Automatic change of Investment

Pat38493

Hi - I have a question about one of my DC pension funds with Aviva.  This is a fund which used to be my employer pension fund but they moved to another Aegon fund in 2017 so this one does no receive contributions.  I have about £215K in this fund.  It is invested in "Mercer Growth / Balanced Risk FP"

In the factsheet, it says:

"Investors in this fund will be automatically moved into the appropriate Mercer Target Retirement Fund when they are 8 calendar years from the year of their selected

retirement date. Depending on the chosen retirement destination, the Mercer Target Retirement Fund aims to gradually reduce exposure to investment risk by

investing in lower growth assets. Derivatives may be used for investment purposes as well as risk reduction."

Does anyone know how this works in practice?  Who decides what is the "appropriate Mercer Target Retirement fund" and will they consult me before actually doing this?

I am not actually sure that I want this to happen because as a couple we have a baseline of DB pension provision and I might well decide to keep my DC funds in a higher risk fund.

gm0

If you are in a marked for derisking "fund" - a product selection then you will be dialed down on risk and equities typically in the decade prior to the target year as per the document.  No consultation. It's how the fund you are currently in works. 

And it will very probably be actioned on the basis of being in this fund selection and showing up on the next statement. 
You were "consulted" after a fashion when you joined the scheme and selected this fund.  Or when you failed to opt out when the feature was added if this was later than your original joining date. Either way they are probably not going to interact with you before making the individual derisking trades.  You are opted in.

If you don't want that to happen then switch to a fund selection without that feature from the range offered. They may have a more drawdown and TFC suitable derisking option more to your taste or just something old school that just sits at the investment mix stated until you change it.

If you don't like the range offered then because this is a fund no longer in active employer contribution then consider transfer to somewhere which offers the range you do want (considering platform and fund costs, your tfc % and all other relevant factors of the existing scheme naturally)

Pat38493

gm0 said:

If you are in a marked for derisking "fund" - a product selection then you will be dialed down on risk and equities typically in the decade prior to the target year as per the document.  No consultation. It's how the fund you are currently in works. 

And it will very probably be actioned on the basis of being in this fund selection and showing up on the next statement. 
You were "consulted" after a fashion when you joined the scheme and selected this fund.  Or when you failed to opt out when the feature was added if this was later than your original joining date. Either way they are probably not going to interact with you before making the individual derisking trades.  You are opted in.

If you don't want that to happen then switch to a fund selection without that feature from the range offered. They may have a more drawdown and TFC suitable derisking option more to your taste or just something old school that just sits at the investment mix stated until you change it.

If you don't like the range offered then because this is a fund no longer in active employer contribution then consider transfer to somewhere which offers the range you do want (considering platform and fund costs, your tfc % and all other relevant factors of the existing scheme naturally)

Thanks - well I would probably need to take advice from an IFA on that topic to take the action - it's in about 3.5 years that this will happen so I guess I will look into it during the next years.  I don't think Aviva will give me any information there other than pointing me to the factsheets and data on their website.

I certainly don't want them to move me into a fund that's designed for people who will buy an annuity or something like that.

The way it's worded, it kind of sounds like they will move me into a fund that's specifically designed for people who will retire in that calendar year where my currently defined retirement date will fall.

I suppose the other quick and dirty way to temporarily solve the issue is to tell them to change my expected retirement date to 70 or suchlike.

Pat38493

Coming back to this topic, I did a bit more digging and it looks like I can switch the fund to another fund "Mercer Growth / Balanced Risk (without retirement de-risking) FP"

The one with de-risking says that you will automatically be switched to the appropriate retirement year fund 8 years before your programmed retirement date (which seemingly cannot be changed on the website).  However, I am not clear how they would know what is the appropriate fund because they have never asked me about my intentions on retirement - I can see that they have set up specific funds on the site for "Target Drawdown", "Target Cash" and "Target Annuity" for the next 8 years but they would not know which one to automatically move me into as they have never asked as far as I can remember.

From the factsheet this fund seems to be identical to the other one but there would be no automatic changes to it.  

As I am a bit new to all this, but I am not sure about is what is the downside of switching now, as opposed to switching just before the 8 year deadline?  On the website it states that there are no charges for switching funds, but is there some catch like I should not switch funds during periods of high volatility?

gm0

You need to read the scheme booklet and any web content carefully to determine what happens for your scheme with switching.   Or give them a call.

