Legal & General Workplace Pension limited investment choice

Victorwelldue

I'm 49, hoping to retire by 62 and want to be invested in something simple & diversified akin to Vanguard LS60 (60% equities). However my workplace DC pension with legal & general has very limited options when it comes to fund choices. I'm currently in the default fund PMC multi-asset fund 3 (the "3" = 3rd generation, its risk 4 from 1-7 but still only 40% equities).

I'm aware L&G do have multi-index funds similar to what I'm looking for but they are not available for me to select from within the workplace pension. There's only two other multi-asset funds that seem half decent that I can choose from:
PMC Consensus Index Fund 3 (74% equities, 28% UK, 21% North America)
PMC Threadneedle Managed Equity 3 (I think this is around 89% equities, fact sheet not entirely clear, to me at least)

None of the above funds seem ideal to me though I'm happy to be told otherwise. There are also various 100% equity funds to choose from but that's too risky for me. Note I've disregarded all other choices as they are all even lower risk with lower equity %.

I'm actually quite surprised that there is nothing similar to LS60 that I can choose which makes me think I may be missing something. It was previously suggested that I split between current fund and another but the fund I'm in is a "Lifestyle" fund and L&G state "if you choose one of our lifestyle profiles, you won’t be able to select any other investments".

So what are my options? This seems like something that should be fairly simple but isn't. I vaguely seem to recall reading something elsewhere that said I could do regular transfers from my workplace pension to another platform then I would have more investment choice. Is this possible? If so how would I go about it and what are the risks/downsides?

Marcon

Are you sure your employer has restricted you to the core funds only? Otherwise, have you looked at the full range: https://www20.landg.com/DocumentLibraryWeb/Document?lgrouter=CommApp&targetApp=MANAGEYOURSCHEME_DOCUMENTLIBRARY_ENTRY&reference=Fund_Summary_WPP_WBOP_GEN3.pdf

Victorwelldue

Don't think my employer has imposed any restrictions. Yes I have access to all of those funds you have linked but other than the two I have already mentioned I cant see any multi-asset/index funds with an approx. 60% equity / 40% bond split. There are some named 60/40 but I believe that refers to the split between UK & overseas within a 100% equity allocation. Happy to be corrected if I'm wrong? 

Marcon

You don't have to put all your money into any one fund. If that's the split you are looking for, anything to stop you moving 60% of your savings into one or more equity funds, and 40% into bond funds? That way you have masses of choice.

Victorwelldue

Its just that I'm no expert so its difficult to decide which two funds to pick if I have to do it that way. It also makes past performance comparisons more difficult & charges will likely be higher. With something "ready made" like LS60 I would feel more confident as basically know what I'm getting and often see it recommended for people with similar circumstances to my own (age, risk appetite etc). I take it that I cannot make regular transfers to another platform then? 

Also I keep hearing that my current 40% equity fund is not adventurous enough for my aims which I do accept as I've read this so many times here & elsewhere but what I'd really like to understand is why then it has outperformed some 60% equity funds over past 5 years? For example LS60 past 5 year average return is 8.96% but my current L&G 40% equity fund average for same period is 9.57%. I understand that the past few years have been good for investments but then shouldn't that mean that a 60% equity fund should have outperformed a 40% equity fund over same period? Is this because bonds that make up most of the fund balance have done well over this period but they are not expected to do so well over next decade or so due to potential inflation etc? Is that the logic?

Marcon

Victorwelldue said:

Its just that I'm no expert so its difficult to decide which two funds to pick if I have to do it that way. It also makes past performance comparisons more difficult & charges will likely be higher. 

Take a deep breath... Your original post had the heading 'limited investment choice' but you've got lots - and that could work to your advantage. If you want 60% equities and 40% bonds, pick 6 equity funds and 4 bond funds and put 10% of your current savings and future contributions into each. Then watch what happens over the next months and you'll get an immediate picture of how each fund is performing and whether the charges are making any difference (assuming they have different charges in the first place).

Victorwelldue said:

With something "ready made" like LS60 I would feel more confident as basically know what I'm getting and often see it recommended for people with similar circumstances to my own (age, risk appetite etc).

But you know what you're getting if you pick the funds. You say you 'often see it recommended' but that doesn't mean it's a good recommendation, particularly if you are talking about a site like this where answers are based on very little information about the person asking the question.

Victorwelldue said:

I take it that I cannot make regular transfers to another platform then? 

Check the terms of your membership - but seems needlessly complicated when all the options you need are readily available.

