L&G Worksave Pension Funds

MrWhoppet

Hello, I'm new to these boards and already I see there's a wealth of information to learn from here. I'm looking for some tips and opinions on my DB work pension funds please.

Current pot is ca. 220K, aiming for retirement in approx 10 years and invested in my L&G worksave scheme, 7.5% employer + 25% employee (£1600 p.m) contributions.
Invested in 90% default L&G multi asset fund 3 and 10% L&G N. American equity Index 3. In 6 years the multi asset fund has provided ca 11% return.

I recently received a letter from L&G explaining that the default fund I'm invested in will be auto switched from the L&G multi asset fund 3 to an L&G TDR fund in November (L&G PMC 2030-2035 Target Date Fund 3) with the idea that it will de- risk my investment by adjusting the mixture of assets within the fund (through less exposure to equities) as retirement age approaches and will also continue to de-risk into retirement eg via a drawdown product.

Does anyone have any knowledge or opinions of TDF type funds? They are apparently relatively new to the UK, and do they sound like a sensible replacement for the L&G multi asset fund 3?

From what I see the L&G PMC 2030-2035 Target Date Fund is similar to the Multi asset 3 in terms of initial asset allocation eg 40% equities and 40% bonds and cash but decreasing over 10 years to 20:60 heavily in bonds/cash. So my main concern is if they substantially de-risk over the next 10 years and beyond and compromise potential growth.

I'm not sure if I should remain in the old default MA fund or accept the change to the TDF and or choose a new fund to increase my equity exposure considering I still have ca 10 years until retirement to try to maximise growth.
Some of my choices as I see them are:

1. Switching the MA fund (automatic do nothing option) and current contributions entirely to the TDF
2. Keep existing funds as they are (opt out of new default)
3. Keep the MA fund (currently 90% of total pot) but reduce to say 60% of total pot and invest the other 30% of pot and 30% new contributions to a new fund eg L&G PMC World ex UK Equity Index 3, so I'm more exposed to global equities and potential growth over the next 5-10 years.
4. Same as 3 but hold 60% in the TDF fund replacing the MA

Can anyone see the pros and cons of these/suggest any alternatives?
Thankyou.

gm0

This is based on your current view of your plans for retirement.  (Solidity of the 10 years and how/when you plan to access this DC pension (DB is likely a typo in your post if this is Worksave and we are discussing investment funds)

You have a view - which could change - of when. And perhaps also of how you might access pension.  Drawdown. Mixture of drawdown and annuity etc.  Type of drawdown access etc.  Lots of detail.  Most not important now and rules change over 10 years +.  You may have retirement plans which require capital (and tax free cash) or perhaps not.  Or you don't know yet but would/would not like the option to definitely be available at the time

The correct asset allocation as you approach retirement is affected by these decisions.  And by how much income you are trying to sweat out of how big a pot over a defined period - say 40 years 57-97 or something longer, or shorter.  More desired income per size of pot likely means higher equities during deaccumulation and more risk.

In order to know whether you like the target asset allocation and rate of progression in the target date fund you need to develop a view of what you want that position to be at retirement.

I sat in 100% equity global indexers throughout accumulation, opted out of lifestyling.  And then had to "crash" the derisk change in asset allocation in a couple of bigger leaps nearer the retirement setup date.  I was happy with, and fairly lucky about how that went.   My end state asset allocation is still 70-80% equities in deaccumulation albeit with some thought given to short term income coverage, buffering etc. and sequence risk.

The downside of sitting in a too risky for future use position is that the markets may not cooperate at the exact moment you need to act due to forced/desired timing.  Meaning that you may not want to make asset allocation changes or take tax free cash or start income at that particular time.  Which upsets your plans.

The downside of derisking too much and too early (with lifestyle and target date funds) is loss of possible returns in accumulation due to lack of growth assets.  And the occasional bond market turbulence as recently which has hit "cautious" investors and lifestylers unusually hard.  And will have hit your MA3 holdings.  Albeit you have bought more at better prices.

I use one of the Worksaves as a section of pension.  And I use a small slice of Multi-Asset 3 which cost me a chunk of money in the recent bond reset.  But my timetable for how it helps or hinders my portfolio balance of returns and volatility - is a lot longer than the period I have held it.  So I have formed no strong opinion about the fund as yet.

I would not have used it in my own accumulation as I would have considered it too light on equities/growth assets.  I would not have been interested in the reduced volatiltiy in a one stop shop aspect.  I did not use bond funds at all in 30 years of accumulation.  Not everyone would feel the same.  And perhaps I had lucky timing - my all equities pension fund halved at one annual statement.  And yet I got to buy a lot of cheap units around that correction cycle. 

But it did not "halve" just as I slid into early retirement - or not yet anyway.

What you need for the options you want.  And what you can tolerate drive this.

MrWhoppet

Yes a typo, I meant DC and thanks for your comments and giving me some food for thought.
I'm currently thinking to go with something like option 4 in my above post and lose the Multi asset 3 fund completely. So transferring 70-80% and future contributions of the MA3 to the TDF and 20-30% of the MA3 and future contributions to a global equities fund like L&G PMC World ex UK Equity Index 3 with hope of some suitable accumulation over say a 5-7 year period in higher risk but the majority of the pot still de-risking in the TDF fund as I get closer to my 10 years time target retire date.

Any more comments would be welcome.