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how safe is safe ?

Hi all, 
as explained in my previous threads, I am approaching 63, still working, and about to access a DB pension (taking the max TFLS) since 63 was the NRA of the scheme I was in (a former employer). I will also qualify for a full SP at age 66 and 8 months, and access a Civil Service DB (Alpha) pension at that time too. These 3 pensions will give me a more than comfortable retirement.

Additional I have almost £200k in a DC pension. I don't need to access this money and it may be that I leave this to my estate (barring any emergencies / unforeseen circumstances).
This pot was life-styled but I got out before the losses became too drastic , and the pot is now sitting in a short term money market fund - L&G PMC Cash Fund G17).

I am risk averse and this looks like the safest fund available to me. The risk / reward rating is 1. As  far as I know my capital is protected (barring liquidity of a bank or institution that the fund invests in) and it is performing rather nicely in these times of high interest, steady rises.

Is there any realistic circumstances that my capital could take a hit , and are there other funds I should be considering that are 'safe as houses'.

As always, the views of the experts in this group are very much appreciated.

Thanks.
  
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Comments

  • tacpot12
    tacpot12 Posts: 9,038 Forumite
    Ninth Anniversary 1,000 Posts Name Dropper
    Any fund carries more risk than cash, so there isn't a completely safe haven. I would recommend diversifying between a couple of cash funds "just in case".
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.
  • Bostonerimus1
    Bostonerimus1 Posts: 1,185 Forumite
    1,000 Posts First Anniversary Name Dropper
    edited 12 October 2023 pm31 6:50PM
    Such money market funds are as close to a saving account as you'll get inside a DC pension/ISA account. My question is if you are planning to leave this money to your estate and heirs why not take more risk to see if you can make it grow a bit more? 
    And so we beat on, boats against the current, borne back ceaselessly into the past.
  • SVaz
    SVaz Posts: 398 Forumite
    100 Posts First Anniversary
    edited 12 October 2023 pm31 8:23PM
    I’d split the difference, half in the MMF,  half in a mixed asset fund or even 100% equities / Global tracker for some actual growth. 
    £200k now will only be worth half that in real terms, in a decade otherwise. 
    If the unforseen circs might involve needing a care home in old age,   keeping pace with inflation in order to afford a care needs annuity  for 3 years or more, seems sensible. 
    We shouldn’t need much, if any, income from our Sipps come SP age,  we’ll still stay fully invested for inheritance / potential care needs. 
  • Linton
    Linton Posts: 17,941 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    What do you mean by safe? A close to cash fund is very unlikely to lose money in £ terms barring end of the world scenarios but is likely to lose value from inflation. So it is not safe in the long term. Conversely share based investments can be volatile in the short term but should beat inflation in the long term. 
  • Aretnap
    Aretnap Posts: 5,543 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Indeed. When you say that you are risk-averse, do you mean that you are worried about the number at the bottom of your statement being smaller than last year, or do you mean that you are worried about not being able to buy as much "stuff" with that number? Those are two very different things.

    If interest rates lag behind inflation by an average of, say 1.5% (which is probably a conservative assumption based on the last decade or two, and based on the fact that you don't have access to the best buy savings accounts within a pension) then over a 30 year retirement you can expect to lose 40% of your pension's spending power to inflation. That's worse than almost any stock market crash, and unlike a stick market crash, the value doesn't bounce back again in a few years.
  • Why are you continuing to work when you have funds available for you to retire now? You are effectively working for your heir's benefits.

    If you intend to keep working then I would ask why are you being risk averse with money that you don't intend to spend and have earmarked for your heirs in possibly 20 or 30 years time? 

    What impact would a massive stock market crash (eg. 50% drop) have on your retirement plans? None that I can see because you have no plans for those funds.

    If you put it in a cash fund then the spending power of that money is almost certainly going to diminish during that period whereas a global equity index fund has the best chance of growing. Forget the recent volatility in bonds and equities, that is irrelevant for 20/30 year timescales. 

    If you want to keep some back in case of unforeseen circumstances then keep a certain % in a cash fund eg. £50k.

    At the risk of being pedantic, your DC pension will never be in your estate unless you draw from it. It's held in trust for the benefit of you or whoever you nominate in your expression of wishes.
  • Pat38493
    Pat38493 Posts: 3,132 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Strangely enough - risk averse is a term used by finance advisers in a specific way, but in this situation you could argue that risk averse thing to do is to invest the money in equities as it is more likely to grow for the legacy heirs during the next decades.  Putting it in money market fund means it will most likely shrink in real terms as the returns won't match inflation.
  • Albermarle
    Albermarle Posts: 26,010 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Pat38493 said:
    Strangely enough - risk averse is a term used by finance advisers in a specific way, but in this situation you could argue that risk averse thing to do is to invest the money in equities as it is more likely to grow for the legacy heirs during the next decades.  Putting it in money market fund means it will most likely shrink in real terms as the returns won't match inflation.
    Although as often said 100% equities are not suitable for most people, as they would panic and withdraw in a significant market downturn, and selling at the bottom is a very risky strategy.

    So keeping everything in cash is risky due to inflation eating away at the value.
    Keeping everything in equities long term is probably less risky, but only if you have the nerve for it.

    So for your average type something similar to what @SVaz suggested is probably a better route.

    I’d split the difference, half in the MMF,  half in a mixed asset fund or even 100% equities / Global tracker for some actual growth.

    Probably if interest rates start to reduce, then reduce the MMF% in favour of more invested.
  • Pat38493
    Pat38493 Posts: 3,132 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    Thinking out of the box - if you don't need that money and it's for your heirs - what is their attitude to risk as it's them that will inherit the money in the end :) 
  • Thanks to all for your responses which I appreciate (as always). To respond to the questions/considerations raised:

    SVaz said:
    I’d split the difference, half in the MMF,  half in a mixed asset fund or even 100% equities / Global tracker for some actual growth. 
    £200k now will only be worth half that in real terms, in a decade otherwise. 
    I hadn't fully considered the effects of erosion due to inflation, concentrating on the protection of the capital. I suspect the money market fund is ok in the short term due to high interest rates, but they won't stay high forever.

    Pat38493 said:
    Thinking out of the box - if you don't need that money and it's for your heirs - what is their attitude to risk as it's them that will inherit the money in the end :) 

    Good idea, in all likelihood I will not need to draw from this pot so I should consult with those who will inherit it.

    leosayer said:
    Why are you continuing to work when you have funds available for you to retire now? You are effectively working for your heir's benefits.
    I did some soul searching in the last couple of months. With a good DB and TFLS about to pay out, I could afford to retire now. Especially since I have a full SP and a top up DB pension to look forward to at SP age, and knowing that if the worst came to the worst I could use part of the DC pot to bridge the gap.
    However, I don't feel ready. I like the structure and purpose that work provides, I work with good colleagues and suspect I would struggle to fill my days. Plus, if I work for a few years yet I continue to significantly grow my top up (Civil Service) pension since my earnings are high(ish).

    With all that in mind, can anyone recommend how I might diversify my DC pot ? I have listed the funds below (sorry there are so many but hopefully the 'main contenders' jump out. Should I be speaking to an IFA with the cost that would entail given I am not necessarily looking for ongoing fund management ?

      



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