Standard Life Pension options

not_to_be_taken_for_a_ride

Hi pension gurus. I am researching the options of changing my old style Standard Life pension that I took out 23 years ago to the current Active Money Pension. I am not confident to pick my own funds and do not want to pay 2.5% of my pot to an IFA, so I am considering going for one of the Universal SLPs (Strategic Lifestyle Profiles). Firstly, is this a good idea? Secondly, there seem to be too many options to choose from.... How do i go about choosing the right profile?

Albermarle

If you go for a lifestyle profile, then you should think about the following:
1) How do you intend to take the pension when the time comes? A ( hopefully) long drawdown of the pot? Buy an annuity ? Take the pot quite quickly ( as maybe a bridge between retiring and other income arriving )?
This will determine which lifestyle profile to pick.
2) The issue with most lifestyle profiles is that they tend to start derisking quite early, and often by more than an experienced investor would do ( although opinions vary)
3) The pension will have a nominal retirement age for you ( usually 65) The lifestyle profile will use this age whether you actually intend to retire earlier or later. You can easily change it on their website.

not_to_be_taken_for_a_ride

thank you, this does makes sense. I am planning on income drawdown when time comes. How does that affect my choices of profile? Agree about de-risking too early (10 years before retirement it seems), but I am a cautious investor so it probably works for me. Hard to know exact retirement age right now but am hoping around 65 if it all possible at least partially.

not_to_be_taken_for_a_ride

PS I have found multiple guides on the website showing multiple types of profiles with multiple funds. This is just 4 guides that I am looking at (there are more!!!). Where do I start?

MyFolio Universal strategic lifestyle profiles
Passive Core Universal Strategic lifestyle profile
Traditional Universal lifestyle profiles 
Traditional MyFolio Universal lifestyle profiles

Marcon

not_to_be_taken_for_a_ride said:

Hi pension gurus. I am researching the options of changing my old style Standard Life pension that I took out 23 years ago to the current Active Money Pension. I am not confident to pick my own funds and do not want to pay 2.5% of my pot to an IFA, so I am considering going for one of the Universal SLPs (Strategic Lifestyle Profiles). Firstly, is this a good idea? Secondly, there seem to be too many options to choose from.... How do i go about choosing the right profile?

Why do you think you need to pay 2.5% of your pot to an IFA? You can get advice on a one-off basis charged at a hourly rate.

JohnWinder

I am not confident to pick my own funds… so I am considering going for one of the Universal SLPs (Strategic Lifestyle Profiles). Firstly, is this a good idea? Secondly, there seem to be too many options to choose from.... How do i go about choosing the right profile?’

You’re in luck with your timing, with still some years to retirement and perhaps decades thereafter to live off your investments.

Your three problems of ‘not confident to pick funds’, ‘is a Lifestyle Profile fund a good idea?’, and ‘how to choose from many options?’, are readily amenable to solution. You seem to have the interest, you’ve got the time, so here are the important elements and an approach to your solution.

A suitable asset allocation is crucial; that’s jargon for how much of each of different assets will be in your pension, ie stocks, bonds, cash, property, gold, infrastructure like toll roads, etc. Within that, there’s a bit of how much of which bonds, or how much UK or foreign stocks etc. When you get a grasp on that you’ll know how to match your caution as an investor with a suitable asset allocation.

Secondly, as SL makes very clear, there’s a distinction between actively managed vs index tracking funds, and you’ll need to decide where you sit in this contested space. With the index funds you get pretty much what the markets provide (the generous and the paltry); with the active you pay a bit more and (apart from fluking market returns) will get above or below market returns. Unfortunately you can’t know in advance which it will be and the scales are weighted to below index fund returns.

Both of those issues and more are nicely addressed in the recent 4th edition of Tim Hale’s book Smarter Investing. Your library might have it, or get it for you. Read some reviews of it, but it’s one of the best for a UK investor.

With that under your belt, and confidence that you’ll use ‘income drawdown when the time comes’, you will be easily able to see through the complexity of scores of funds to make a sensible choice, the large number seemingly more beneficial to the financial services industry than the consumer.

Don’t be distracted by someone telling you you’ll find a good advisor charging only 2% which is true. Get a fundamental understanding yourself, then choose whether to get an advisor who may have other benefits to offer and whose competence you’ll be in a much better position to judge.

