Scottish Widows Pens Portfolio

sebthered

Hello Playmates
My workplace pension contributions have/ are tailored to my retirement date.
They have gone from an initial (2014) mix of portfolio 2 and 3 to a current 45/55 split between portfolio 3 and 4.

I am considering bring forward my retirement date from 2026 to 2022, and making all future contributions to portfolio 4, would the house recommend moving the pot in portfolio 3 over to portfolio 4 at this time ?

Thanks in anticipation

michaels

Are you planning to buy an annuity or go into drawdown?

blisteringblue

I was similar as my workplace pension is Pens Portfolio 2 and they were starting to drip feed into Pens Portfolio 3 as you get closer to retirement (more cash based). Scottish Widows think I'm retiring at 65 and start this drip feed 15 years from retirement.

I actually wrote to them and said don't do this as I am actually retiring at 55 and keep all my pot in Pens 2. They acknowledged this and then did nothing about it. I do need to chase it up but there is very little difference in fund value between 2 & 3 and it's only a few hundred pounds at the moment.

As per michaels question our HR dept did say that drawdown was beeing muted as an option for our Scottish Widows Fund but I'm yet to receive written notification of this? At the moment I think its annuity. However I will just move it if it's not an option when it stops being my live work pension.

bowlhead99

sebthered wrote: »

I am considering bring forward my retirement date from 2026 to 2022, and making all future contributions to portfolio 4, would the house recommend moving the pot in portfolio 3 over to portfolio 4 at this time ?

Portfolio 4 will sacrifice growth potential vs portfolio 3, just like portfolio 3 gives up growth potential vs portfolio 2. It replaces the chance of growing by also reducing the chance of falling.

If you're planning that you'll retire on (e.g.) your 60th birthday in 2022 - and will at that point (a) immediately stop investing and draw out all the cash that week, or (b) immediately take a lump sum, stop investing and use the pot to buy an annuity product which gives you a fixed pension income from that point - then it may be worth moving your existing pension investment down the risk scale (from 2 or 3 to 4) in an attempt to 'lock in' what you have now and not risk it declining in value before you imminently cash it in.

However, if when you retire in 2022 you intend to take route (c) which is to keep the money fully or partially invested for the next three to four decades, drawing out money as and when you need it in retirement, then it wouldn't make sense to be moving your lump of investments now to something that sacrifices growth for capital protection. Route (c) is a valid option for many people, and even if your Scottish Widows product doesn't offer it, you could move the pension to someone else as mentioned by the poster above.

Portfolio 4 is about 60% bonds and only 40% equities, so is not making the most of growth opportunities; if you are hoping to fund drawdown over a long time to last you the rest of your retirement, you'll want the pot to be growing in the background and you are likely to be better using Portfolio 3 or 2.

Whereas if the intention is to draw all the money out of the pot within a decade from today to fund your living costs before the state pension kicks in, you can afford to take fewer risks with the money. Because you wouldn't have the timescale to ride out a large potential crash or a series of 'bad years' while pulling a big percentage of your money out of the pension each year while investment values were low.

sebthered

michaels wrote: »

Are you planning to buy an annuity or go into drawdown?

Profuse apologies for the extended delay in responding I have been incommunicado .
My plan is to drawdown over a period of 10 years

michaels

sebthered wrote: »

Profuse apologies for the extended delay in responding I have been incommunicado .
My plan is to drawdown over a period of 10 years

No probs, the next two posters have explained why I asked this question.

michaels

blisteringblue wrote: »

I was similar as my workplace pension is Pens Portfolio 2 and they were starting to drip feed into Pens Portfolio 3 as you get closer to retirement (more cash based). Scottish Widows think I'm retiring at 65 and start this drip feed 15 years from retirement.

I actually wrote to them and said don't do this as I am actually retiring at 55 and keep all my pot in Pens 2. They acknowledged this and then did nothing about it. I do need to chase it up but there is very little difference in fund value between 2 & 3 and it's only a few hundred pounds at the moment.

