Protecting pension growth

roadweary

Hi,

I have a company pension via Standard Life and have accrued a reasonable chunk.

I'm hoping to semi retire in the next 8 - 10 years.  Pensions are pretty volatile at the moment.  I've watched as for most of a year, large chunks of the investment growth were wiped out and then started to return.

I see how pension providers look to gradually change your investment profile as you near whatever retirement age they have for you.  However, 3 or 4 years back, when I questioned the performance of those medium to low risk funds....the difference in growth....and I guess more importantly, how they dipped with the market...was very similar.

My question is, imagine at some point in time I like the amount of growth in my pension pot.  Is there a way to have them transfer the entire pot into whatever is the safest investment vehicle....and if so...what would that be...and how would I check how that vehicle varies in value over time?

Secondly, could I then instruct my pension company to invest my ongoing pension contributions in the normal way?

The idea is that I can rest easy knowing that I have X funds that are safe.....and then I can continue growing my pension with my ongoing contributions in the normal way, subject to market conditions.

By the way, I'm not old enough to access my pension, so I can't secure 25% by taking it out as a lump sum....

Thanks!

Linton

Yes you should be able to move your money into less volatile funds. How you do this and what other funds are available is dependent on the details of your employer's pension scheme which you will have to find out from your scheme documentation or by talking to your employer's pension people.

If you can get a list of funds and let us know which you currently hold people on the forum should be able to suggest the ones  that may be appropriate for your needs.

artyboy

It's a lovely thought isn't it. You've got to 'a number' that you're happy with and want to protect it. Just keep it ticking over, safe from inflation, no risks, for the rest of your life. Couple of minor points though:

- you can't. The holy grail of long term inflation linked capital preservation without risk doesn't exist. Sorry.
- Your point about pension providers changing investments - that's a concept called 'lifestyling' and is sensible if you're looking at purchasing an annuity, because the investments get shifted into bonds that track annuity prices. So it removes volatility in determining the income you'll receive for the rest of your life. Are you actually considering an annuity?

roadweary

artyboy said:

It's a lovely thought isn't it. You've got to 'a number' that you're happy with and want to protect it. Just keep it ticking over, safe from inflation, no risks, for the rest of your life. Couple of minor points though:

- you can't. The holy grail of long term inflation linked capital preservation without risk doesn't exist. Sorry.
- Your point about pension providers changing investments - that's a concept called 'lifestyling' and is sensible if you're looking at purchasing an annuity, because the investments get shifted into bonds that track annuity prices. So it removes volatility in determining the income you'll receive for the rest of your life. Are you actually considering an annuity?

hmm, no I didn't think it'd be that easy, but I thought it was worth asking   I'm not considering an annuity at all.....current plans are......draw down 25% when I (semi) retire......live off that, and rental income (from a single property - accidental landlord - that will still have a mortgage) and whatever I do / can earn......and put off taking money from my pension at all.

And then basically take money from my pension when I have to.

Whilst trying not to sound negative......I haven't seen great health / survival rates in my family past mid 80s.  So the way I see it.....start winding down work in my early 60s......have 20 enjoyable years after that......and if my pension lasts longer, great.....if not......I'm far from convinced that I'll care how much money I have should I last longer.

Of course I'd be delighted to be proven wrong......

Audaxer

roadweary said:

artyboy said:

It's a lovely thought isn't it. You've got to 'a number' that you're happy with and want to protect it. Just keep it ticking over, safe from inflation, no risks, for the rest of your life. Couple of minor points though:

- you can't. The holy grail of long term inflation linked capital preservation without risk doesn't exist. Sorry.
- Your point about pension providers changing investments - that's a concept called 'lifestyling' and is sensible if you're looking at purchasing an annuity, because the investments get shifted into bonds that track annuity prices. So it removes volatility in determining the income you'll receive for the rest of your life. Are you actually considering an annuity?

hmm, no I didn't think it'd be that easy, but I thought it was worth asking   I'm not considering an annuity at all.....current plans are......draw down 25% when I (semi) retire......live off that, and rental income (from a single property - accidental landlord - that will still have a mortgage) and whatever I do / can earn......and put off taking money from my pension at all.

