Funds change - a sense check pls before I make a mess

RNV

Hello good wise people,

I'm after your opinions please if this is a very unwise step that I'm deliberating.

I'm thinking of 10% move to "Scottish Widows Fidelity 50:50 Special Situations Series 2 Pension" (GB0030837859:GBP).  This will be together with 90% in "Scottish Widows Pension Portfolio Two Series 2 Pension Fund" (GB00B09CD637:GBP) for the next 5-ish years.

Above is in the following context:

1. Age 50yo and a bit; desperate to retire (cold turkey) at 55yo in 4+ years
2. Today's DC pot value £320k; aiming for £500k min as the "number" when can retire
3. Aiming for £20-25k gross/year drawdown for 13 years until full State Pension at 68; then ~10k/year
4. Heavily SalSac-ing, another ~£12k this financial year (40k already in), then targeting £50k in 2023/2024 [CF available]; and 3 x remaining years at £40k = + £185k max total additional contribution.
5. Current's DC pot investment is via SW Balanced Pension Investment Approach (PIA) (Lifestyling); gradually moving from Line1 in the table copied below to Line2. Line1 is SW  Portfolio Two Series 2  (GB0030837859:GBP) . Line 2 is SW Portfolio Three Series 2 (GB00B09CD306:GBP). Today's allocation of my DC pot is 90% Line1 and 10% Line2.  SW started this move this year after I turned 50.  I have my intended retirement date set at 65 (so I will be 100% at Line2 at 55 yo if I don't change anything now).
6. Moving more into bonds now (Line2) under SW lifestyling doesn't feel like a right move. Hence thinking of cancelling lifestyling and looking for a home for 10% currently sitting in line 2.  And deliberating a totally opposite (100% stocks), as you can see at the top of the post.
7. No other pensions/savings. Aiming to build £20-30k total (i.e. <2 years of cash buffer) in ISA during the last 3 years when limited to 40k pension contribution
8. My pension will not be the main income in the family, rather "financial independence" type, however I will be contributing to household main bills from this amount (at least 50%). 

Many thanks for your thoughts.

Linton

The S&W Lifestyling numbers seem to be aimed at those people planning to take an annuity at 65.  In that situation one needs to be pretty sure that the money is all there when needed.  However, if you are planning to drawdown you will be invested for perhaps 40 years and so there is far less need, if any, to reduce your risk as you approach retirement. So the 2 SW funds you propose seem appropriate.

Albermarle

The S&W Lifestyling numbers seem to be aimed at those people planning to take an annuity at 65. 

If that was the case then would be probably 100% cash or cash equivalent at 0 years. If you look at the top of the table it says 'Targeting flexible access retirement outcome' 
Having said that, it seems a rather overcautious approach.

OP - There is some debate about the best allocations to have when you go into drawdown. 30% equity would be right at the bottom end of the range normally. Also if you have some decent cash savings outside the pension then 25% cash in the pension would be too high.

RNV

Thank you, @Linton and @Albermarle.

Yes, my PIA is defined " targeted for flexible access" within SW brochure. I started realising recently that it is "too safe" (if you can apply this "safe" category in the context of recent bond market collapse and cash inflation).

Whatever I do now, I will have to reconsider the fund allocation before I start drawing down. 

My problem is (well understood but I cannot do anything about it now) is no cash at all outside of this DC pot. So, I will likely have to start with some (1-2 years cover) of 25% tax free withdrawal and then annual drawdown of 25% tax free + taxable. If it is at the bottom of the market, this will significantly impact the future.

Linton

The danger of too little equity is that you may be unable to sustain the real value of your ongoing income.  Equity is the best way way of at least matching inflation in a retirement time frame.  You need to balance the risk from inflation against the discomfort of from major crashes.

JohnWinder

Have I got it right? You’re investing for 40+ years (50-90+); you’ve got £320k and will add £185k in cash during next 5 years = £505k by 2026 assuming no loss/growth/inflation. And you need £280k for first 13 years, which leaves £225+k for age 68-90+ years old. Let’s consider the two quanta separately.