When you trade shares or fund units as an individual you typically sell, wait for a trade to settle, then have the cash to do something else like buy something else - several days later with a settlement delay in the middle. This causes the volatility risk that is concerning you. Sell day 1. Market spikes up day+2. Buy day+4

By contrast within an occupational pension scheme - investment switching *can* be a special case of this where the sell and buy happen on the same market day and fund pricing day.  Which protects you against the market moving between the sell and the buy as the two funds are priced for the same market movement that day removing win or lose from volatility around the transaction from settlement. The admin and fund manager may well batch your request up with monthly purchases, other people's fund switches and whatever else their fund and trading desk chooses to do with the deal flow.

With an occupational pension administrator a typical process might be that you make a web request for a switch and then there is a short delay (could be next day or sometimes there is provision for up to a day or two wait in their or their fund management processes) - then the pension scheme switch request is actioned by a trading desk. The price(s) on the trading day they action it are what you get whether that's the day after the request or a day or two after that. 

Out of A at X, into B at Y - but *critically* on the same days prices for daily priced funds.

If you phone or action a new request on the web during the stockmarket trading day but after the scheme have batched up  transactions for the "daily" cycle - it won't get done that day or indeed until the next time they do it.  Missing a deadline on Friday morning would push it to the following week. Monday  - maybe Tuesday. Bank Holidays etc.

So it does pay to think about "when" the request goes in and to read any scheme information quite carefully so that your expectations are clear and you don't get distressed by delay and market volatility.

Notepad_Phil

Pat38493 said:

... As I am a bit new to all this, but I am not sure about is what is the downside of switching now, as opposed to switching just before the 8 year deadline?  On the website it states that there are no charges for switching funds, but is there some catch like I should not switch funds during periods of high volatility?

One potential downside is if they have to sell your funds before they then purchase your new funds using a different pricing point. If that is the case then there is a potential that the market could rise by several percent in that short time and your money doesn't buy as many units of the new fund as it would have done.

I don't know how your particular pension with Aviva would do this so you'd have to check. Hopefully they may do a switch by using the same pricing point for both the sell and buy, in which case you should be protected from any sudden jumps.

If there is any potential that they use different dates or times for the sell and buy then you could attempt to reduce any such problems by switching a percentage at a time rather than 100% in one go - i.e. averaging out the falls and rise of the markets over several days rather than just go all in on one day.

Pat38493

Notepad_Phil said:

Pat38493 said:

... As I am a bit new to all this, but I am not sure about is what is the downside of switching now, as opposed to switching just before the 8 year deadline?  On the website it states that there are no charges for switching funds, but is there some catch like I should not switch funds during periods of high volatility?

One potential downside is if they have to sell your funds before they then purchase your new funds using a different pricing point. If that is the case then there is a potential that the market could rise by several percent in that short time and your money doesn't buy as many units of the new fund as it would have done.

I don't know how your particular pension with Aviva would do this so you'd have to check. Hopefully they may do a switch by using the same pricing point for both the sell and buy, in which case you should be protected from any sudden jumps.

If there is any potential that they use different dates or times for the sell and buy then you could attempt to reduce any such problems by switching a percentage at a time rather than 100% in one go - i.e. averaging out the falls and rise of the markets over several days rather than just go all in on one day.

This is what it says in the help button on the page about fund switching - it does not say anything about a risk of buying and selling on different days or with different prices.....

 "We currently do not charge you for switching to new funds. We will tell you if this changes.

All contributions buy units. We buy and sell units at the same price.

Switch instructions received before 17:00 (UK Time) Monday to Friday will be processed using the unit price for the following working day. Switch instructions received on or after 17:00 (UK Time) Monday to Friday, or at any time on a weekend, will be processed using the unit price for the second working day following the day we received your instruction. Different rules may apply over bank holidays. Please contact us for further details.

In unusual circumstances, we may need to delay the switching or cashing-in of units for up to one month. If a fund invests in property, sometimes the properties may not be easy to sell and we may need to delay the switching or cashing-in of units for up to six months. These delays will not apply when we are providing benefits following your death or at your selected retirement age.

In specific circumstances switch instructions may be processed up to three business days after the day of receipt of the instruction. This is to make sure that the unit price and the underlying value of the assets are aligned. By delaying switches we can ensure that the unit price you receive is aligned to the underlying value of the assets that we purchase in respect of your investment. As a result any gain or loss on your holding will be directly related to the specific period for which we are invested in the funds on your behalf. In particular if we have written to you about this, the terms of our letter shall apply in place of the procedure set out in this website.

