Capita workplace pension - huge loss

OldScientist

Bostonerimus1 said:

Your sentiments are why many people DIY. Sometimes I feel a bit sorry for the investment management firms and their clients who were approaching retirement and in target retirement date funds that automatically shifted to bonds as they did so into the teeth of a massive bond market decline, but then I think again and just gasp at the stupidity and how people can be so trusting and gullible with their money. It would be interesting to know the mix of bonds as short term ones would have been more stable than long durations. I don't think it's a good idea to ever be overweighted in an asset (be it bonds or equities or cash) unless you can afford to take big losses.

For a lifestyle fund supporting an expected annuity purchase, the duration of the bonds is likely to be around 15 years to so (very roughly the duration of the annuity). This means for every 1% increase in gilt yields, there would be a corresponding 15% decrease in price - inflation linked yields have gone up by nearly 3 percentage points over the last couple of years and consequently, long duration funds have fallen by around 40%. For example, the Vanguard U.K. Inflation-Linked Gilt Index fund (GB00B45Q9038), which has a modified duration of nearly 17 years) has fallen by 40% since its peak price at the end of November 2021.

However, RPI annuity rates have increased from about 2.8% (single life, aged 65yo) to 4.6% over a similar period (i.e. an increase of about 60%).

dunstonh

Personally I think that the whole pension industry has misled us. We've all assumed that our investments 'carefully selected' by 'professionals' would be looked after in the long term and moved around as appropriate.

If you are invested in US equity and US equity falls between 20-40% (as it did).   How do you expect a fund manager with a remit to invest in US Equity to avoid that drop?  Funds have to invest in areas within their remit.

In reality, unless (generally) we've taken an active role beyond our reasonably-expected capabilities, our hard-earned money has been left to languish in bad funds and/or sold on to companies we've never heard of, to be left to languish in bad funds, subject to the whims of some !!!!!! we'd never give the time of day to.

Nobody ever told me I need to keep a keen eye on what's happening and learn about investments. I assumed that my knowledgeable IFAs and the knowledgeable people running my 'managed' pension funds would be doing something to maximise my pension.

If you employ an IFA to provide ongoing servicing, they would move you out of funds that are considered unsuitable. 
Why would you employ multiple IFAs?  Are you actually employing an IFA on ongoing basis?

If somebody had mentioned that these people/companies had no actual interest in maximising my retirement pot and were more interested in their own comfortable outcomes I might have taken more interest before I hit my fifties.

Of course they want to increase your retirement fund.   However, they have no control over the markets or events.

I also don't believe that the advice that most IFAs have been giving over the last few years is correct. They've completely failed to take account of the historically-low interest rates over the last 10+ years and consider what might happen if interest rates went up.

How did you manage to get around to see most IFAs?  That must have been very time consuming.    
People were calling interest rates to start rising from 2011.  So, on that basis, your view is that you shouldn't have been in them since then and instead been in cash earning 0.x% a year.   Gilts, with income reinvested (which would be the case in a pension being accumulated) are still higher than cash in 2011.  So, you are asking for a worse outcome.



The expectation was that the effects of the unwinding of QE would be slower and played out over a longer period  Gilts traditionally move in cycles over a decade or more.  So, as the unit prices fell, the yield would increase and with Government borrowing high, there would be enough new issues to cushion the decline.   Instead, events conspired to unwind quickly and sharply in a way that no-one expected.  Apart from you.

I've also failed to do that, but I'm not a FA and I've got the benefit of hindsight.   It's been obvious for years that investments in bonds were like sticking money under the bed though. The last year has shown it would be better off under the bed.

As you can see from the chart, gilts have still beaten cash.  But you are right on hindsight.  Its always easy when you have hindsight

sevenhills

FatFred66 said:

I also don't believe that the advice that most IFAs have been giving over the last few years is correct. They've completely failed to take account of the historically-low interest rates over the last 10+ years and consider what might happen if interest rates went up.

To be fair to them, very few people on here, or anywhere else, would have said two years ago, that people need to fix their mortgages for 10+ years because the interest rates will be going up in 2023.

