L&G private pension - allocations gone wrong, nearing retirement

gerrycan23

I'm after some guidance as to where to take this next..

I am due to retire in 18 months time. I have a private pension with Legal & General which I've held for many years. When I opened it I contributed a lump sum and since then I have contributed an amount every month. With this new world that's now upon us, I found the time recently to sit down and have a good look at the pension.

 I hold the 'UK Equity Lifestyle Profile' pension which consists of a UK equity fund, fixed income fund and cash. The idea is that every year (beginning 10 years away from retirement) a portion of money is shifted out of the equity fund and into fixed income / cash, so that once retirement age is reached you're left with mostly fixed income and some cash (little risk). So theoretically, by now (18 months out from retirement) I should be holding zero equities and be mostly in fixed income & cash. See the graph on the first page here: www80 [dot] landg [dot] com/DocumentLibraryWeb/Document?reference=W12460_LLAY.pdf (sorry for the broken link, I'm new and can't post links yet!)

However! on closer inspection I've discovered that nearly 70% of my pension is STILL in the UK equity fund. As a result, my pension has taken a big hit recently with the market sell off.   

I immediately contacted L&G as this is clearly not right and after numerous chaser emails, 3 weeks later they finally called me. The agent was initially perplexed as to why this has happened. He went away to investigate and returned informing me that only the lump sum portion of my contributions (made 15/20 years ago?!) was being moved out of equities every year as per the lifestyle profile and my monthly contributions were going straight into equities and remaining there. 

From my memory this was never explained to me and there's no mention anywhere on the info they send me nor their website that monthly contributions won't be automatically switched every year. I am now left in a mess as I'm a huge amount down and fast approaching retirement. Would there be grounds to make a claim against L&G? Any advice as to where to take this next? Any help would be appreciated, thank you!

dunstonh

 I am now left in a mess as I'm a huge amount down and fast approaching retirement. 

Are you sure you are hugely down?   Probably between 10% and 20% (UK equity being hit harder than most areas)

SIngle sector investing is not a good idea. How did you end up in a UK equity fund and not a global fund or multi-asset fund?

Would there be grounds to make a claim against L&G?

What have they done wrong?    If you want to make a complaint, you have to identify wrongdoing.  You not being aware or not remembering does not mean they have done something wrong.      

Also, it is probable that had they started derisking earlier as you think they should, you would actually be financially worse off.

Is this an individual pension or an old workplace pension?

Albermarle

Do you have the original paperwork . Maybe you ticked one box for the lump sum and another one for the monthly contributions . Would be an easy thing to do if you did not really understand about these things .Or maybe L&G did make a mistake. 
As dunstonh says if you get a calculator and go back and look at past performance, you might well find that your pension is bigger than it would have been  had it been 100% in the lifestyle product , despite the recent market drops ( which have not been that large in historical terms ) . In which case would be difficult to claim compensation !

AnotherJoe

I think there are three key mistakes here;

1. Your only fund is a UK Fund

2. Your only fund is a UK Fund

3. Your only fund is a UK Fund

As for the rest, well as said by others its quite likely that your inadvertent mistake of not ticking two boxes has made little difference due to the market rise over the last 10 years (aprt from past few months), maybe even  given you better performance than had it fully gone to cash in that time.

Why did you go to lifestyle? Do you need that money in 18 months time? Is it your plan to buy an annuity?

Dox

gerrycan23 said:

I'm after some guidance as to where to take this next..

I am due to retire in 18 months time. I have a private pension with Legal & General which I've held for many years. When I opened it I contributed a lump sum and since then I have contributed an amount every month. With this new world that's now upon us, I found the time recently to sit down and have a good look at the pension.

However! on closer inspection I've discovered that nearly 70% of my pension is STILL in the UK equity fund. As a result, my pension has taken a big hit recently with the market sell off.   

