Stick with Lifestyle plan, or self-select funds?

LV_426

My previous employer used Standard Life as their pension provider, and they offer a number of 'Lifestyle' profiles, in which your money is moved to appropriate funds, depending on your age.
However there are a multitude of funds available, with varying charges. I'm able to select any of these funds.. SL also apply a 0.7% discount on any fund management charges. 

So what criteria would you apply in selecting funds? Is it simply based on attitude to risk? I can see their performance, but general advice is not to choose funds based on past performance, correct? They all have a volatility rating, and I've gone for middle of the road (risk 5).

Or do I stick with the LIfestyle strategy and let SL deal with it? They recently did move 10% of my money into a lower risk fund. The funds they've chosen have the lowest management charges.

QrizB

Is there a lifestyle option that meets your needs?

I'm planning to draw down for 30+ years rather than buy an annuity or a yacht. My employer's scheme included various lifestyle options but they all included more de-risking than I thought appropriate for draw-down.

Instead of the lifestyle options I've chosen multi-asset funds with the % of equities I want.

noclaf

Your age/time to retirement may be a factor in determining your risk level. In my case I have at least 16+ years till retirement and am going through a similar process now.

I tend to look for the cheapest global equity fund(s) available and as long as it's a fairly large well established fund then that would be my choice. My last employer offered cheap passive Vanguard funds (via the SL Platform) so used those previously, current scheme mainly uses L&G passives + JPM/Invesco/CT/BG actives.

After a lot of over-thinking about active Vs passive, I found the cheapest global equity fund albeit a 'responsible' fund, I will likely use that for now. There are active Commodities and UK smaller companies funds available too but I'm debating whether the higher fees are worthwhile using them as 'satellite' funds with a small (circa 7-10%) allocation to each.

Just to caveat, 'cheaper' passives does not always translate to better performance than pricier active funds but based on my experiences during the last few years apart from specialist/niche sectors (EM, Small Cap) I don't see the value in paying more fees for active funds as I found out the painful way.....

jim8888

I had the same thing through my work, and I had the option to select from Vanguard "Lifestrategy" funds, which is what I wanted. Most of my pension now sits in their 80/20 option (80% equities and 20% bonds). I do wonder now if I am paying twice - once to have the pension managed by SL and once again to Vanguard for the management of their fund, although I suppose that happens in every pension investment option you can choose? As far as I can see, you can't run a SIPP directly with Vanguard.

redpete

jim8888 said:

I do wonder now if I am paying twice - once to have the pension managed by SL and once again to Vanguard for the management of their fund, although I suppose that happens in every pension investment option you can choose? As far as I can see, you can't run a SIPP directly with Vanguard.

Absolutely standard practice that you pay a platform charge and fund charges.

Vanguard do offer a SIPP - https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/personal-pension-account 
(And note that you will pay a fund charge and platform charge with Vanguard as well.)

LV_426

jim8888 said:

I had the same thing through my work, and I had the option to select from Vanguard "Lifestrategy" funds, which is what I wanted. Most of my pension now sits in their 80/20 option (80% equities and 20% bonds). I do wonder now if I am paying twice - once to have the pension managed by SL and once again to Vanguard for the management of their fund, although I suppose that happens in every pension investment option you can choose? As far as I can see, you can't run a SIPP directly with Vanguard.

Correct, there's a SL 'platform' charge, then you pay individual fund charge. However in my case both are subject to a discount, because it's an employer scheme.

Audaxer

jim8888 said:

I had the same thing through my work, and I had the option to select from Vanguard "Lifestrategy" funds, which is what I wanted. Most of my pension now sits in their 80/20 option (80% equities and 20% bonds). I do wonder now if I am paying twice - once to have the pension managed by SL and once again to Vanguard for the management of their fund, although I suppose that happens in every pension investment option you can choose? As far as I can see, you can't run a SIPP directly with Vanguard.