Bostonerimus1

OldScientist said:

Bostonerimus1 said:

Your sentiments are why many people DIY. Sometimes I feel a bit sorry for the investment management firms and their clients who were approaching retirement and in target retirement date funds that automatically shifted to bonds as they did so into the teeth of a massive bond market decline, but then I think again and just gasp at the stupidity and how people can be so trusting and gullible with their money. It would be interesting to know the mix of bonds as short term ones would have been more stable than long durations. I don't think it's a good idea to ever be overweighted in an asset (be it bonds or equities or cash) unless you can afford to take big losses.

For a lifestyle fund supporting an expected annuity purchase, the duration of the bonds is likely to be around 15 years to so (very roughly the duration of the annuity). This means for every 1% increase in gilt yields, there would be a corresponding 15% decrease in price - inflation linked yields have gone up by nearly 3 percentage points over the last couple of years and consequently, long duration funds have fallen by around 40%. For example, the Vanguard U.K. Inflation-Linked Gilt Index fund (GB00B45Q9038), which has a modified duration of nearly 17 years) has fallen by 40% since its peak price at the end of November 2021.

However, RPI annuity rates have increased from about 2.8% (single life, aged 65yo) to 4.6% over a similar period (i.e. an increase of about 60%).

Good point about annuity rates. The OP could buy an annuity and come out even in spending power and sort of avoid crystalizing the loss. But the psychological damage of seeing your pot decrease is hard to ignore.

loveprada

OldScientist said:

Looking to the future, since it would appear you have been invested in a lifestyle fund that assumed you would be taking an annuity at retirement, you realistically have two choices:

1) Take an annuity. You have been quoted about £500pa, but it is important to know exactly what type of annuity it is:
a) single life or joint life. Outside of any guarantee period, the former will only pay out until your death, while the latter will continue to pay a fraction (often 50%, but options up to 100% are available) of the income to a named beneficiary (usually a spouse) until their death.
b) Guarantee period. As explained earlier in the thread, this means that the income will be paid for N years (you've been quoted for 5 years). Guarantee periods up to 20 or 30 years are available, but will reduce the income.
c) Inflation protection, the choices are level, fixed escalation, or RPI (index linked/inflation protected). This is a key consideration, since
i) a level income will be £500 for all time and will, in the presence of inflation, reduce in spending power with time (e.g. with 4% inflation, after 10 years the income would only be worth about £340 in today's money).
ii) A fixed escalation (typically 3%) will increase the amount of income by that amount each year. For example, with a 3% escalation, the income would go up from £500 to £515 to £530.45, etc.
iii) An RPI annuity will increase the income by the inflation rate (currently RPI, but CPIH after 2030), i.e. assuming RPI stays at 9% for the next year, then the amount in the 2nd year would be £545. More importantly, the spending power of the income would remain fixed.

2) Move to drawdown (this also applies to any lump sum if the annuity is taken). The historical UK inflation adjusted withdrawal rate for a moderately adventurous portfolio (e.g., 60% stocks, 40% cash/bonds) for a 30 year planning horizon was somewhere between 3.0% to 3.5%. This means your portfolio would provide an inflation adjusted income of about £490 per year (taking the upper value of 3.5%), while the lump sum would provide about £100 per year.

Since the fund is now reduced to £13k, its not a huge or significant amount. I'm probably not going to get more than that out of an annuity so that's not going to happen. Either I have to cash it in or reinvest elsewhere. Question is where and who can I trust if I use a IFA. I did use one a couple of years ago and the guy is either an idiot or a spiv, as I lost 30k from the very first moment, it was losing money at the rate of say at least £1k a week and he did !!!!!! all to stem the flow. I've raised a complaint with the FSA Ombudsman and ditched him. Beggars belief that he was recommended to me personally by someone who has been invested with him for 25 years. Things aren't going well for me.

Bostonerimus1

sevenhills said:

FatFred66 said:

I also don't believe that the advice that most IFAs have been giving over the last few years is correct. They've completely failed to take account of the historically-low interest rates over the last 10+ years and consider what might happen if interest rates went up.