And then basically take money from my pension when I have to.

If you are not considering an annuity, it makes sense to stay invested at a risk level you are comfortable with, that gives your pension investments a reasonable chance of at least keeping up with inflation over the next 20 years or more. As you are planning to semi-retire in 8 to 10 years and only take money from your pension when you have to, that's fine, but if you don't keep it invested, or invest it in traditionally very 'low risk' funds for the long term, it is at risk of losing value to inflation.

Albermarle

I'm hoping to semi retire in the next 8 - 10 years.  Pensions are pretty volatile at the moment.  I've watched as for most of a year, large chunks of the investment growth were wiped out and then started to return

Reality check - Investments/pension funds will always go up and down, there is nothing special about the current situation. The only unusual thing that happened in 2022, was that in many cases so called low risk funds went down more than higher risk ones.

By the way, I'm not old enough to access my pension, so I can't secure 25% by taking it out as a lump sum....

There is no reason that the money would be more secure outside a pension than in it . It is usually better to leave it where it is unless you need it for a specific reason.

Your point about pension providers changing investments - that's a concept called 'lifestyling' and is sensible if you're looking at purchasing an annuity, because the investments get shifted into bonds that track annuity prices. So it removes volatility in determining the income you'll receive for the rest of your life. Are you actually considering an annuity?

Although the original idea of lifestyling was aimed at the client purchasing an annuity, most providers will now offer a range of lifestyling options, aimed at different withdrawal scenarios. Annuity, drawdown, quick withdrawal over a few years etc. However some have been at a bit slow off the mark with this, and probably many people are still unwittingly in the annuity option, even though normally now there will be other options. I have just received info from an ex employer pension that  they are changing the default option from annuity to drawdown. ( I am not in the lifestyling option but got the info anyway)

Linton

artyboy said:

It's a lovely thought isn't it. You've got to 'a number' that you're happy with and want to protect it. Just keep it ticking over, safe from inflation, no risks, for the rest of your life. Couple of minor points though:

- you can't. The holy grail of long term inflation linked capital preservation without risk doesn't exist. Sorry.
- Your point about pension providers changing investments - that's a concept called 'lifestyling' and is sensible if you're looking at purchasing an annuity, because the investments get shifted into bonds that track annuity prices. So it removes volatility in determining the income you'll receive for the rest of your life. Are you actually considering an annuity?

Getting an absolute guarantee, barring end of the world scenarios,  of returns matching inflation by a particular date is largely achievable now by the use of inflation linked gilts as prices are near to par.    However they would almost certainly not be available in an employer's pension.

But it is possible that the OPs pensions may offer a more appropriate fund than the OP is currently using.

rnj

I put some money into "safe" bonds... currently down 10%

Linton

rnj said:

I put some money into "safe" bonds... currently down 10%

Depends when you put the money in.  If the price is at par, ie £100, when you buy the return at maturity is guaranteed to be as stated.  Though it may vary in the meantime.

If you bought them some time ago when interest rates were lower then a lower price now is to be expected.

London2023

I wonder if some funds have the option of putting money into "cash" (ie retain it in the fund as cash).

Linton

London2023 said:

I wonder if some funds have the option of putting money into "cash" (ie retain it in the fund as cash).

It depends on the fund's remit.  If for example it is an index tracker then it should not be holding anythng more than trivial cash.  On the other hand some funds have a remit to control risk.  Under some circumstances they could reasonably hold significant cash eg Wealth Preservation funds and I guess risk balanced multi-asset funds.

Another place where you see a lot of cash reported is in currency hedging but I guess these will be cash derivatives rather than actual cash.