Pension Investment Strategy

Pip_Boy_111

Hi all

Quick background: 33 yrs old, Wanting to have enough of a pot to retire at around 58-60 (very early i know and very aware plans, regs and situations change, but currently aiming for around £25k p/a for a decent retirement, higher than that for a comfortable retirement). Currently contributing 15% (employer 13.5%) of around £35.5k p/a to my DC pension. This is invested in a lifestyle fund (default option).

After reading a lot on here and reading up on the various funds from the provider I've been toying with the idea of moving from the lifestyle fund and allocating my contributions to other funds.
Looking at performance of the funds over various timescales and having quite some time to retirement I was looking, with interest, at funds such as Global equities (ex UK) and emerging markets funds (high risk). They have been quite volatile in the short term but over the long term (5 years) produced around 11 - 14% growth p/a respectively. Lifestyle, by comparison, around the 5-6%.

I suppose my question, really, is two fold. Is there anything blindingly obvious that I'm missing here? Is this a sound strategy, or am i better off leaving it to the lifestyle fund (less risk, but long term less growth, historically anyway).

I've read a lot on here and taken time to try and educate myself but I am by no means an expert and compared to most on this board a complete "newbie" so feel free to tear my plan to pieces if it's blindingly stupid and I can't see it. I won't be offended, honest

EDIT: Just to point out i realise the lifestyle strategy allocates money across various funds, including global equities, property etc. Just pointing it out before anyone thinks I'm not aware of that. My point is would I be better served allocating my money to various funds myself to try and achieve my aim, i.e. move a higher percentage to the higher risk funds now (currently lifestyle strategy has 80% allocated to global equities) or would it be more prudent to leave it to the "experts", so to speak, and not try to do this myself with limited experience of investing? Again, thanks in advance for any advice or pointing my stupidity :rotfl:

foofi22

I think it sounds like you understand it generally quite well.

The fund areas you mention (Global equities and emerging markets) are, as you identified, more volatile but provide (potentially) greater returns than a "lifestyle" fund. Typically lifestyle funds will offer lower volatility but potentially lower returns - it's all to do with their composition - nothing to do with being "bad"

Obviously the last few years have been in general very good, hence the returns on equities have been very favourable when compared to typically less volatile funds.

What you are suggesting is no bad thing - I hope - because that it exactly what I already do. I'm no expert, just someone in a similar position to yourself.

By taking the route you're suggesting, you would need to decide on the relative asset allocations you are happy with, for example the geographic, sector, developed/developing allocations. These are the things the lifestyle fund takes care of for you. You will be responsible for rebalancing things if one area over or under performs relative to others.

See what funds your provider offers and come up with an allocation you're happy with. People on here are always happy to critique portfolios, its a learning experience for everyone.


Whatever you decide to do, it's good to be engaged and actively interested in your pension(s), after all it is your future!

MallyGirl

80% equity is at the higher end of the risk spectrum. You could go all in with 100% equity since you have 20+ years to go.
Watch out with the lifestyle as it may well start to ramp down the risk as you approach retirement age - DH's pension does from 10 years out. You may want to take control of that nearer the time even if you stay with the fund for now.

Pip_Boy_111

MallyGirl wrote: »

80% equity is at the higher end of the risk spectrum. You could go all in with 100% equity since you have 20+ years to go.
Watch out with the lifestyle as it may well start to ramp down the risk as you approach retirement age - DH's pension does from 10 years out. You may want to take control of that nearer the time even if you stay with the fund for now.

Thanks and yes, from about 10 years out from retirement age it starts to move things to more low risk areas (bonds etc.) As i'm a way from retirement it's currently weighted towards equities. I'm actually toying with the idea of "trialing" this plan with an old DC pot from my ex employer. That, too is on a lifestyle strategy, but has had nothing contributed to it for over 5 years and currently is worth around £30k. My thinking is, I could use my ideas above to switch my investments on this and see how it fares for a while until i'm comfortable enough to with what I'm doing before I make any rash decisions with my current pot. Does this sound reasonable to people?

