Retirement Planning - Vanguard versus Company L&G Pension & II ISA

JamTomorrow

Currently my workplace pension is invested with L&G through salary sacrifice.  Platform fee's are covered by my Company, I incur the fund fee's.  Across my asset allocation my average annual fund management charge is 0.2%.  I have ~£600k Invested so fund fee's of around £1,200 / year.

I also have an II ISA to fund my retirement for the period until I access my pension.  I incur a £10/month charge for this and make very few rebalancing transactions each year.  I have ~£160k invested here, primarily in Vanguard funds also with an average fund charge of ~0.20%.

With the launch of the Vanguard Sipp and platform fee's capped at £350 (I believe across SIPP & ISA) I think there is an opportunity for overall fee reduction by moving both my company SIPP and ISA to Vanguard.  If I were able to reduce my average FMC in my Pension down from 0.20% to 0.17% with Vanguard then I would break even (I estimate my average fund charge would be 0.15%).  An added bonus is that I believe the fund choice to be the same, if not better, than that offered by my company L&G scheme.

Any obvious issues / concerns with this approach that I should watch out for?  For example, being out the market when there is greater volatility (corona virus) when I transfer from one pension to another?  Any other issues?

Another area where I would value opinions is whether I should consider going into either the LS funds (0.22% fund charge) or target retirement date funds (0.24% fund fees) rather than self selecting specific funds myself?  My current asset allocation is DIY based upon reading Hale's smarter investing.  It will therefore come with my amateur flaws and I am also not as diligent as I should be in re-balancing every 6 months, and I definitely have not been re-balancing from equities to bonds as retirement date comes closer.

This got me thinking if it would be a better option for me to pay the 0.24% fee for one of the target retirement funds that would re-balance my equity/bond split over time so that I can just leave it without re-balancing or tinkering?  Based upon my current investments I think the incremental cost of the target retirement fund would be ~£700/year when compared to the asset allocation I would self select (average fund charge of 0.15%).  I could just choose the target retirement 2030/2035 Fund (i'm currently 45) and leave it alone until i want to access it (ISA portion from early 50s and Pension portion from 58).

As an amateur would you go with your own allocation or take the hit of ~£700/year for an auto re-balancing allocation that would shift you away from equities as you approach target retirement date?

Thanks!

Albermarle

It is unlikely that your company will be willing to make contributions into anything other than the current workplace pension . Have you asked them ?

Linton

1) Fund charges vary over time - 0.17 vs 0.20 is not significant, it can happen from one quarter to the next.

2) Fund charges are already included in the fund's return - they arent an extra charged separately.  The performance difference between funds investing in different underlying assets will be much greater than the difference in fund charges.   On the other hand the platform charge is taken in actual money.

3) Most employers wont agree to make their pension contribution to anywhere other than their chosen provider.

4) Target retirement funds and a significant reallocation towards bonds is only a major concern for people taking annuities where you need to be certain the money is available at your retirement date.  If you are planning to drawdown, your asset allocation a few years before retirement should not be very different to that a few years afterwards - much of your pension pot probably wont be accessed for say 15 years which is plenty of time for a high equity allocation.

So it seems to me your case for transferring is very weak.

JamTomorrow

Albermarle said:

It is unlikely that your company will be willing to make contributions into anything other than the current workplace pension . Have you asked them ?

Not yet but I have the same assumption as you.  However, from reading the Q&A on the L&G site there doesn't seem to be any barrier to transferring existing pension holdings to another provider.  Therefore if I did this then I would still have my regular contributions from my company going into L&G (albeit zero'd out after my transfer).  I would then need to explore transferring the L&G holdings across, say once a year.

JamTomorrow

Linton said:

1) Fund charges vary over time - 0.17 vs 0.20 is not significant, it can happen from one quarter to the next.

2) Fund charges are already included in the fund's return - they arent an extra charged separately.  The performance difference between funds investing in different underlying assets will be much greater than the difference in fund charges.   On the other hand the platform charge is taken in actual money.

3) Most employers wont agree to make their pension contribution to anywhere other than their chosen provider.

4) Target retirement funds and a significant reallocation towards bonds is only a major concern for people taking annuities where you need to be certain the money is available at your retirement date.  If you are planning to drawdown, your asset allocation a few years before retirement should not be very different to that a few years afterwards - much of your pension pot probably wont be accessed for say 15 years which is plenty of time for a high equity allocation.

So it seems to me your case for transferring is very weak.

Thanks.
4) is something I had overlooked and I get your point.  I am hoping to be in drawdown for decades so agree that a target retirement date fund may not be as useful.