Legal & General Workplace Pension Investments

carrspaints

Hi all. I am looking at retirement in just over 10 years. I have a DB pension from a previous employer and a current L&G DC pension with my current employer. My L&G pension funds are currently invested in the default L&G PMC Multi-Asset 3, which has a risk rating of 4 of 7. I have contributed to this pension pot since October 2018. My total contributions are £60,254, with current pot value of £67,730. So £7,476 return over that 3-year period.

I am considering diversifying to try and achieve a better return, but without throwing caution to the wind. There are 133  funds available to me under the L&G scheme, I have been through each and every one, created an Excel that includes Risk Rating, Charges, 1, 3 & 5 year performance, Investment type including where funds are invested, whether passively or actively managed etc. Some funds such as L&G PMC North America Equity Index 3 have performed well, with 117.28% in 5 years versus 36.93% for the L&G PMC Multi-Asset 3. However, Equity only investments generally come with greater risk versus Multi-Asset, so I need to be cautious in how I spread my pension investments. Past performance is also no guarantee to the trend continuing.

If anyone is familiar with L&G pension options and has any views on what I am currently considering, I would welcome them. This is to move from my current 100% L&G PMC Multi-Asset 3, risk rating 4 of 7.

• For the L&G PMC Multi-Asset 3 (Mixed Investment 40‑85% Shares - 35%), decrease future contributions from 100% to 35%
• Contribute 20% to the L&G PMC Managed 3 (Multi Asset, Risk 5 of 7) - UK and international shares, but also has some exposure to fixed interest securities, UK commercial property and cash). This multi-asset has shown better performance over 5 years than the L&G PMC Multi-Asset 3, (44.15% versus 36.76%)
• Contribute 13% to the L&G PMC Global Eqty Fixed Weights 60:40 Index 3 (Risk 5 of 7). The fund invests 60% in the UK and 40% overseas.
  
• Contribute 17% to the L&G PMC World (Ex-UK) Equity Index 3 (Risk 5 of 7). Tracks performance of the FTSE World (excluding UK) Index (including re-invested income) to within +/- 0.50% each year for two years out of three
  
• Contribute 15% to the L&G PMC Europe (Ex-UK) Equity Index 3 (Risk 6 of 7). Tracks performance of the FTSE World Europe (excluding UK) Developed Index (including re-invested income) to within +/- 0.50% each year for two years out of three.

I am trying to spread the risk in a reasonable manner, but to obviously achieve greater returns. FMC charges on the above are acceptable. Thanks

gm0

Very age and investment statement based.  Careful.  Nothing here truly awful (or brilliant) but you are complicating things in a way that doesn't add much benefit but does add small amounts of cost. All are still LGIM fund managers, mostly the same stuff in different mixes underneath.

This rather looks like shortlisting on past performance on the basis that more than one will in some way be better.  Maybe maybe not. Does it generate the mix of regions and stock types (size, EM) that you deliberately want ?

The risk ratings are not telling you anything very useful - certainly nothing very granular.
Longer unit price history data and volatility and maximum drawdown in negative prior events and the net fees cumulative return vs the market indices are a lot more interesting (and harder to get).  If you are on TowersPerrin ePA admin it may be downloadable.

My take is that a lot of L&G "more complex" benchmark funds have been underperformers in my L&G pension scheme.
The loss of return being worse to my eyes than the benefit of the "smoothed" volatility.  Why pay for that in long term accumulation over decades age 30-50 - just so it bounces around less twenty years before you touch it.  (I saw it more or less halve in value and then come back better - won't pretend it isn't alarming even it rationally it shouldn't be)

Worst of the worst for us were the late arriving diversified growth options.  Perhaps they haven't encountered the market conditions where they will shine.  But the returns foregone meanwhile during a bull market for equities are startling.  The best performers were the cheapest passive pure global equities and then the Islamic fund.  Because of the high US holding (global large cap) which is therefore tech growth stocks heavy.

From my reading - at L&G the cheapest widespread global passives which are also retail funds are typically the World ex-UK and the UK (FTSE All Share). At around 0.12% to hold in a mix.  Not the cheapest you can do it but if your occupational scheme lacks a platform fee (some are free) then it's OK

So if what you want (for the equities bit) is global equities at weight with a chosen level of UK home market tilt - either above or below market weight.  (The 10% - 12% - 20% debate about the FTSE and how much home market+currency to hold - then those two funds can build a global equities portion cost effectively.  And pick a bond fund for the non equities bit (if any).  If you don't want to bother with that then the funds you are looking at - a multi-asset will do the job. But you pay a bit more for it.