You can open a SIPP through most mainstream DIY platforms, including Vanguard, in which you can hold Vanguard LifeStrategy 80. It's just a case of selecting the platform that is most suitable to you, mainly down to costs. 

dunstonh

So what criteria would you apply in selecting funds?

If you are going to use single sector funds then first you need to decide your investment strategy.  Then you need to decide your weightings to each country/region/asset class.   Then you select the funds that match your strategy and requirements.

Of you stick to multi-asset funds.

Or do I stick with the LIfestyle strategy and let SL deal with it?

Of the SL plans I have come across, they have the ability to offer the same or similar multi-asset funds without lifestyling.  Does yours?

had the same thing through my work, and I had the option to select from Vanguard "Lifestrategy" funds, which is what I wanted. Most of my pension now sits in their 80/20 option (80% equities and 20% bonds). I do wonder now if I am paying twice - once to have the pension managed by SL and once again to Vanguard for the management of their fun

The pension provider covers the administration.  You pay a charge to them.    The investments are separate and you pay a charge to them.    With platform based investing, you see the split.   With product based investing, these are usually mono-charged (AMC only) and you don't see the split.  Although some will show a split.  SL have versions that are mono charged and versions that show the split.

VLS is more expensive by around 0.10% compared to holding the underlying assets directly.  That is to cover the costs of Vanguard rebalancing the underlying funds and their management decisions (how much gets allocated to each area).

Bimbly

The advantage of the default investment option is that it is a set and forget it option. All you have to worry about is how much you are putting into it.

I moved my funds out of the default of my scheme and I often wonder if I have chosen too risky/not risky enough options and the general wisdom of my choices. So far, it looks like I've made sort of the right choice with regards to investments, but that nagging doubt remains.

If leaving the default, you can choose one multi-asset fund which does the job, or a mix.

Another option to get around too much de-risking in a default scheme is to change your nominal retirement age, assuming your scheme allows you to do this. So, for example, say you want to retire at 60, you could set your "retirement age" to 75 and the de-risking would follow that time scale, but there's nothing to stop you drawing at 60.

Albermarle

Is there a lifestyle option that meets your needs?

This question from QrizB is important. There is nothing basically wrong with the idea of lifestyling, as long as it does it in a way that suits you.

Historically these lifestyling options were geared around people buying an annuity when they retired, so the portfolio was gradually derisked to close to zero (all cash/gilts) so there would be no nasty shocks in the last couple of years before the annuity was bought. 

However with most people going for drawdown, where you stay invested for maybe another 30 years after retirement, then this type of lifestyling  is totally inappropiate.

There should be available lifestyling options for drawdown, where derisking is less dramatic, but still might be too much for some people. How much to derisk ( or even to derisk at all) is a matter of opinion/debate/personality, but I would think the large majority would want to be in the 70% to 40% equity area as they approach and go into retirement.

LV_426

Bimbly said:

The advantage of the default investment option is that it is a set and forget it option. All you have to worry about is how much you are putting into it.

I moved my funds out of the default of my scheme and I often wonder if I have chosen too risky/not risky enough options and the general wisdom of my choices. So far, it looks like I've made sort of the right choice with regards to investments, but that nagging doubt remains.

If leaving the default, you can choose one multi-asset fund which does the job, or a mix.

Another option to get around too much de-risking in a default scheme is to change your nominal retirement age, assuming your scheme allows you to do this. So, for example, say you want to retire at 60, you could set your "retirement age" to 75 and the de-risking would follow that time scale, but there's nothing to stop you drawing at 60.

Yes I've considered changing the retirement date. However at this point I've really not made my mind up if I'll be calling it a day at 60 (just over 4 year's time), or carrying on. My job currently is fine, and I'd like to preserve a lot of these pension assets for my kids. I will have a couple of DB pensions plus full SP at normal retirement age.

So at the moment, I could go for the higher risk funds, with a view to long term growth.

But as we all know, things can change. Not sure what my situation will be in 4 years time!