L&G Pension Funds

gm0

Can't offer advice. Nothing here can be. But can share my specific experience with using LGIM pension wrapped funds long term.

My employer scheme used mostly LGIM funds. I made an early and ignorant decision in my 20s to go in the default LGIM UK FTSE All Share passive index tracker and rode out the various recessions chipping in to it thereafter......fell asleep for 20+ years on the subject.

Had time - kept going - got lucky - a couple of equity drawdowns and recoveries - it was *very* low drag so I essentially got FTSE All Share Total Return less 0.04% pa no platform fee - with healthy pound cost averaging of contributions buying new units cheap through the market dips. Lucky me. Could I have done better with well chosen and more sophisticated investments almost certainly yes. Was it a terrible choice. No. Done better in the scheme - probably not - without lucky bets or the benefit of hindsight on switching. Only thing I would do different probably is be global in outlook earlier.

I was offered LGIM actives for UK and global equities and EM along the way. Based on the performance data and unit prices so far as I can see them these underperformed after their higher fees viewed across my 30 year journey (UK vs UK, Global vs Global). I missed out at some points on US market return by being lazy and not being global. I was a fresh graduate with scheme joiner papers and it was pub time. Mea culpa. Thanks to the trustees for making the default "ok".

Future is not the past. I can't be definitive about LGIM active vs passive equities in the past - not all the funds stayed the same and I haven't modelled out all the monthly purchases and returns for the path not taken as it doesn't matter to me now. Underperformance net of fees is not a surprise though - the SPIVA report and other data sources show a very small number of funds able to sustain beat the market return over the very long term. Very difficult to buy and hold a single active with sustained alpha. The LGIM active equity funds do not I believe have a reputation for being particularly racy or attractive in DIY circles. I ignored that as they were the choices available. For the passive index trackers of course - this does not matter, reputable and only the fee to hold them in your scheme is key along with how much of which markets do you want. Some LGIM funds have currency hedging for part of the holding and some have none. This you need to understand so you are not surprised by what happens. (Obviously I can't tell you whether to buy none, half, all - ask me afterwards).

Here are some thoughts to ponder which may help you think through choosing a "mix" of funds

- Equities posture - are you happy to be "all in" at 38 on higher risk potential higher return assets and buying on through any upcoming market correction. Many especially those trying to aggressively build a pot based on the historic superior returns of equities would be OK with it. But it's not for everyone - the value may trough by 40-60%+ along the way - the (hopefully) low cost units you are buying help you feel better about it (based on my experience but it's still a scary time to live through).

- Diversification (types of assets (equities, bonds, other), global (uk, Europe, us, emerging) - what do the fund sheets say about the funds you are being offered. What's inside ? Are you a 100/0 80/20 60/40 person in terms your necessary ambition* and risk appetite.

- Go and read about active and passive to develop a view. There is a fee. There can be extra return, or just extra cost without much sign of it. Some kinds of active may protect (or even prosper) in a bear market - others won't (or not as much) - and that may not in fact matter - buying continuously over 25 years+.

In more recent years approaching retirement planning and dimly aware of drawdown - I started to think more deeply about it and realised that my position "all in" in a LGIM UK index tracker was not great (not diversified by asset type or geographically with political and economic outlook uncertain over 2-10 years for UK) so I chose a moment (timing the market sinfully) and moved to an LGIM global fund. This prior to any more structural change from "accumulation" to "drawdown" posture later on. Ironically the global earnings of the larger UK listed companies meant that FTSE UK All Share wasn't as actually Local" as it seems. Nonetheless a global fund (passive) is likely to be 50% US and a lot less UK.

Even if you decide in accumulation (as I did) that a high risk higher potential return approach - all equities or equities+ (multi-asset diversified) as others have said is the long term bet you will find a lot of received wisdom apropos of DIY suggesting hold 5-10 funds, mixed assets, providers, and global coverage. Perhaps with some emerging economies and home market (UK) bias overlaid. Nobody can tell you your answer to this. It's just a point of view. Some people of mathematical bent bring data from market data back testing (what would have happened with this version in the past) or MonteCarlo simulations (random walk price move assumptions) My takeaway from trying to get with grips with this is don't over think the percentages in the mix of funds - 1% precision not required. In an employer scheme you can only do so much - asset types and geography usually.

*Far more important is that you (or you + your family and IFA when you have the raw data together) need to work out your future cashflow needs, retirement timing and inheritance goals, where you will be living later etc. Without that "why" "how much" and "when" and "where" view the "best" investment strategy with a chance to meet or exceed those goals with the least risk and plausible tax planning won't easily become apparent.

While you are working it out (and I don't find it easy beyond the mundane household expense stuff)- it asks a lot of personal priority questions about the (far) future): then meanwhile "whole of market" global equities (and gilts + corporate bond funds if you want any) fund approach is not a terrible proxy as the first thing to look at carefully for long term investment. Compare it to what you have. Get hold of the fund sheets and codes. Look them up online. Understand how the fees work and how the data is presented to you in your scheme. Trust little at face value. FS fee and performance reporting is a farrago of lies and deceit via partially hidden assumptions

The LGIM global multi-asset and diversified growth funds which arrived in schemes more recently *may* be good if one is offered - and you can understand it - both the performance history, the fees and roughly what is in it i.e. how many equities and bonds and what else is going on by way of alternative strategies, illiquid, property, energy, currency, property, FX, etc. and how much of that "good diversification" (or less attractive gambling) there is. Then you can decide how much of it to blend with other funds if you don't like it as a one stop solution

I am looking at an LGIM fund offered to me at the moment to assess if I want any in my portfolio later on as opposed to just using meat and potatoes global equities funds.

Good luck with it - don't rush. A little knowledge can be dangerous mixed with over confidence. I fall into the "little knowledge" category so take all this perspective with a suitably large pinch of salt.