Any instructions received will be applied to all the policies held for that particular member within the scheme, except for any that must remain in a specific fund. Please also be aware that true single premium policies are excluded from redirection requests.

Please note that if a deferred priced fund, denoted by a # against the fund in the switch screen, forms part of your transaction, the switch will not be completed until all prices are received for all funds involved in the switch."

Notepad_Phil

Pat38493 said:

Notepad_Phil said:

Pat38493 said:

... As I am a bit new to all this, but I am not sure about is what is the downside of switching now, as opposed to switching just before the 8 year deadline?  On the website it states that there are no charges for switching funds, but is there some catch like I should not switch funds during periods of high volatility?

One potential downside is if they have to sell your funds before they then purchase your new funds using a different pricing point. If that is the case then there is a potential that the market could rise by several percent in that short time and your money doesn't buy as many units of the new fund as it would have done.

I don't know how your particular pension with Aviva would do this so you'd have to check. Hopefully they may do a switch by using the same pricing point for both the sell and buy, in which case you should be protected from any sudden jumps.

If there is any potential that they use different dates or times for the sell and buy then you could attempt to reduce any such problems by switching a percentage at a time rather than 100% in one go - i.e. averaging out the falls and rise of the markets over several days rather than just go all in on one day.

This is what it says in the help button on the page about fund switching - it does not say anything about a risk of buying and selling on different days or with different prices.....

 "... Switch instructions received before 17:00 (UK Time) Monday to Friday will be processed using the unit price for the following working day. Switch instructions received on or after 17:00 (UK Time) Monday to Friday, or at any time on a weekend, will be processed using the unit price for the second working day following the day we received your instruction. ..."

That sounds as though they buy and sell on the same day and I would think/hope they would use the same time as well for these two funds - especially as you say the only difference between them is that one has derisking.

Are these the two funds?
https://www.trustnet.com/factsheets/p/tupm/aviva-pension-mercer-growth--balanced-risk-s5-fp-pn
https://www.trustnet.com/factsheets/p/wgbi/aviva-pension-mercer-growth--balanced-risk-s5-wo-retirement-de-risking-fp-pn

Pat38493

Notepad_Phil said:

Pat38493 said:

Notepad_Phil said:

Pat38493 said:

... As I am a bit new to all this, but I am not sure about is what is the downside of switching now, as opposed to switching just before the 8 year deadline?  On the website it states that there are no charges for switching funds, but is there some catch like I should not switch funds during periods of high volatility?

One potential downside is if they have to sell your funds before they then purchase your new funds using a different pricing point. If that is the case then there is a potential that the market could rise by several percent in that short time and your money doesn't buy as many units of the new fund as it would have done.

I don't know how your particular pension with Aviva would do this so you'd have to check. Hopefully they may do a switch by using the same pricing point for both the sell and buy, in which case you should be protected from any sudden jumps.

If there is any potential that they use different dates or times for the sell and buy then you could attempt to reduce any such problems by switching a percentage at a time rather than 100% in one go - i.e. averaging out the falls and rise of the markets over several days rather than just go all in on one day.

This is what it says in the help button on the page about fund switching - it does not say anything about a risk of buying and selling on different days or with different prices.....

 "... Switch instructions received before 17:00 (UK Time) Monday to Friday will be processed using the unit price for the following working day. Switch instructions received on or after 17:00 (UK Time) Monday to Friday, or at any time on a weekend, will be processed using the unit price for the second working day following the day we received your instruction. ..."

That sounds as though they buy and sell on the same day and I would think/hope they would use the same time as well for these two funds - especially as you say the only difference between them is that one has derisking.

Are these the two funds?
https://www.trustnet.com/factsheets/p/tupm/aviva-pension-mercer-growth--balanced-risk-s5-fp-pn
https://www.trustnet.com/factsheets/p/wgbi/aviva-pension-mercer-growth--balanced-risk-s5-wo-retirement-de-risking-fp-pn

Yes that's them.

I also figured out that I can manually change the fund myself on the Aviva "Membersite" if I want to.  There is no immediate rush as the performance of the fund up to now has been fine from my perspective (obviously it lost a lot this year but so did pretty much everything else), and I don't see a strong reason to change to a different fund, especially as I assume the trustees of the fund that this was transferred from took professional advice to pick this fund and I certainly don't have such qualifications.  I can see other funds that performed better in the last 5 years but I don't consider myself enough of an expert to make the decision alone.  I can also see quite a few funds on the list that performed much worse but with much higher charges...!

De-risking would not kick in there until January 2026 so I have a few years to decide any next steps.