Lifestyle pension regret

InTheFog

With long bonds doing what they're doing, is it sheer idiocy to continue with the lifestyle pension my workplace has put me in? I'm the sort of idiot who doesn't earn much and didn't start a workplace pension until much too late in life. About a year ago we had a talk at work when us oldies were advised to "throw everything you can" at our pensions. I took it to heart, opened an AVC and have been chucking everything I could into it every month. It's now worth many thousands less than I have paid in. I'm 62 and was planning to retire at state pension age – 66. 

I could stop paying in completely and start stuffing my ISA instead, I could continue adding to the pension but request to change from lifecyle to something less gilt-heavy, or I could continue as I am and hope it all sorts itself out. Where do I start trying to work out what to do? As you can tell, I am extremely un-savvy with money and don't want to make any more expensive mistakes. Currently 70% gilts. Thanks.

Albermarle

It's now worth many thousands less than I have paid in. 

The tax relief should help at least.

Two issues here - Firstly lifestyling pensions tend to derisk too far, especially if you intend to withdraw the pension via drawdown.

Secondly the gilts market has been in an unprecedented ( I think ) sharp decline, although some of it was entirely predictable.

Some would say the fall in gilts has probably gone as far as it is going to fall, although that has been said previously. In that case I would be reluctant to switch out of them altogether, as this may crystallise the loss at the lowest value. But like everybody I am only guessing.

As a short term fix, if you want to reduce the gilt % , you can change your retirement date with the pension provider and make it a few years later. The age the provider has in their system has no bearing on when you retire or when you start to actually take your pension. Just an idea.

By the way if you were thinking of buying an annuity, the flip side of dropping gilt values, is an improvement in the cost of buying an annuity.

bostonerimus

Rising interest rates are always going to reduce the value of bonds and it will be a larger effect the longer the bond. This is why I've always owned bond funds with average maturities of less than 10 years. Right now UK bonds are having a bad time because of a few factors, some of which were, arguably, avoidable. I hope that some of those factors will be changed and some confidence will return and gilt interest rates will fall a bit, but for a few years there will still be the unavoidable factors of external inflation pressures on interest rates. So I hope this is close to the bottom and you should see UK bonds recover a bit over the next few years, but I think you also need to tighten the belt, pay off debt and save money where ever you can. 

zagfles

What's the "lifestyle" aiming at, annuitiy or drawdown? If annuity then a move to a fund heavy in bonds is sensible as it hedges annuity prices, when interest rates rise the bonds will fall in value but the cost of buying an annuity will fall as well. If it's targeting drawdown then it really shouldn't go too heavily into bonds.

InTheFog

Thanks, yes... the lifestyle/lifecycle fund is clearly assuming that I am planning on buying an annuity. It was silly of me to think that leaving it to the workplace pension default fund was the sensible thing to do. I think one of the problems is that I opened the AVC at such a late stage in my life that it's shunted me straight into the so called "consolidation" phase without me having had years to build up my pot in the "accumulation" stage.  Wish I'd thought about all this a lot earlier!

Albermarle

It was silly of me to think that leaving it to the workplace pension default fund was the sensible thing

I think something like 95% of workplace pensions are left in the default fund, so I would not beat yourself up about it.

However a normal default fund, is not such a bad place to be. However the lifestyle options can be a bit of a menace, if they are not suitable for the user.

gm0

Your scheme may well allow you to change what you invest in for new contributions without switching existing funds.  These are often separate issues.  Current holdings.  What happens from now with new purchase.

This may allow you to alter what is happening with "new money" if that is what you now want.

I too have no crystal ball for FX, Gilts, Equity markets - would that I did.