To be fair to them, very few people on here, or anywhere else, would have said two years ago, that people need to fix their mortgages for 10+ years because the interest rates will be going up in 2023.

I have a friend who took out a 10 year mortgage when rates were around 2.5% and I encouraged her to fix it for as long as possible as that's very cheap money. It seemed pretty obvious because rates could not fall much more and she could easily afford the mortgage so lock it in for as long as possible. I obviously didn't know what rates would be in 2023 back then, just that they had really only one direction to go.

I live in the USA where a very common mortgage product is the 30 year fixed mortgage and the approach is to fix your mortgage payment at a level that you can afford. It is possible to refinance if rates fall, but there will be fees. Long mortgages have the advantage of allowing you to budget and giving you a firm date when you will have paid it all off...don't get me started on interest only mortgages. 

Back in 2014 I took a strategic decision to to convert most of my bond allocation into a DB pension which I now think of as my fixed income allocation. There were two reasons; rates were low and I thought they would eventually rise; and I wanted a regular income source for retirement that wasn't from drawdown of stocks and bonds.

If I was saving for retirement now I would probably have had a 40% bond allocation and so I would have lost money on those bonds, but I always kept the bond fund average durations to around 7 years to reduce interest rate sensitivity and I would be rebalancing, so buying bonds while they are cheap.

dunstonh

 Question is where and who can I trust if I use a IFA.

To be honest, you are not in IFA territory.     I suspect the vast majority would not offer their services to you.

 I did use one a couple of years ago and the guy is either an idiot or a spiv, as I lost 30k from the very first moment, it was losing money at the rate of say at least £1k a week and he did !!!!!! all to stem the flow.

Why would you expect an adviser to make changes?      The only negative period close to a couple of years ago was Spring 2020 when coronavirus lockdowns hit.  Markets fell sharply over a period of one month.  By late summer of that year, they were higher again.          If they adviser had pulled you out whilst it was falling, you would have missed out on the recovery and ended up with a worse outcome.      The adviser sensibly did nothing as would be expected.    

However, your figures do not add up.  Losing £30k from the very first moment would require a  fund value of around £100k+.   £1k a week losses for four weeks would not match the way the falls occured in Spring 2020.

 I've raised a complaint with the FSA Ombudsman and ditched him. Beggars belief that he was recommended to me personally by someone who has been invested with him for 25 years. Things aren't going well for me.

The Food Standards Agency is not an Ombudsman    Perhaps you meant the FOS.  However, the FOS cannot review a complaint until you have complained to the firm and they have responded and if you still disagree with it.     However, the loss period in 2020 recovered within 6 months.  So, complaining now about a loss in 2020 that recovered before the end of 2020 seems utterly pointless.    

have you considered that the reason things are not going well for you is you?   i.e. your lack of knowledge and understanding?    Not knowing and understanding things is quite normal but if it is causing you to make bad decisions or act in a way that is not healthy, then the best thing to do is learn about it and begin to understand.

At the moment, you are making accusations of wrongdoing but there appears to be none.   If you understood it more, then you would come to realise that and knowledge leads to better decision making.

OldScientist

loveprada said:

OldScientist said:

Looking to the future, since it would appear you have been invested in a lifestyle fund that assumed you would be taking an annuity at retirement, you realistically have two choices:

1) Take an annuity. You have been quoted about £500pa, but it is important to know exactly what type of annuity it is:
a) single life or joint life. Outside of any guarantee period, the former will only pay out until your death, while the latter will continue to pay a fraction (often 50%, but options up to 100% are available) of the income to a named beneficiary (usually a spouse) until their death.
b) Guarantee period. As explained earlier in the thread, this means that the income will be paid for N years (you've been quoted for 5 years). Guarantee periods up to 20 or 30 years are available, but will reduce the income.
c) Inflation protection, the choices are level, fixed escalation, or RPI (index linked/inflation protected). This is a key consideration, since
i) a level income will be £500 for all time and will, in the presence of inflation, reduce in spending power with time (e.g. with 4% inflation, after 10 years the income would only be worth about £340 in today's money).
ii) A fixed escalation (typically 3%) will increase the amount of income by that amount each year. For example, with a 3% escalation, the income would go up from £500 to £515 to £530.45, etc.
iii) An RPI annuity will increase the income by the inflation rate (currently RPI, but CPIH after 2030), i.e. assuming RPI stays at 9% for the next year, then the amount in the 2nd year would be £545. More importantly, the spending power of the income would remain fixed.