As per michaels question our HR dept did say that drawdown was beeing muted as an option for our Scottish Widows Fund but I'm yet to receive written notification of this? At the moment I think its annuity. However I will just move it if it's not an option when it stops being my live work pension.

Thanks for this - I didn't think they started 'lifestyling' until 10 years before the planned retirement date so I will have to tell them not too soon as I plan to drawdown over hopefully at least 40 years. Once I retire I may move the funds to VS80 or vs60 if the charges are lower - I notice that SW PP" is currently invested more adventurously than I remember.

bowlhead99

sebthered wrote: »

Profuse apologies for the extended delay in responding I have been incommunicado .
My plan is to drawdown over a period of 10 years

Ha, if you take a year between every bit of action it might take you more than a decade to get it out!

So basically you're looking for an investment from which you can draw money, over a period of ten years.

For that you probably want some stock market exposure because the last bit of cash will be taken in a decade or more, and basic maths tells us that 3% inflation for a decade erodes the real value of a nominal amount of money by 25%. If you want/need to avoid that, you need to hold assets that can appreciate in value .

However you likely don't want a lot of stock market exposure because half of the money will be drawn out in the first five years and if a stock market crash wipes out half the value of the equities (which are half the value of the Portfolio 3) while bonds don't grow much, and recovery back to the start point takes five to ten more years (while you are pulling money out every year) you will be kicking yourself for not de-risking.

This is what is known as 'a conundrum', and seriously there is no right answer.

Also, you say, "My plan is to drawdown over a period of 10 years". But you also say, "I am considering bring forward my retirement date from 2026 to 2022". That doesn't tell us if you are literally retiring in two years from now and will definitely draw down ali the money in ten years from then (I.e. twelve from now...) or merely proposing to tell SW that you have a plan to retire at an earlier age so that they accelerate your 'lifestyling' to reduce volatility and switch products for you earlier, when really you might defer drawdown until the years 2030-2040 for all we know.

At the end of the day, deciding what to hold is a risk and only you can decide what sort of risk you can afford to take or would prefer to take. The risk of you falling short of growth objectives and feeling generally poor in retirement without the money you could have had if holding a portfolio with more 'growth' potential? The risk that the annual income can't increase by inflation as there isn't enough in the pot invested in the right investments, to keep up? The risk that equity investments fall in value and take a while to recover, so each drawdown is a bigger proportion of the remaining pot than first planned?

Personally if I needed the money in the next decade I might go to 3 while putting new money into 4. I would just hope there wasn't a major crash to make me feel silly for not putting all of it into 4. But if there was, it wouldn't be the end of the world as I'd have backup plans and other assets. Not everyone has that luxury and many aren't as gung-ho around investment risk. 4 still has 40% equities so is not like being in cash. From the start of the decade of drawdown you need some of the money in a year and some in ten years then on average you are raiding the pot in five years; it's a short timescale to be holding equities.

One thing to consider is what you will do with the money when you have drawn it out. Your retirement is likely going to be longer than the ten year period over which you draw it. So will you be spending it all as cash when you draw it out of the pension because you have other pensions and investments for your later years? Or mostly investing it again in S&S ISAs once you've got it out of the pension wrapper? If much of it will be reinvested for the long term once you've extracted it from the pension, it is not a big deal to stay in a higher-risk asset class because you will just be pulling it out of the pension at a high or low value and reinvesting it at that high or low value.

If you are definitely going to be spending the money in the near term, some people would give their scheme provider as early a date as possible to cause lifestyling to kick in and their equities replaced with bonds and cash or other low volatility assets; if their provider didn't do automatic lifestyling they would just manually move away from equities and as near to cash as possible, because they don't want investment risk and fear it more than inflation risk over the short term; equity investing vs cash and bonds is never really recommended for short periods so they wouldn't necessarily be wrong...

Sorry if that doesn't help a lot!