

LateStarter

My company run a Group Personal pension plan (DC) with Legal and General, where the default investment fund is "Global Equity Fixed Weights 60:40 Index Lifestyle Profile". I've had a letter saying that all future contributions will be invested in a different fund - Legal and General Pension (PMC) Consensus Index Fund 3. The letter says I have to make a decision as to whether to transfer the existing pension pot into this new fund - if I make no decision, the pot stays where it is, and further details will be sent to me about the new manager of the fund - does this mean that L&G are selling/transferring the Global Equity fund to another party? Is that allowed?

The company are arranging for an L&G person to be on site in February to answer questions; what should I be asking them? Is there anything I can do beforehand to help make a more informed decision? I've just moved from the "Mortgage paying" phase of my life to the "Retirement Planning" phase, so there is a bit of serendipity at play in the timing. But it's really making me realise how little I know.

dunstonh

does this mean that L&G are selling/transferring the Global Equity fund to another party? Is that allowed?

1 - no they are not selling the fund
2 - yes they are allowed if they chose to

Marcon

You don't have to be in the default fund - you can choose which of the funds on offer you prefer.

EdSwippet

LateStarter wrote: »

My company run a Group Personal pension plan (DC) with Legal and General, where the default investment fund is "Global Equity Fixed Weights 60:40 Index Lifestyle Profile". I've had a letter saying that all future contributions will be invested in a different fund - Legal and General Pension (PMC) Consensus Index Fund 3.

From a quick look, both of these seem decent enough funds, and well suited to being the 'default' for anyone who would rather have a life than pore over fund prospectuses and annual reports.

The one major difference seems to be the Lifestyling. This is an automatic shift from stocks to bonds as retirement age approaches, and is fine if you plan to buy an annuity on retirement. However, if you plan drawdown instead -- as many do now that annuity rates are so low as to be below the floorboards -- Lifestyling would probably be detrimental. For this case, you want a decent dollop of stocks throughout retirement to help sandbag against inflation.

Depending on how far you are from retirement and how long your retirement will be, I would probably move to the Consensus fund now, and then either do your own Lifestyling as appropriate, or stick with the same allocation (or close to it) up to retirement and then beyond.

As already mentioned, you don't have to stick with either of these two funds, but there's a lot to be said for simplicity. One case where defaults might not be appropriate would be if you are balancing multiple pensions, balancing this pension against other holdings in (or out of) an ISA, and so on.

LateStarter

EdSwippet wrote: »

The one major difference seems to be the Lifestyling. This is an automatic shift from stocks to bonds as retirement age approaches, and is fine if you plan to buy an annuity on retirement. However, if you plan drawdown instead -- as many do now that annuity rates are so low as to be below the floorboards -- Lifestyling would probably be detrimental. For this case, you want a decent dollop of stocks throughout retirement to help sandbag against inflation.

Depending on how far you are from retirement and how long your retirement will be, I would probably move to the Consensus fund now, and then either do your own Lifestyling as appropriate, or stick with the same allocation (or close to it) up to retirement and then beyond.

Thanks ever so much for that; I'm 53 and not really in a position for early retirement - I'm trying to understand enough to plot an escape (65 haha) and from what I've read I'm tending towards drawdown. I certainly intend to be actively involved in something so important to the rest of my life, so the Lifestyle options don't seem to be for me.



Follow up question, if I may; would it be advisable to move all the funds from the LifeStyle fund to the Consensus funds in one go or over a few months?

AnotherJoe

My company started a pension with life styling like this in the early 2000's and then about 10 years later started suggesting to people they moved to a different non lifestyle approach.
In your case I'd go with your companies suggestion and move to the new fund to get away from life styling, assuming you aren't clued up enough to select an alternative.

EdSwippet

LateStarter wrote: »

Follow up question, if I may; would it be advisable to move all the funds from the LifeStyle fund to the Consensus funds in one go or over a few months?

The only reason to shift gradually might be if this would be a large shift in assets, perhaps a 20% or so swing from bonds to stock or vice versa. It doesn't look to be. The 'glide path' for most lifestyling profiles usually begins either five or ten years before selected retirement age. Assuming you told L&G you intend to retire at 65, you are outside both of those, so the gradual shift to bonds hasn't yet started (probably).

In that case, as AnotherJoe says above, probably best just to move the whole lot when your company gives you the option. They will almost certainly make it easy, one tick box. That way, you keep everything together for easy management and monitoring.

As for "I certainly intend to be actively involved in ...", well, okay up to a point. Certainly make sure you are making the most of tax deferral, employer match, and so on, and that your pension is on track to produce the income you will need in retirement.

However, be careful not to become too involved, start chasing hot funds, the latest fad, and so on. The best way to build up a pension without undue risk is the boring one. Hold something diversified, steady and reliable -- both the funds you mentioned in your original post qualify, which is why companies use them as defaults -- and concentrate on what you can control; tax deferral, employer match, minimising costs, and so on.

You'll find a spectrum of opinions on these boards (and everywhere else, for that matter), but for my money passive trackers are the way to go. Both the funds you mention qualify in that respect too.