2) Move to drawdown (this also applies to any lump sum if the annuity is taken). The historical UK inflation adjusted withdrawal rate for a moderately adventurous portfolio (e.g., 60% stocks, 40% cash/bonds) for a 30 year planning horizon was somewhere between 3.0% to 3.5%. This means your portfolio would provide an inflation adjusted income of about £490 per year (taking the upper value of 3.5%), while the lump sum would provide about £100 per year.

Since the fund is now reduced to £13k, its not a huge or significant amount. I'm probably not going to get more than that out of an annuity so that's not going to happen. Either I have to cash it in or reinvest elsewhere. Question is where and who can I trust if I use a IFA. I did use one a couple of years ago and the guy is either an idiot or a spiv, as I lost 30k from the very first moment, it was losing money at the rate of say at least £1k a week and he did !!!!!! all to stem the flow. I've raised a complaint with the FSA Ombudsman and ditched him. Beggars belief that he was recommended to me personally by someone who has been invested with him for 25 years. Things aren't going well for me.

How long the annuity takes to pay back the premium in nominal terms depends on the type - for an RPI annuity with inflation constant at 3% it will pay back the premium after about 20 years, while at 5% it would take about 17 years. For the UK population as a whole, at 65yo there's a good chance of living longer than that (which is a the point in favour of annuities - they offer longevity insurance).

However, if you don't want to go annuity route then transferring it to either your existing SIPP or a new one should be relatively straightforward (there are a number of threads here). As you say, cashing it in and placing it in a fixed rate savings account is also an option especially if you want a boost to your income over the next few years. For example, 5 year accounts with rates of just under 6% would give about £750 but runs the risk that interest rates will be much less after 5 years or that inflation will erode the purchasing power.

A straightforward, easy to manage, portfolio can consist of a single multi asset fund. There are quite a few of these to choose from, for example, those in the Vanguard LifeStrategy series which have fixed stock allocations of 20%, 40%, 60%, 80%, and 100% and well as offerings from HSBC and others. Which are available to you will depend on your SIPP platform. Any of these with a significant proportion of bonds in them will have dropped in value over the last 2 years - e.g. the Vanguard 60% fund has dropped about 10% since the peak at the end of 2021. I (and no-one else) have no idea what any of these funds will return over the next 2, 5, 10, or 20 years, but I hope that a portfolio containing about 60% stocks will do OK (because that's what I'm holding!). A DIY approach using these funds is possible.

loveprada

dunstonh said:

 Question is where and who can I trust if I use a IFA.

To be honest, you are not in IFA territory.     I suspect the vast majority would not offer their services to you.

 I did use one a couple of years ago and the guy is either an idiot or a spiv, as I lost 30k from the very first moment, it was losing money at the rate of say at least £1k a week and he did !!!!!! all to stem the flow.

Why would you expect an adviser to make changes?      The only negative period close to a couple of years ago was Spring 2020 when coronavirus lockdowns hit.  Markets fell sharply over a period of one month.  By late summer of that year, they were higher again.          If they adviser had pulled you out whilst it was falling, you would have missed out on the recovery and ended up with a worse outcome.      The adviser sensibly did nothing as would be expected.    

However, your figures do not add up.  Losing £30k from the very first moment would require a  fund value of around £100k+.   £1k a week losses for four weeks would not match the way the falls occured in Spring 2020.

 I've raised a complaint with the FSA Ombudsman and ditched him. Beggars belief that he was recommended to me personally by someone who has been invested with him for 25 years. Things aren't going well for me.