I have also used L&G Global Ethical (FTSE4Good) fund but only because it was the only cheap way to hold global equities in my scheme.  At 0.3% retail I would not bother with it.  But at our old price 0.06% it's half the price of the World ex Uk + UK combo for similar enough large cap global holdings absent another way to do it.

My own investment statement for deaccumulation seeks to further diversify equities beyond a global passive holding by looking at both Emerging Markets and Small Capitalisation.  So I went next to look at those funds at LGIM and SIPP platforms.

The LGIM multi-asset offer(s) are not completely without attraction but the amounts it contains beyond basic equities and bonds underlying funds were small when I last looked at them. My take is that on it's own the commodities/alts/private equity fragments are not compelling becuase there isn't enough to be material.  Marketing led.

The composite funds were introduced one by one to meet evolution of the market and they don't really lock together into a coherent jigsaw.  Understand what tilt it introduces to your portfolio.  Which one matches your risk appetite and desired tilt.

Now if hedging the fund selection choice done by your trustees makes you feel more comfortable with the investments not all being in one fund then that is no bad thing in and of itself.

Investment strategy first.  Fund selection after.

carrspaints

Thanks for your reply gmo. Some very interesting points.

I looked at past performance, but I wasn't lured by funds that have done exceedingly well over the past 5 years. Rather, I tried to consider fund costs and the investment spread. I am mindful of the high-high's of some equities plunging overnight, so whilst 117% return on US markets over 5-years may seem attractive, my luck would be to buy in and the shares plummet massively. North American based funds have performed exceedingly well, but that can't continue without a reset in the near future. My thoughts anyway. 

Of the limited L&G investment portfolios available to me on the L&G portal, 39 are equity based. Only 3 multi-asset, 48 lifestyle profiles, 11 Target based, 19 Fixed Interest, 1 Property & 2 Cash. Trying to find a balance that spreads risk (with minimum overlap between funds) but which offers a better return on the L&G PMC Multi-Asset 3 is not as simple as I thought or hoped. There are some market areas I am trying to avoid though, or at least reduce the amount invested - China, Taiwan are good examples I believe for obvious reasons.

I've spent many, many days researching pensions, investments, stocks & shares, but despite that effort, I may be better served using the services of a F.A.

gm0

Hard to be very precise on filtering in the limited L&G offer.  It will be a compromise vs using a full SIPP and choosing from the vast range there. 

The more active fund selection minded you are the less attractive the L&G offer will be.  SIPP alongside or move.

Nonetheless you can build a pretty mainstream effort in the L&G offer in terms of global equities with or without EM.  Not going to be wildly different from global equities from HSBC or Vanguard funds as you would expect.  So other factors, cost, IT, protection start to bear upon it.

There are nuances to be aware of before jumping out.  My old MSE threads cover my journey of discovery on that topic.

Good luck

Albermarle

I've spent many, many days researching pensions, investments, stocks & shares, but despite that effort, I may be better served using the services of a F.A.

Firstly make sure you use an IFA .
It seems that you have a good understanding of what you are looking at ( better than the vast majority of the population ) and the IFA will cost you money of course although they may or may not improve your investment portfolio

gm0

@carrspaints - I was going back over the L&G fund sheets that I shortlisted for my own purposes. I was a bit unfair and dismissive. 28.5% of L&G PMC Multi-Asset Fund 3 is categorised as "alt" (Dec 2020 factsheet).

But of that 8.8% is EM gilts, 5.6% is high yield corps/(junk?) bonds - so half is actually another set of bonds I don't especially want as equities correction diversification.  Call me old fashioned but aren't those just "bonds" riskier ones with some EM currency risks added also to mix into the bonds category.  Opinions will vary on the desirability of these.  The bond category yield won't plump itself without some risky stuff added so there is that.

And 6.6% is REITS which I also don't want (or not in this format) - but accept it's adding commercial property as an asset class.
(Unless it turns out a chunk of the holdings is just building company equities which is possible based on the notes).

So the actual "alts"

Up to 6.6% REITS (for those that want it)

~5%  global infrastructure    )  which I would be interested in but not as much if I have to buy the rest of it - and very opaque.  Just about enough to be relevant.

2.2% Global private equity )  not really enough to matter

L&G Future World is much the same but with a tiny 0.5% of Timberland/Farmland.