I immediately contacted L&G as this is clearly not right and after numerous chaser emails, 3 weeks later they finally called me. The agent was initially perplexed as to why this has happened. He went away to investigate and returned informing me that only the lump sum portion of my contributions (made 15/20 years ago?!) was being moved out of equities every year as per the lifestyle profile and my monthly contributions were going straight into equities and remaining there. 

From my memory this was never explained to me and there's no mention anywhere on the info they send me nor their website that monthly contributions won't be automatically switched every year. I am now left in a mess as I'm a huge amount down and fast approaching retirement. Would there be grounds to make a claim against L&G? Any advice as to where to take this next? Any help would be appreciated, thank you!

You 'found the time recently', didn't like the outcome of what you were seeing, and decided to blame L&G in the hope you'd get the better of what you chose to do (and obviously didn't 'find the time' to review for 15-20 years) and what you might have done if you'd completed the form more carefully? Nothing 'needed to be explained' - the instruction on the form would have been explicit (although if you didn't understand it, you could have asked for clarification). Good luck with that one.

OR...if you completed the form correctly (i.e. monthly contributions should also be in the lifestyle option), L&G should put you in the better of your current position, or the position you would have been in had they acted in accordance with your instructions. Free help in sorting out the problem from TPAS: https://www.pensionsadvisoryservice.org.uk/contacting-us

billy2shots

As others have said, your mistake (or theirs) actually sees you better off. This downturn has only cancelled out some/all of last years gains so you still end up better off than de-risking earlier. 

Phone and email them by all means but to say thanks. Pop open the bubbles, you got lucky. 

gm0

The tone of some replies is a tad critical even if essentially correct re: the negative impact of lifestyling in the past decade of bull market. ie. the when do you need the money question vs wisdom of lifestyling.  All this L&G structure predates pension freedoms. Situation is far from uncommon.  I have a late 1980s employer pension scheme setup with L&G which also had a home currency, home market - L&G UK FTSE All Share passive tracker as it's "default" fund back in the day.  Saved in it for 20+ years.  Loses points for diversification.  But at least it was cheap for long term accumulation. 0.04%.  And UK market has long had a lot of foreign earnings in the large cap end.  Many (not all - but I'd argue most) people joining in their 20s were/are not equipped by schooling to second guess the offered defaults. Trustees implemented Lifestyling and additional fund options later on an opt in basis.  I remember it happening but did not participate as it seemed a long way to retirement and I preferred to derisk (if relevant) later in the circumstances at the time.  Of course Pensions freedoms now mean that a 40-70% equity position can still be highly appropriate in a long retirement in drawdown.  But they, and we, didn't know about drawdown then - the context would have been encouragement of open market annuity purchase at a fixed date for which the lifestyling makes sense even if you can argue about the shape of the curve and the loss of return during decade of adjustment.

If asset allocation is now a concern - what may be more interesting is to look at the cost benefit of the other options offered in your scheme. Assuming you have access to unit price data for the prior bull run and the recent correction.  In mine funds which underperformed substantially (relative to passive global) in the bull run because of added features and have fallen "less" now.  But fallen they have.  When we are bit further into the new business cycle post pandemic it will be interesting to see if any value turns up in some of the more complex fund choices - diversified growth, active with partial hedging etc.  As things stand I remain doubtful about them as they lagged so much in the recent bull market (currency hedging features and cost drag mostly). 

L&G are adding drawdown as a service option to historic pre-drawdown employer schemes under outsourced operations. If the trustees buy it (with L&G management). So leaving these schemes in the next few years for full SIPP self investment - become an asset allocation, protection, cost tradeoff.  

I am trying to bottom out presently what "moving into drawdown means" in this new L&G setup i.e. Are you moved (entering drawdown) into an L&G master trust which is still insured like the original one or effectively into a SIPP wrapper which largely isn't. Documentation where it exists is as yet unclear. My scheme "with drawdown" docs will appear later this year around migration.

kinger101

You should have been checking you pension at least yearly to see how the fund was performing, and pick up the error then.  As others have said,, there's a good chance this mistake has put you in a better position due to a 10 year bull market.