Rich1976

When you apply you can select the ready made portfolio and this is the Sustainable Multi asset Growth fund. This is still a lifestyle fund but saves you having to choose your own.

Albermarle

Rich1976 said:

When you apply you can select the ready made portfolio and this is the Sustainable Multi asset Growth fund. This is still a lifestyle fund but saves you having to choose your own.

There are four versions of it, depending on how you plan to take the pension. One of them is designed with drawdown in mind.

Agree about de-risking too early (10 years before retirement it seems), but I am a cautious investor so it probably works for me.

The issue is that when you drawdown from a pension pot over decades, you need the pot still to produce some level of growth. Some derisking is normal as long as it is not taken too far.

It maybe an idea to go for this fund now, but as @JohnWinder suggests, gaining some increase in your knowledge could be of benefit over the coming years,

not_to_be_taken_for_a_ride

Thank you @JohnWinder for a full response. I have read about it quite a bit over the last few months and understand the jargon and the principles of diversification of both asset types, geographies and risk levels. I also read about the active vs passive fund management and am leaning towards active for now (but who is to say that a fund manager is better than a market tracker...).  I also know where I am on the caution vs risk scale (about 5). So the thing to do is to chose a profile now but as I said there are too many. I thought I was just looking at Universal Strategic Profiles, but then I found all these
 MyFolio Universal strategic lifestyle profiles
Passive Core Universal Strategic lifestyle profile
Traditional Universal lifestyle profiles 
Traditional MyFolio Universal lifestyle profiles

And each contains multiple options to choose from. I initially thought I would go for the Balanced Managed 1 Universal Lifestyle profile (2BAL), which invests in 3 funds, starting with fund code FA (volatility 5) as it seems to perform Ok over the last 5 years. It then introduces other funds that I am not a fan of, 10 years before retirement. One of them had 2% growth over the whole 5 years! But I guess it does not matter as I can always start with one profile and then review and change.

JohnWinder

I have read about it quite a bit over the last few months and understand the jargon and the principles of diversification of both asset types, geographies and risk levels. ‘

I’ve perhaps misjudged you, and you are already on top of the stuff in Hale’s book or the like. There are still bits in it, like how to choose an index, you might benefit from, but the more you know the less often you turn a new page in any book and find something new and important.

‘I also read about the active vs passive fund management and am leaning towards active for now.…  I also know where I am on the caution vs risk scale (about 5).’

Given your broad understanding I’ll leave you to your choice of active vs passive, but lest beginners are reading I’ll offer a couple of points.
Passive gives you market returns less costs; active gives above or below market returns (and we can’t know which it’ll be) less (usually) bigger costs, and the evidence is that more funds will get below than above market returns. As well, those better and worse than market returns can only average out to be market returns. So, those three elements: extra cost; underperformance more likely; and an average of only market returns don’t make choosing active a sensible choice UNLESS you’re sufficiently a risk taker to punt on active; and they are riskier by the common measure in that active returns vary more than market returns (sometimes higher, sometimes lower).
So, for three reasons it seems to be a poorer choice, plus it’s more risky, but still it might be a valid choice if you’re sufficiently a risk taker. You’re not, you’ve already indicated by rating yourself as #5 which I presume is not the highest level and your preferred portfolio contains bonds to reduce risk. If you’re happy with only that much risk why take ‘active’ based risk when you can take more ‘passive’ type risk, with less in bonds, which has a better risk/return profile? Rhetorical question only.
Is this analogy too absurd to be valid? You score #5 out of say #7 for risk, so the conventional wisdom is (say) 70% shares/30% bonds. We all know that means a diversified share holding, not some 5 share portfolio however sensibly chosen, because it’s too risky. If active funds are more risky than passive funds, which by definition they are, why should a 70/30 mix if it’s right for active funds be right for passive funds, or vice versa? I acknowledge that 70/30 is false precision, so perhaps the analogy is flawed.

not_to_be_taken_for_a_ride

@JohnWinder
definitely food for thought, thank you. I have perhaps misunderstood the benefits of active vs passive. I have not had a chance to actually switch yet, but I am grateful for the wisdom shared so far.