Does my Scottish Widows DC workplace pension have too much gilts/bonds?

Hexane

I'm in my late 40's, not planning to retire until about 60, more details below.

I have a Scottish Widows workplace pension which is currently the destination of most of my investment for retirement. It's currently in what I believe they call a "lifestyling" setup, which means it will automatically reduce the proportion of equities it's invested in as I approach retirement age. If I change anything about my investments (other than the planned retirement age) then this "lifestyling" will be switched off and can't be switched back on.

Because I am a long way from retirement (more than 15 years by the retirement age set on the plan) I would expect it to be invested mostly or entirely in equities at this stage. However, it is invested 80% in equities, 10% in Index Linked Gilts, 10% in Non Gilt Sterling Bonds. Or rather, all purchases have been made in those proportions, and at present all future purchases are being made in those proportions as well.

The details:
80% SW SSgA 50:50 Global Equity Index Pension (yes this is the one that is 50% UK equities and only about 17% USA equities, a very heavy UK weighting)
10% SW SSgA Index Linked Gilts Over 5 Years Index Pension
10% SW SSgA Non Gilt Sterling Bond All Stocks Index Pension

Scottish Widows' wonderful website does show me more information about these funds (which I can post here if useful), it doesn't tell me what other funds my pension with them can be invested in. They suggest I phone them if I want to change what I'm invested in.

Given that 100% equities is likely to bring more potential gains (although also more short to medium term risk) than gilts and bonds, am I likely to be justified in making my first step of rationalisation, phoning them up and telling them I want 100% (instead of 80%) of my future contributions to be used to buy "SW SSgA 50:50 Global Equity Index Pension"? And then I can review this myself in 5 years or so?

My thinking is that the default Scottish Widows pension has a lower amount of equities than I might expect (or want) because they are thinking their pension investors have a generally cautious mindset and would want that.

I realise the other problem with this (including after my proposed change) is that it's a very heavy weighting towards the UK, I'm OK with that for the time being firstly because I have a more globally proportioned set of equities in my S&S ISA (HSBC global strategy), and secondly because I am reluctant to be investing heavily in USA equities right now.

The AMC on the Scottish Widows pension is a reasonable 0.35%

My situation;
Late 40's, basic rate taxpayer, single, occasionally at risk of moving into higher rate if it weren't for the pension contributions.
Currently contributing about £1000 per month into the Scottish Widows pension (inclusive of tax relief and employer contributions).
Have around £40,000 in the Scottish Widows pension.
Have around £170,000 in an Aviva DC pension from a previous employer, not thinking of combining this with the Scottish Widows pension because the Aviva one has a 0.15% AMC.
£22,000 in a S&S ISA in a mishmash of HSBC global strategy funds (overall about 40% equities).
£30,000 in cash, mostly in competitive regular saver accounts - holding so much cash because might be buying a car soon (but would retain an emergency fund after car purchase.)
Property I'm living in valued at £400,000 with a £100,000 mortgage on a HSBC lifetime tracker mortgage paying about 1.4% - payments currently about £500 per month - and set to run until I'm about 68 - see no advantage in overpaying.
Am on target to have a full state pension entitlement by age 60 (have some previous years to make up which I will likely do just in case I'm unable to make contributions for some reason at some point during my 50's.)
Objective is to maximise returns towards retiring at about 60 but without incurring undue risk especially as I approach that age. Expect to be able to access the DC pension funds at 55 (or soon after?) but state pension not until 68.

I realise that a better approach might be to totally review both of my pensions and all other investments and come up with a grand overall plan, but this first swap seems an easier step to take just to get my current relatively high level of contributions working harder over the next 10+ years?

Albermarle

If you are in their standard default or lifestyle funds they are never going to be 100% equities . Most of their  customers would blame them if their funds dropped 40% in a week in a market crash . To be honest even 80% seems a bit high for this type of fund in my limited experience. A cautious fund would have as little as 20% equity and 80% is often labelled as Adventurous. 
The heavy UK weighting is typical for these traditional pension funds/provider and has been a drag on returns in recent years .
What should the UK % be is a topic of much debate . Somewhere between 5%  and 30% seems to be the usual range discussed on this forum . On the other hand you are not the only one thinking the US market is looking toppy but you can not ignore this market though.

Scottish Widows' wonderful website does show me more information about these funds (which I can post here if useful), it doesn't tell me what other funds my pension with them can be invested in. They suggest I phone them if I want to change what I'm invested in

If that is correct then it is in the Dark Ages !

 because the Aviva one has a 0.15% AMC.

Surely this must be plus fund costs ?

dunstonh

Scottish Widows' wonderful website does show me more information about these funds (which I can post here if useful), it doesn't tell me what other funds my pension with them can be invested in. They suggest I phone them if I want to change what I'm invested in

I just grabbed a funds list off their website for a workplace pension.   Remember workplace pensions rarely offer platform level functionality.    They are dumbed down on purpose as most people don't understand what they are doing and don't need that functionality.

because the Aviva one has a 0.15% AMC.
Surely this must be plus fund costs ?

If the employer subsidised the plan it's possible.   However, Aviva do have several pension types where there is an AMC for the fund and a charge for the provider/platform and you need to put the two together.

MaxiRobriguez

I don't think 80/20 is too cautious at your age. Theoretically yes there will be some drag against an all equity portfolio but your bond hedge may give you an advantage in the near future if equity prices ease after the huge rallies over the past eighteens months.

What I would suggest, if you are comfortable with more hands-on management, is to not have "retirement" funds which automatically move you towards more bonds the older you get. The reason for this is:
1) If you can do it yourself, you can be more tactical with the allocations - ie, keep equity allocations higher for longer if equity is in a rut, or opposite side of coin introduce bonds faster if equity markets look on the edge.
2) If you move into drawdown rather than annuity then you probably want to maintain a larger equity allocation for much longer. Having majority bonds at 60 with potential 30 years left of your portfolio to drawdown on is not efficient. 

Thrugelmir

Hexane said:

Given that 100% equities is likely to bring more potential gains (although also more short to medium term risk) than gilts and bonds, 

If you've only around 10 years to your planned retirement date. Then you need to consider how much risk you can afford to take. 100% equities when the longest bull market in history has already been running 12 years is extremely bold.  

masonic

I would say that allocation seems quite reasonable, and the fees are very competitive too. I wish my scheme was this good!

It's always possible to make adjustments to your investments outside of your pension to offset things like the UK bias. Appreciate you've got a lot more within pensions than outside!

tebbins

80/20 is fine and though you've been unlucky with the high UK weighting over the past decade, what does well in one decade (ie the US) doesn't tend to fare as well in the next and vice versa. Personally I would stick with your allocation because to reallocate towards the US now would be like selling low to buy high.

Albermarle

 because to reallocate towards the US now would be like selling low to buy high.

Maybe, maybe not, nobody knows . I partly reallocated away from US 3 or 4 years ago as everybody was saying the US market had peaked...........

tebbins

Albermarle said:

 because to reallocate towards the US now would be like selling low to buy high.

Maybe, maybe not, nobody knows . I partly reallocated away from US 3 or 4 years ago as everybody was saying the US market had peaked...........

No one knows when any corrections will come, but decade by decade you can make reasonable expectations. 4,400 is 57% higher than 2800 starting 2018, and nearly double 2275 starting 2017(S&P 500 index prices). The CAPE was around 30 then, it's closer to 40 now. The dividend yield was around 2% then, it's closer to 1% now.
This is firmly in bubble territory and most of the rest of the world isn't. That said, Robert Shiller himself acknowledged that valuation measures are terrible at timing crashes and the market can stay high for a while.