Could you confirm if you intend to buy an annuity?  If it's drawdown, being at 0% equities at retirement isn't necessarily safe when you factor in inflation risk.

jsinc

Some replies are harsh.

Similar happened with my mum and Royal London (monies split between three 100% equity funds that should have been gradually disinvested from age 60 via a lifestyle plan). In her case she had correspondence confirming the mistake and Royal London agreed to their error. As it turned out no loss was suffered and actually worked out in her favour. We double checked this ourselves using online sources but it took a while.

I think you first need to look for any supporting paperwork or correspondence and have a go at calculating the counterfactual position. "The agent was initially perplexed as to why this has happened" suggests your situation may not be normal. Then take it from there with them if loss has been suffered and you can prove it (or find enough info to think it's worth pursuing). I'd guess (but don't know) that if you raise it as a letter of formal complaint they may have to provide evidence that their position is correct or not. But you may be best checking the sums first.

dunstonh

In her case she had correspondence confirming the mistake and Royal London agreed to their error. As it turned out no loss was suffered and actually worked out in her favour. We double checked this ourselves using online sources but it took a while.

No loss would be the most likely outcome in most of these cases.   Lifestyle risk reduction has provided the better returns only around 15% of the time (when measuring periods).     Risk reduction is not there to give you the better return.  It is to reduce the loss of money in the very short term.

Most people at this stage are back to where they were at some point in the last 12 months.   So, a 10 year reduction in risk would have seen them miss out on one of the longest growth periods in history.

"The agent was initially perplexed as to why this has happened" suggests your situation may not be normal.

The average front line call centre worker has a very low knowledge (there will be some more knowledgeable ones as well - so it is a generalism).  Many are short term contract workers on a rolling basis.   Many insurers have hundreds of different versions of their plans over the decades.   You tend to find that the older the plan, the less knowledge exists on the immediate front line.      Any IFA will tell you that they often have to tell the call centre worker what has gone wrong or how their plan works as the call centre worker will not know.   So, I wouldn't put any weight on a comment that the the call centre worker was perplexed.

I'd guess (but don't know) that if you raise it as a letter of formal complaint they may have to provide evidence that their position is correct or not. But you may be best checking the sums first.

If a complaint was raised, they would look to see if anything was done wrong.   i.e. by looking at a copy of the original application.   If they have matched the application then they have done as intended.

jsinc

dunstonh said:

No loss would be the most likely outcome in most of these cases.   Lifestyle risk reduction has provided the better returns only around 15% of the time (when measuring periods).     Risk reduction is not there to give you the better return.  It is to reduce the loss of money in the very short term.

Most people at this stage are back to where they were at some point in the last 12 months.   So, a 10 year reduction in risk would have seen them miss out on one of the longest growth periods in history.

The average front line call centre worker has a very low knowledge (there will be some more knowledgeable ones as well - so it is a generalism).  Many are short term contract workers on a rolling basis.   Many insurers have hundreds of different versions of their plans over the decades.   You tend to find that the older the plan, the less knowledge exists on the immediate front line.      Any IFA will tell you that they often have to tell the call centre worker what has gone wrong or how their plan works as the call centre worker will not know.   So, I wouldn't put any weight on a comment that the the call centre worker was perplexed.

If a complaint was raised, they would look to see if anything was done wrong.   i.e. by looking at a copy of the original application.   If they have matched the application then they have done as intended.

Fair enough. I just think most will find calculating the counterfactual difficult if not impossible. Particularly if like the OP contributions have been monthly. The insurers have actuarial departments that can run the numbers. But it leaves customers dealing with a potential mistake in a difficult (pragmatic) position.

It may not just be about the initial application. In our case disinvestment resulted from a later choice not to complete and return a reply slip requesting otherwise. As a consequence the plan was moved into Lifestyle as stated, but due to a system error the plan was removed from Lifestyle back to original fund choices. This only turned up when they looked into it.