The Food Standards Agency is not an Ombudsman    Perhaps you meant the FOS.  However, the FOS cannot review a complaint until you have complained to the firm and they have responded and if you still disagree with it.     However, the loss period in 2020 recovered within 6 months.  So, complaining now about a loss in 2020 that recovered before the end of 2020 seems utterly pointless.    

have you considered that the reason things are not going well for you is you?   i.e. your lack of knowledge and understanding?    Not knowing and understanding things is quite normal but if it is causing you to make bad decisions or act in a way that is not healthy, then the best thing to do is learn about it and begin to understand.

At the moment, you are making accusations of wrongdoing but there appears to be none.   If you understood it more, then you would come to realise that and knowledge leads to better decision making.

Sorry for the wrong acronyms, I did mean the Financial Services Ombudsman. Yes I did lose £30k between November 21 to around Summer 22. It has improved slightly at least as my current losses are £23k which is still bad, yes there was over £100k invested. Yes it was my naivety that led me down this path. If you say that no IFA would have taken me on then this guy who did must have had a rogue mentality. Can you guide as to what I should be reading for a better understanding of what is going on? Also would you say the funds I'm in at the moment are probably not going to rise again? Maybe they are exposed to the same bond issues?

Bostonerimus1

loveprada said:

dunstonh said:

 Question is where and who can I trust if I use a IFA.

To be honest, you are not in IFA territory.     I suspect the vast majority would not offer their services to you.

 I did use one a couple of years ago and the guy is either an idiot or a spiv, as I lost 30k from the very first moment, it was losing money at the rate of say at least £1k a week and he did !!!!!! all to stem the flow.

Why would you expect an adviser to make changes?      The only negative period close to a couple of years ago was Spring 2020 when coronavirus lockdowns hit.  Markets fell sharply over a period of one month.  By late summer of that year, they were higher again.          If they adviser had pulled you out whilst it was falling, you would have missed out on the recovery and ended up with a worse outcome.      The adviser sensibly did nothing as would be expected.    

However, your figures do not add up.  Losing £30k from the very first moment would require a  fund value of around £100k+.   £1k a week losses for four weeks would not match the way the falls occured in Spring 2020.

 I've raised a complaint with the FSA Ombudsman and ditched him. Beggars belief that he was recommended to me personally by someone who has been invested with him for 25 years. Things aren't going well for me.

The Food Standards Agency is not an Ombudsman    Perhaps you meant the FOS.  However, the FOS cannot review a complaint until you have complained to the firm and they have responded and if you still disagree with it.     However, the loss period in 2020 recovered within 6 months.  So, complaining now about a loss in 2020 that recovered before the end of 2020 seems utterly pointless.    

have you considered that the reason things are not going well for you is you?   i.e. your lack of knowledge and understanding?    Not knowing and understanding things is quite normal but if it is causing you to make bad decisions or act in a way that is not healthy, then the best thing to do is learn about it and begin to understand.

At the moment, you are making accusations of wrongdoing but there appears to be none.   If you understood it more, then you would come to realise that and knowledge leads to better decision making.

Sorry for the wrong acronyms, I did mean the Financial Services Ombudsman. Yes I did lose £30k between November 21 to around Summer 22. It has improved slightly at least as my current losses are £23k which is still bad, yes there was over £100k invested. Yes it was my naivety that led me down this path. If you say that no IFA would have taken me on then this guy who did must have had a rogue mentality. Can you guide as to what I should be reading for a better understanding of what is going on? Also would you say the funds I'm in at the moment are probably not going to rise again? Maybe they are exposed to the same bond issues?

Taking “thought” largely out of my investing when I was working saved me from some dubious decisions. I just kept a roughly 60% equity and 40% bond allocation and rebalanced through the ups and downs of the markets. So if you are looking at times scales of decades…and even people quite close to retirement will have decades of investing ahead of them…and have lost money in bonds so that your asset allocation has deviated from your ideal you should be selling equities and buying bonds. One nice thing about the funds like Vanguard Lifestrategy series is they automatically rebalance.