Is it a good time to put pension in higher risk option?

LouP25

I have £3000 invested with Aegon. I had it on Risk Level 5, and it was growing nicely before Covid-19 pandemic. In March 2020 my pension started falling rapidly (around£100  per day), so I transferred it to Risk 1. I stayed in Risk 1 until now, and grew by around £100 in a year. A few days ago I switched it to Risk 2 and it fell by £20 in just 2 days.

Well, I'm not going to add anything more to Aegon, I'd rather do investments into companies want to invest in different platforms. But I'm just curious, is now a good time to put this £3000 into Risk 3 ? Or what can I do with this pension (apart from losing to inflation)? Have markets recovered for higher risks I had before?
Any advice will be much appreciated.

dunstonh

 had it on Risk Level 5,

Is that out of 5?  or 7 or 10 or 20?

 In March 2020 my pension started falling rapidly (around£100  per day), so I transferred it to Risk 1. I stayed in Risk 1 until now

oh dear.  What a shame.   2020 turned out to be a very good year in the end.  And 2021 has been too.  

and grew by around £100 in a year. A few days ago I switched it to Risk 2 and it fell by £20 in just 2 days.

An economic cycle is around 10-15 years.    If we say 15 years, that is 5475 days.    So, for 0.03% of it you lost £20.  

Well, I'm not going to add anything more to Aegon, I'd rather do investments into companies want to invest in different platforms.

Before you do anything else, you need to read up and understand about investing.  You have already made three classic newbie mistakes 1) by reducing risk after a fall and missing out on recovery  2) looking at these things on a daily basis  3) thinking an alternative provider/platform will be better in terms of returns.

But I'm just curious, is now a good time to put this £3000 into Risk 3 ?

Depends on how long you are investing for.   Risk is diluted by time.  However, behaviour risk appears to be your main problem.  You need to overcome that.

Or what can I do with this pension (apart from losing to inflation)?

Put it back how it was and leave it alone.  Close your eyes to it and stop making bad decisions.

Have markets recovered for higher risks I had before?

If you are talking conventional risk scales (i.e. not niche/silly risk levels) then higher risks have consistently beaten all lower risk levels over the long term.  However, they have had short term periods when they have had the greatest losses.  Indeed 2020 was a good example of that.   If you had not changed the risk level, it would have gone back up to where it was pre Covid around June and the latter part of the year saw great gains.  

LouP25

this is so helpful! Thank you for replying. I understood my mistakes. Better to find out now than later.

[Deleted User]

You should not be watching what is happening to 3K. Its neither here nor there. You should be focusing on putting more  money into retirement investments.

In general tolerable level of volatility depends on where you are in your career. One hopes its early days. Means you can sustain high “risk”. 

Workerdrone

For balance I have an old work group personal personal pension scheme which I started in 1994 and stopped paying into in 2004. I started with a pretty low risk high equity with profits fund then after the dot com crash I figured the world is never going to stop needing technology and it would be a good time to buy the dip. I added the technology fund in at that point 60% to the WP and 40% to the Tech fund.

When I left my old employer in 2004 my pot was worth £29686. Today, with no further payments from me it stands at £145k. It was £119k a year ago, £95k the year before that and £86k the year before that.

I suppose its arguable whether Technology funds are really as high risk in the modern world but they've certainly performed consistentley well over the period I've just left them to their own devices for.

tacpot12

To answer your orginal question, you shouldn't worry about timing; as others have pointed out, trying to guess how markets are going to move in the short term is a mug's game. Whether you should be invested in more risky funds is, to my mind, more dependent on your age and your investment aim. 

I mainly invest for my retirement (I'm retired now), and have a 45 year investment aim, so I am also invested in a lot of funds that are a 5 on the risk scale. I need my funds to outpace inflation and funds that are at risk levels of 1, 2 or even 3 are unlikely to do this. I need 4 or 5s in my opinion. 

If you are in your 30s and investing for your retirement, you might have a 60 year investment time frame, and so have both the time and the need to invest in relatively risky investments. While investments can be volatile, even funds that are at risk level 5 are pretty safe compared with investing in wiskey, art and classic cars. You have the benefit of an expert fund manager and a range of safeguards implemented by the investment houses and the regulators. 

Scrudgy

You need to state what age you are for context.

if you are 20 something then you should have left the £3k in the high risk funds (assuming you are talking level 5 out of 7). Right now your £3k would probably be around £5k due to the recovery and growth seen after the COVID burp.

if you are 65 are just wanted to earn a little more than bank interest then you probably shouldn’t have invested at all.

Assuming you are young, 20’s to 30’s, then higher risk is appropriate for you. But you must leave it alone through peaks and troughs, and add to it regularly.

Read up on pound cost averaging, when the market dips, you will be buying low so offsetting the gloom of seeing your investments drop, when the market rises you will have the satisfaction of your pot growing even if you monthly investments doesn’t buy many units.

LouP25

I'm 32 now. I only just started investing, never thought of it before! (I know, a bit late, but better now, I'm glad I made  all those mistakes now than later). I work in tech sector, and I plan to retire maybe at 70 years old - no earlier than that. I also opened Freetrade account and bought some Adobe and Microsoft shares. As Workerdrone said,tech will rise, but there is no Technology fund in Aegon, there is just risk levels 1-5. I had it on 5, thinking that I am tolerable to high risk, which proved wrong during Covid pandemic crash ))) I switched it to Risk 4 yesterday, and will leave it alone.

Regarding growing my pension pot, I am currently finding out by reading and watching  online, that I will be taxed more if I withdraw from pension that other investment platforms.  I am literally in the middle of researching this, but I stopped putting to Aegon for now just in case if I find a tax-free or lower tax withdrawal platform somewhere else.