MallyGirl

Shares are for long term so you would need to 'trial' for 5-10 years. Are you prepared to wait that long before changing the active pension?

coastline

As much as I understand most investors are in the less risk bracket and have a limited allocation to equities. As you have posted this probably reduces returns over a few decades but is not a guarantee.
The chart below shows the MSCI World Index which covers the major global equity field. The other funds are VLS allocations and the L&G fund which probably will be similar to your default fund showing as D.
Recently in late December there was a pretty heavy correction in the markets as much as 20%. The L&G fund didn't fall as much so volatility was reduced. This is the situation you need to be comfortable with. Could you handle a 40% slump in your pension pot at the wrong time ?

https://www2.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,FACDV,FACDQ,FJ84X

Not sure if 15% is your full contribution as £5000 x 25 years doesn't seem enough for a pension in the region of £25,000.
Try a few examples including inflation in the link .

https://www.thecalculatorsite.com/finance/calculators/savings-calculators.php

Albermarle

80% equites is already quite high but OK for a younger person.
Although trying to time the market is usually a waste of time , personally I would hesitate to go for a 100% equity strategy after a few years of solid market growth ( apart from the correction last year ) .
There seems to be a very general feeling that we are somewhere near the top of a market cycle.

Pip_Boy_111

coastline wrote: »

As much as I understand most investors are in the less risk bracket and have a limited allocation to equities. As you have posted this probably reduces returns over a few decades but is not a guarantee.
The chart below shows the MSCI World Index which covers the major global equity field. The other funds are VLS allocations and the L&G fund which probably will be similar to your default fund showing as D.
Recently in late December there was a pretty heavy correction in the markets as much as 20%. The L&G fund didn't fall as much so volatility was reduced. This is the situation you need to be comfortable with. Could you handle a 40% slump in your pension pot at the wrong time ?

https://www2.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,FACDV,FACDQ,FJ84X

Not sure if 15% is your full contribution as £5000 x 25 years doesn't seem enough for a pension in the region of £25,000.
Try a few examples including inflation in the link .

https://www.thecalculatorsite.com/finance/calculators/savings-calculators.php

Thanks. As I understand it (and I'm here to learn) even with the slump, they still sat at a higher overall growth value even with the drop? So, although it wouldn't be nice to see such a drop, it would still be in a better position than the less volatile funds? Please correct me if I'm wrong. Like I say, here to learn.

In terms of contributions, I pay 15%, my employer pays 13.5% (28.5% of salary total). Salary sacrifice arrangement. That pot currently stands at a little over £40k and the other DC pot at around £31k. So £71k total DC pot. Checked SP and will make full amount in 15yrs (claimed at 68) if all stays as is (big if these days) and the govt haven't abolished SP altogether by then :rotfl:

Pip_Boy_111

MallyGirl wrote: »

Shares are for long term so you would need to 'trial' for 5-10 years. Are you prepared to wait that long before changing the active pension?

Very good point. I hadn't thought of it that way. Thanks.

green_man

I would be 100% equities if I were you, review as you approach retirement but unless you will be looking at annuities (which in 25 years time may be viable) I would keep high equity allocation.

Other than that just make sure you are doing things in the most tax efficient way (especially if a higher rate tax payer) and don’t monitor too closely (I.e don’t be tempted to switch out of a fund just because it’s had a bad year).

Pip_Boy_111

green_man wrote: »

I would be 100% equities if I were you, review as you approach retirement but unless you will be looking at annuities (which in 25 years time may be viable) I would keep high equity allocation.

Other than that just make sure you are doing things in the most tax efficient way (especially if a higher rate tax payer) and don’t monitor too closely (I.e don’t be tempted to switch out of a fund just because it’s had a bad year).

Thankyou.
As my signature says, at the moment we are paying off debt. Not long to go until that will be gone and at that time, I'm thinking of opening a S+S ISA and contributing to that too. Kind of not holding all the eggs in one basket. I'm aware it's very early to be going into a lot of detail, but my version of risk is having to work until I'm too old to enjoy retirement or worse. I've seen it happen to too many ex colleagues a lot older than me. Some worked so late they didn't actually get a retirement