Victorwelldue said:

Also I keep hearing that my current 40% equity fund is not adventurous enough for my aims which I do accept as I've read this so many times here & elsewhere but what I'd really like to understand is why then it has outperformed some 60% equity funds over past 5 years? For example LS60 past 5 year average return is 8.96% but my current L&G 40% equity fund average for same period is 9.57%. I understand that the past few years have been good for investments but then shouldn't that mean that a 60% equity fund should have outperformed a 40% equity fund over same period? Is this because bonds that make up most of the fund balance have done well over this period but they are not expected to do so well over next decade or so due to potential inflation etc? Is that the logic?

Many of the things you'll have been reading (with some notable exceptions, but they are not in the majority) will have been regurgitating the long-held maxim that over the longer term equities outperform other asset classes. If the underlying equities haven't done well in a particular fund, it could be other factors at play such as UK/non-UK.

Have another read of all the L&G options (glass in hand, wet towel round head if necessary!) and ponder whether your desire for adventure might actually be met, at least in the immediate term, by simply picking a lot more funds than one or two.

dunstonh

Its just that I'm no expert so its difficult to decide which two funds to pick i

You have a half-decent range available on the L&G pension.  You accept your knowledge is not strong here and its difficult to pick from that range.  Yet there are plenty of multi-asset options available.

With something "ready made" like LS60 I would feel more confident as basically know what I'm getting and often see it recommended for people with similar circumstances to my own (age, risk appetite etc). I take it that I cannot make regular transfers to another platform then? 

VLS60 has actually been quite weak (relative to comparable funds) in recent years.   Just because the you have heard the Vanguard name and that they have a multi-asset range does not mean theirs is the best.   L&G is a strong brand name and have been active with passives for decades.  Long before Vanguard came to the UK.    Their multi-asset funds with underlying passives are strong (although certain risk levels have weaknesses).

Also I keep hearing that my current 40% equity fund is not adventurous enough for my aims which I do accept as I've read this so many times here & elsewhere but what I'd really like to understand is why then it has outperformed some 60% equity funds over past 5 years?

Economic cycles are more like 10-15 years nowadays.  If you pick 5 years then you are only getting a proportion of the cycle.  Is it the good proportion or the bad proportion?    The last 5 years have had two drops in excess of 20%.   The five years prior to that had none.    

 I understand that the past few years have been good for investments but then shouldn't that mean that a 60% equity fund should have outperformed a 40% equity fund over same period?

The percentage of equity to fixed interest securities is not a good guide for returns or risk.    If the equity content has been high in UK equity, then that would have created a drag in that period (VLS is higher in UK equity than most similar funds).

You can have a higher risk spread with 40% equity than another spread with 60% equity.     VLS just use equity for simple marketing purposes (and it works as it gets them business).

 Is this because bonds that make up most of the fund balance have done well over this period but they are not expected to do so well over next decade or so due to potential inflation etc? Is that the logic?

Just like equities, you get many different types of fixed interest securities.  Whilst VLS is fairly rigid, others, including L&G are more fluid on the types they use.   Not all fixed interest securities are used for risk reduction.  Some have the volatility level of equities.  Again, another reason why equity/fixed interest splits are not sufficient by themselves to indicate risk.

gm0

I have an L&G occupational though not necessarily the same one as yours.  They did a lot of these over the decades.   Each with its own trustees, costs, fund selection etc. etc.

Automatic Lifestyling was a feature they added to the L&G offer some years ago to run you down in terms of equity % as you approach retirement.  Ending up in safer assets just before buying an annuity at the scheme retirement age.  This design may suit you or it may not be what you want at all.  (Such as if you intend to drawdown and remain invested for another 40 years from early retirement then lifestyling is exactly what you don't want.  You just want an asset allocation that suits your long term risk appetite for deaccumulation.  Lifestyling may have annuity and drawdown profiles to select but look carefully at how low it moves the equities dial and check that's right for you.  Prior to that you can choose (during saving) how aggressive you choose to be at age 25 / 35 / 45 / 55 -  I blundered along at 100% throughout with a couple of surprises which felt bad (eek - fund halved) but actually were *good* in the end - buying cheap units. 

I am a few years ahead of you and lifestyling would have sold my equities in a prolonged technology and growth stock upswing this past decade to replace them with pretty much -ve yield cash and gilts.  And indeed lowering my risk posture to short term issues as it is designed to.  But as I am not buying an annuity on a fixed date.  Lifestyling is protecting me (from a sudden correction and short term swing in asset prices) close to that fixed date - which is a problem I don't actually have.

