Calling all LGPS Pru AVC members - What are you investing in has you near retirement date?

jamjar92

@MX5huggy with the with-profits the only worry I have is with the MVR especially has the plan is to retire at 60.

"If money invested in the With-Profits Fund is taken out at any time other than on death or normal retirement date, a Market Value Reduction (MVR) may be applied; this may have the effect of reducing the fund value"

JohnWinder

If I understand the issue clearly: close to retirement one wants less risky assets; but if retirement investing will last another 25 years after retirement, then one might need to have some 'risky' assets because risk-free assets usually have low returns.

Here's someone's thinking on the matter:

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

And there's a lot here: https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

Laycity

JohnWinder said:

If I understand the issue clearly: close to retirement one wants less risky6 assets; but if retirement investing will last another 25 years after retirement, then one might need to have some 'risky' assets because risk-free assets usually have low returns.

Here's someone's thinking on the matter:

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

And there's a lot here: https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

That’s more relevant to a SIPP or a DC pot.
Most people want to take their AVC pot as 100% cash when they can and hence want to avoid a market drop just before they do this.

OldBeanz

The wife is in 2 high risk funds but these are within our overall risk strategy as the funds will be reinvested. The funds over the past year fell 25% from January to March but are now up 25%. Hang onto your hat

marycanary

Laycity said:

JohnWinder said:

If I understand the issue clearly: close to retirement one wants less risky6 assets; but if retirement investing will last another 25 years after retirement, then one might need to have some 'risky' assets because risk-free assets usually have low returns.

Here's someone's thinking on the matter:

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

And there's a lot here: https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

That’s more relevant to a SIPP or a DC pot.
Most people want to take their AVC pot as 100% cash when they can and hence want to avoid a market drop just before they do this.

Laycity said:

JohnWinder said:

If I understand the issue clearly: close to retirement one wants less risky6 assets; but if retirement investing will last another 25 years after retirement, then one might need to have some 'risky' assets because risk-free assets usually have low returns.

Here's someone's thinking on the matter:

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

And there's a lot here: https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

That’s more relevant to a SIPP or a DC pot.
Most people want to take their AVC pot as 100% cash when they can and hence want to avoid a market drop just before they do this.

Local Government AVCs taken at the same time as the pension are free of tax (assuming they do not form more than 25% of the total pension). This provides a cliff edge and the concern that the market will drop, either suddenly like last year or a slower decline over the year or two before retirement. I suppose this is similar to the situation many people faced when they were required to buy an annuity. The alternative is to keep a higher level of risk and transfer to a SIPP. Of course, if you do that you give up 100% tax free status and change to the usual 25% tax free on SIPPs.
This is why I have ended up 100% cash. Had I realised my retirement was to be delayed I would have pushed the change Equities - Gilts - Cash forward 12 months. With a 10/11 months before the new retirement date, I don't feel confident about moving it into bonds so it has to stay as cash. The negative is the 0.55% fee. On the other hand, I have continued adding the pot to take advantage of the 40% tax relief. I am not in any way complaining as I realise how very fortunate I am to have a guaranteed inflation proof pension and a tax free lump sum.

jamjar92

OldBeanz said:

The wife is in 2 high risk funds but these are within our overall risk strategy as the funds will be reinvested. The funds over the past year fell 25% from January to March but are now up 25%. Hang onto your hat

What fund(s) is your wife going to de-risk to because just before taking it in retirement you do not want a 25% drop.

AlanP_2

Laycity said:

JohnWinder said:

If I understand the issue clearly: close to retirement one wants less risky6 assets; but if retirement investing will last another 25 years after retirement, then one might need to have some 'risky' assets because risk-free assets usually have low returns.

Here's someone's thinking on the matter:

https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/

And there's a lot here: https://earlyretirementnow.com/2018/07/25/why-is-retirement-harder-than-saving-for-retirement-swr-series-part-27/

That’s more relevant to a SIPP or a DC pot.
Most people want to take their AVC pot as 100% cash when they can and hence want to avoid a market drop just before they do this.

I disagree, it is exactly the same as a DC or SIPP pot if you intend to invest the AVC lump sum once taken. 

Our LGPS uses Standard Life as opposed to Pru but the principles are the same. Whether an example £100k of funds is worth £80k or £120k on Retirement Day does not particularly matter as it will buy the same value in non-AVC investments on Retirement Day plus 1 theoretically.

In practice there will be a delay between provider cashing in and you reinvesting after the cash has hit your bank account where market prices will move. You might win or you might lose but again that will be the same whatever the value in the AVC when sold.

Again practically, many of us may not intend to invest he whole pot and will want some as cash to perhaps repay mortgage or buy a new car or something. In that case judicious de-risking of the "must be in cash" portion would be sensible. 

OldBeanz

jamjar92 said:

OldBeanz said:

The wife is in 2 high risk funds but these are within our overall risk strategy as the funds will be reinvested. The funds over the past year fell 25% from January to March but are now up 25%. Hang onto your hat

What fund(s) is your wife going to de-risk to because just before taking it in retirement you do not want a 25% drop.

We do not particularly need the cash. It will be re-invested in similarly high risk funds and or shares. We only realised she could do this a few years ago so it is a bonus in effect.

jamjar92

@OldBeanz @Alan_p2 suppose not thought about  it in that way. I think I would need to decide how much of the pot I am going to reinvest. The plan at the moment is paydown the mortgage to zero, any debts we may have at that time, create a cash buffer.

bonnyrigger

I have my LGPS AVC split 50% each in UK and Global Equity passive funds, would love to see how they are doing but Prudential sent me email in October saying "We're changing the way you access PruRetire and we'll be in touch in the next couple of months". No contact since then and no online access - anyone else had the same?