Safest Pension Fund?

vienly

Hi All,

I'm 40 and have another 20 odd years to go before retirement but already planning my options already.
I have quite a big sum in my work pension fund at the moment with Standard Life, I recently moved it to from 'Sustainable Multi Asset (PP) Pension Fund' to 'SL Vanguard US Equity Pension Fund'.
Seeing that I have another 20 years I am prepared to ride the ups as well as downs.

When I get closer to retirement and if the pension pot increases above a certain amount I would like to change the investment to something which is as safe as possible. Is it possible or is there such a thing to stop investing completely in Standard Life, or what would the safest fund be to prevent it going down if there was another financial crash?

Thanks 

jamesd

The safest are called money market funds. Those invest in very short term bonds including overnight deposits. Losses are almost unheard of but growth is tiny. Some pensions allow use of a limited range of savings accounts and those might have the usual FSCS protection for balances, depending on the specific details.

A plan to use just these for more than a year or so is likely to be unwise.

Main reason is that few people spend all of their money immediately so there's plenty of time for recovery and growth for most of it.

Your recent change was to a fund with around 50% bad year drop from one with around 40%, but likely to grow faster in the new one. US is a good place but you might consider use of their global equity fund for diversification. If willing to accept the potential for around 80% drop in a bad year, but greater long term growth, you could put a bit in their global small cap fund.

ewaste

Just because you retire doesn't mean you should derisk too much unless you plan to buy an annuity. In order to fund retirement you'll generally still be invested in equity for decades after retirement until death. 

Your recent change to a US Equity fund is very high risk, chasing the previous winner as it were. What about the rest of the world?

Albermarle

vienly said:

Hi All,

I'm 40 and have another 20 odd years to go before retirement but already planning my options already.
I have quite a big sum in my work pension fund at the moment with Standard Life, I recently moved it to from 'Sustainable Multi Asset (PP) Pension Fund' to 'SL Vanguard US Equity Pension Fund'.
Seeing that I have another 20 years I am prepared to ride the ups as well as downs.

When I get closer to retirement and if the pension pot increases above a certain amount I would like to change the investment to something which is as safe as possible. Is it possible or is there such a thing to stop investing completely in Standard Life, or what would the safest fund be to prevent it going down if there was another financial crash?

Thanks 

Probably be better to be in something not quite so risky as a one country 100% equity fund now, and then move to something 'safe' at some point.
Diversify a bit more, and think of future changes as being gradual rather than sudden at some specified time.

dunstonh

When I get closer to retirement and if the pension pot increases above a certain amount I would like to change the investment to something which is as safe as possible. 

What risks are you trying to avoid?
Reducing investment risk typically increases shortfall risk and inflation risk.  Going too low down the scale can actually increase the overall risks.

Are you planning to use annuity or drawdown?   If annuity, then reducing investment risk in phases towards retirement is a good thing to do.  If planning to use drawdown, then reducing risk is not necessary.  Although some may move down a notch or two if they are at the highest end to begin with.

mexican_dave

I agree diversify is the key, 'eggs in one basket' as they say. I am assuming this is a pension savings vehicle provided by you employer via a broker and in turn the actual investments sit in pension providers funds. From my experience in employment these savings vehicles provide an array of funds.  You should diversify amongst these, keeping clear of so called Life Style funds, these are funds that taper over a 5 year (or more) period switching from equities to bonds and lastly to cash, with the expectation of entering into an Annuity. As Ewaste says you may well be invested in equities into your retirement, hopefully gaining value, whereas cash just sits there. Buying an Annuity too early is poor value, that's why George Osbourne changed the rules, way back. Good luck! Me I now manage my own funds 100% equity in retirement in a SIPP, before anyone asks.

vienly

Thanks all, all very good advice.

I have another 20 years (hopefully 17) before I retire so I am okay with taking a bit more risk for the next 10-15 years before retirement, and within those last few years I'd like to reduce the risk of the pension pot devalueing as the stock market crashes hence the question of the safest fund, or something along those lines.....

I do plan to move it to a world tracker if it eventually outpaces the S&P500, however I want to maximise what I can get in return for investing my pension pot into a fund. I am prepared for the 80% dips, and will just wait a few years for it to pick back up.

Anything is better than the previous fund Sustainable Multi Asset (PP) Pension Fund which didn't do much for me over the past 15 years. I think the increase was only about 67% which isn't great.
I note that world fund tracker is still US heavily weighted at 70%, hence why I can't really see the other 30% doing much, reason why I'm invested into the US fund at the moment.

I know I can have multiple funds also, so will look into that more.


1) Will look into money market funds
2) Will move money into world tracker fund if it starts to outpace S&P500, but will look into moving it in next 5-10 years for comfort reasons.
3) Plan to use drawdown, hoping to balance it so the pot will last me 25 years. (also will have savings on the side)
4) Yes pension savings vehicle provided by you employer via a broker, however the default scheme was not so profitable

mexican_dave

"Money market funds", Reckon there is some volitity there! Not my cup of tea! Reckon you have to watch that day & night, and be quick to respond - that the world of professional investors, worried for you, unless your name is Warren Buffet!

vienly

mexican_dave said:

"Money market funds", Reckon there is some volitity there! Not my cup of tea! Reckon you have to watch that day & night, and be quick to respond - that the world of professional investors, worried for you, unless your name is Warren Buffet!

I'll do my research before diving in, thanks!

jamesd

mexican_dave said:

... Buying an Annuity too early is poor value, that's why George Osbourne changed the rules, way back. Good luck! Me I now manage my own funds 100% equity in retirement in a SIPP, before anyone asks.

Gordon Brown beat him to it under Blair when he announced the A-day changes in Budget 2004 starting Alternatively Secured Pensions in 2006-7 tax year. It's what first caused me to make use of pensions, though the 82% charge on the pot after death would deter some: Brown was very much of the money while alive not for inheritance view.

A-day is also when 25% PCLS, Annual Allowance and Lifetime Allowance arrived.

It took a decade and much repetition for most to notice that annuities had ceased to be mandatory.

NlghtOwl

An important point to remember is that unless you’re buying an annuity you don’t need all your money at the point of retirement. You need some 2 yr money, some 5 yr money etc and some you won’t need for 10,20 or 30 years. You can therefore take different approach to risk for each of these ‘buckets’. If you invest in low risk assets in the last 2 - 4 years, you may not need to derisk you current investments at all. I would still consider a little more diversification of assets though as well as a us fund. Good luck