Only when I approached pension access and wanting TFC to be available regardless of sudden market movements did even 25% out of core long term portfolio (equities/bond mix) start to look more attractive.  Clearly if you don't lifestyle then any adjustment upon approaching pension age will be more sudden. The cost of leaving the market 10% per year early - would have been substantial at least in my particular sequence of returns 2010-2020.   I'd suggest you start to think about your long term objectives for pension access and whether lifestyling is right for you.  Might be.  Might not be.  There is usually a "freestyle" option where they don't fiddle automatically.   Consider whether it puts you in the right asset mix and position you want at 50, 55, 65.

I have been looking at the L&G multi-asset offer recently.  PMC Threadneedle Managed is a "fund of funds" active so it is a bit tricky to get to grips with.  Layers of opacity.  You can see the geographic and other active funds in the mix on the fact sheet and then look those up (the ones with a decent % by weight.  If you wanted that fund manager and active mix then depending on the cost in your scheme it might be an OK value on cost vs buying threadneedle a different way.  Though that might be a comparison with an RRP that nobody actually pays. The same lead fund manager name was on a number of the underlying funds which I also dislike.   I am not saying it's bad.  Just that I find the investment mandate hard to follow beyond - I am choosing this guy at Threadneedle to stock pick on my behalf in a series of market categories. 

The L&G Multi-asset 3 is simpler to understand and doesn't look terrible.  Designed for ease of use. Nothing too exciting.  Risks (+volatility) are theoretically lowered as is upside potential.   If you don't like the mix they have chosen then the solution may already be at hand.  if you want a % equities and a % other that you pick - then a 2-3 fund solution may suit.  It should not be too hard to build a global passive holding cheaply if your list includes the L&G UK (FTSE All Share TR) tracker and the L&G World ex UK one.  (Pick home market bias % (Global market weight or a higher or lower % to taste).

My scheme did not have the World ex UK one so I ended up using a L&G Global Ethical (FTSE4Good Global) tracker (which is just world equities (developed markets not EM) with a tiny set of knockouts for ethical considerations.  So it was US heavy @ 50% (i.e. market weight).

This can be set your desired % for current holdings and contributions.  Rebalance now and then but no great rush. 

The bond or cash fund will need to be chosen alongside.  This can be where selection gets more difficult in current conditions.  Cash isn't a good idea for long term accumulation.  And the bond fund selection may be very limited in an occupational scheme - there may only be one with a mix of gilts, corporates, medium length etc. etc.  Understand what is in it for interest rate risk (rates going up hurting long duration bonds) and credit default risk (how much EM and US corporate B and below debt is in it).  All falls under "know what you are buying".  These factors apply of course to the bond element of any given multi-asset as well.

There are other L&G pension equities active funds which show up but a number of them have composite benchmarks and/or include currency FX hedging as part of the design.  Which I don't like.  Under the conditions 2010-2020 - global markets up, £ down - my unhedged funds have done well (nominal terms albeit the £ doesn't buy what it once did) and the hedged alternatives really did not impress net the cost drag.  Other conditions could be different.  But you will not find huge enthusiasm on the board for currency hedging as a long term accumulation fund option.   Takeaway is read the fact sheet carefully.

The Consensus looks the most promising (and vanguardesqe - higher home market bias).  I just used the cheapest raw global 100% equities funds until it was time to reduce risk - so the question of the least worst packaged fund didn't arise for me.

Thrugelmir

LS60 is an increasingly outdated portfolio model. That may have been appropriate in past decades. Now requires broadening out as the bull market in Governments bonds is finally over. 

jamesd

Global equity tracker excluding UK is L&G PMC World (Ex-UK) Equity Index 3 NED3

UK equity tracker is L&G PMC UK Equity Index 3 NBC3

Global bond tracker excluding UK is L&G PMC Overseas Bond Index 3 NBX3 

UK long bonds L&G PMC Pre-Retirement 3 NEN3 but I suggest picking one of the Sterling strategic bond funds instead.

Those four will let you build the equivalent of one of the Vanguard's. Say you want a 60% equity Lifestrategy equivalent, you might mix them as 50% 10% 35% 5%. That's overweight UK still.

Victorwelldue

Thanks to everyone for the advice given. I shall read all posts and try to absorb as much of what has been said as possible, then carefully consider my options again.