The latter quantum for age 68-90+ years is sort of 4.5%/year which the ‘4% rule’ suggests is very likely achievable. Which leaves how to meet the first quantum’s need which is to get an inflation-proof 13 years worth from the £280k, the answer being inflation linked bonds. As of yesterday, the yield curve was positive from about 8 years out to beyond 13 years, so you would be guaranteed the income you specified with linkers purchased now to cover age 55-68 years.

You would then be left with £225k to provide for 22+ years (68-90+). You won’t know if you can do that with linkers until you know what their yields will be at the time you buy them (about 5 years from now when you’ve saved enough money). But with present yields you could almost do it as they are only slightly negative. https://www.bankofengland.co.uk/statistics/yield-curves

I’m not suggesting linkers are the best option for you, but if they’re an option you hadn’t considered now you have. Better now than later; fewer regrets.

Still considering only the second quantum, age 68-90+, it is a 40 year period investment from now, so a stock/bond mix is quite appropriate in current thinking. Assuming you save as planned, you need zero% real return from this quantum over the next 40 years. It seems to me you don’t need to take a lot of risk with those investments, but you may be able to take more risk than that because some of the spending will be discretionary (not obligatory); so how willing are you take more risk than you need?

Now, getting back to your SW options: any mix from 40/60 to 70/30 (stocks/bonds) seems justifiable to me, from now for at least 15-20 years. Secondly, the SW options seem to have higher than desirable management fees; is it worth finding something similar elsewhere, cheaper?

JohnWinder

 Equity is the best way way of at least matching inflation in a retirement time frame

I don’t know what features of ‘best’ make equities THE BEST way, when linkers with positive yields are guaranteed to give better than inflation matching returns.

RNV

Thanks @JohnWinder

I dont think Im brave & knowledgeable on bond specifics enough to chose this one niche.  There are 15% -ish bonds in my current SW portfolio (no idea wthether they are linked or not, will try to find out the details). I think i will have to leave as is with bonds for the moment.

As for SW fees, this is a work prnsion so fees are somewhat discounted. Again, I will need to educate myself further before I start looking for an alternative to move to. My light baulb moment only happened just over a year ago, Im still learning.

RNV

Good afternoon all,

Since my post above, I ended up  (wisely or otherwise) with the changes in my SW Workplace pension as follows:
- removed life styling
 -re-allocated funds as follows:

1) SW FID 50-50 SPEC ST- 1.575% charge  [10% of overall value]

2) SW SSGA GBL EQ INDX- 0.673% charge [10% of overall value]

3) PENS PORTFOLIO TWO- 0.77% charge   [80% of overall value] -  this was the original fund (100%) before SW started moving from here to PENS PORTFOLIO THREE following life styling.

I made these fund changes not knowing the respective %charges. Asked SW at the time,  however only received the response  today, 2 months later.  

Looking at it,  may I ask for the forum's opinion please whether I'm actually gaining much more "value"  having item 1)  at   x 2 the cost ? 

For context,  the overall value of the portfolio currently ~340k ,  so 10% of it is not a big deal but..... every little not thrown away  helps, I suppose...  I wish this conclusion hit me earlier than it did...

Thank you !

Albermarle

Even presuming these charges are the only ones ( no separate platform charge for example), the charges look quite high. Unless there is then a discount ?
1) Is presumably a managed fund so you can expect a higher charge, but perhaps not that high.

Asked SW at the time,  however only received the response  today, 2 months later.  
That is abysmal.

Pat38493

Albermarle said:

Even presuming these charges are the only ones ( no separate platform charge for example), the charges look quite high. Unless there is then a discount ?
1) Is presumably a managed fund so you can expect a higher charge, but perhaps not that high.

Asked SW at the time,  however only received the response  today, 2 months later.  
That is abysmal.

Aren't the charges supposed to be available on the most recent fact sheet?