All the  advice  above is SO valuable!!!! Much, much appreciated! 

Albermarle

Regarding growing my pension pot, I am currently finding out by reading and watching  online, that I will be taxed more if I withdraw from pension that other investment platforms.  I am literally in the middle of researching this, but I stopped putting to Aegon for now just in case if I find a tax-free or lower tax withdrawal platform somewhere else.

Yes you need to do more reading as you seem a bit confused . Try these links .

Pensions: Everything you need to know for retirement - MSE (moneysavingexpert.com)

Pensions and retirement | Help with pensions and retirement | MoneyHelper

You are correct in that all pensions ( regardless of the provider ) are taxable when you withdraw  .

However pension contributions receive tax relief, and the end result is that you get  a minimum 6.25% overall tax benefit .

It can be more especially if you are a high earner and pay 40% tax .

Plus of course you get employer contributions if it is a workplace pension.

If you are saving for retirement then pension is nearly always the best way.

AlanP_2

LouP25 said:

I'm 32 now. I only just started investing, never thought of it before! (I know, a bit late, but better now, I'm glad I made  all those mistakes now than later). I work in tech sector, and I plan to retire maybe at 70 years old - no earlier than that. I also opened Freetrade account and bought some Adobe and Microsoft shares. As Workerdrone said,tech will rise, but there s n TTechnoogy fund in Aegon, there is just risk levels 1-5. I had it on 5, thinking that I am tolerable to high risk, which roved wrong during Covid andemic crash ))) I switched it to  Risk 4 yesterday, and  will leave it alone.

Regarding growing my pension pot, I am currently finding out by reading and watching  online, that I will be taxed more if I withdraw from pension that other investment platforms.  I am literally in the middle of researching this, but I stopped putting to Aegon for now just in case if I find a tax-free or lower tax withdrawal platform somewhere else.

All the  advice  above is SO valuable!!!! Much, much appreciated! 

Don't let the tax tail wag the dog.

Are you employed or self employed?

Does your employer offer a pension scheme?

Is it a Salary Sacrifice scheme?

What rate tax do you pay?


Pension withdrawals are taxed as you say but pension contributions attract tax relief so it isn't as "negative" as you may think.

Using current tax rates:

Contribute £100 to pension and HMRC boost it to £125 for a basic rate taxpayer (20% of £125 = £20, the tax due on £100).

Withdraw the £125 and you get 25% tax free = £31.25 leaving £93.75 to be taxed at 20% (so £18.75 paid in tax).

You end up with £31.25 + £75.00 = 106.25 - so a 6.25% return.


Depending on your circumstances that is the MINIMUM benefit based on current tax rates. A HR taxpayer will benefit more and, depending on your retirement income, some will fall within your normal tax code allowance anyway.


Investment options within a pension are broadly the same as outside, it is just a tax wrapper, so not using a pension is costing you 6.25% return at least.

LouP25

AlanP_2 said:

LouP25 said:

I'm 32 now. I only just started investing, never thought of it before! (I know, a bit late, but better now, I'm glad I made  all those mistakes now than later). I work in tech sector, and I plan to retire maybe at 70 years old - no earlier than that. I also opened Freetrade account and bought some Adobe and Microsoft shares. As Workerdrone said,tech will rise, but there s n TTechnoogy fund in Aegon, there is just risk levels 1-5. I had it on 5, thinking that I am tolerable to high risk, which roved wrong during Covid andemic crash ))) I switched it to  Risk 4 yesterday, and  will leave it alone.

Regarding growing my pension pot, I am currently finding out by reading and watching  online, that I will be taxed more if I withdraw from pension that other investment platforms.  I am literally in the middle of researching this, but I stopped putting to Aegon for now just in case if I find a tax-free or lower tax withdrawal platform somewhere else.

All the  advice  above is SO valuable!!!! Much, much appreciated! 

Don't let the tax tail wag the dog.

Are you employed or self employed?

Does your employer offer a pension scheme?

Is it a Salary Sacrifice scheme?

What rate tax do you pay?


Pension withdrawals are taxed as you say but pension contributions attract tax relief so it isn't as "negative" as you may think.

Using current tax rates:

Contribute £100 to pension and HMRC boost it to £125 for a basic rate taxpayer (20% of £125 = £20, the tax due on £100).

Withdraw the £125 and you get 25% tax free = £31.25 leaving £93.75 to be taxed at 20% (so £18.75 paid in tax).

You end up with £31.25 + £75.00 = 106.25 - so a 6.25% return.


Depending on your circumstances that is the MINIMUM benefit based on current tax rates. A HR taxpayer will benefit more and, depending on your retirement income, some will fall within your normal tax code allowance anyway.


Investment options within a pension are broadly the same as outside, it is just a tax wrapper, so not using a pension is costing you 6.25% return at least.

I was employed for 2 years and accumulated the £3000 in pension. Back then I wasn't even looking at what rate anything was, I didn't care. I left my employer 3 years ago to start my own video art business and my pension was just sitting there for about 2 years -  not invested in anything, not even Risk 1 - mistake before all the other mistakes. Then I started researching and put it to Risk 5, then COVID crash, and so on.  I recently put £400 into Aegon, then heard about tax withdrawals. Thank you for the breakdown, I guess II will continue both Freetrade and Aegon at the same time; 6.25% return with Aegon is indeed not bad. But there is no employer now to pay the money to me, it's me paying to me )

when I say 2 or 3 years ago, its just roughly, my timing is a bit off there, I lost track of it now