L&G Workplace Pension Funds

SavvySaver24

I'm currently in the process of deciding whether I should be looking to change the funds my pension is invested in.

It's in a 'Lifestyle Portfolio' currently invested in L&Gs 'Diversified Fund'. From what I gathered it will stay in this until 10 years before my proposed retirement date (currently input as 58) and those 10 years before it will gradually shift over into a mix of the Diversified Fund, the Retirement Income Multi-Asset Fund, and Cash. The Diversified Fund is split as roughly:

17% Developed Corporate Bonds
6% Developed Government Bonds
35% Equities
20% Alternative Credit
22% Alternatives

I've read how people say you shouldn't just stay in the default Fund but I'm really worried about making the wrong decision here.

The other Funds I'm considering that I have open to me are:

L&G PMC World (ex UK) Equity Index Fund G28 which says it aims to track the FTSE World ex UK.

L&G PMC Consensus Fund 3 which has 72% in Equities, 3% in Corporate Bonds, 19% in Government Bonds, 6% Cash and 1% Alternatives.

L&G PMC Global Equity (70:30) Index Fund 3 which aims to track the FTSE UK and FTSE All World (70% UK, 30% All World).

Should I consider switching to one or a split of 2 of the above Funds or just stick with the Diversified Fund? I don't know if I'm overthinking this and whether there's actually nothing wrong with the L&G Diversified Fund?

Currently between myself and my employer just over £11k goes into my pension.

I want to be able to go part time between 52 to 58 and retire not long after. I have £265k separately invested in Cash ISAs and have started dipping my toe into Stocks and Shares ISAs. The rest is in savings accounts but I'm using mine and my partner's full ISA allowance each year to shift as much into ISAs. So a fair chunk of that is also saving for the future / the buffer between when I want to go part time and can access my private pension.

We'll have also paid off our mortgage by 48/50 if all goes to plan.

gm0

One cannot use historical performance to predict future events. 

And yet the L&G Diversified Growth offerings (there are several) so some may be better than others - are a weird one. A couple were in my pension scheme late on as they were added.  And I failed to see the attraction.
I also opted out of lifestyling / auto changes.  As the first version was still fixed date / annuity and avoiding single date bad thing happening focused - not drawdown over decades focused.  Things have moved on a bit since those days - and derisking is more thoughtful

The performance of some of the DGFs in what were generally benign markets post GFC 2008/10 mainly due to US mega cap and tech growth - was just pathetic.  Enjoying practically none of the upside.  Not a volatile equities growth strategy at all.  Nor intended to be.  Which is fine in that you *do* want them to do what they say on the tin. Until something negative for what *is* inside them comes along and nothing much had happened at all in prior years to grow a capital buffer.  The problem is you miss a lot of accumulation growth as the premium paid for the "protection" for a different set of circumstance which in recent times haven't turned up. But may well at some point. 
For me the premium paid in lost returns always seemed too high.

I never liked them.  In accumulation.  And I don't like them now - in deaccumulation.  I do not use them.  If I want bonds - I buy a multi-asset with the relevant bonds in it alongside some more equities.  Because cheap.  Or I choose a bond fund with the specific credit quality (high) and yield (whatever it is) and duration (short/low medium) that I am typically looking for - with a purpose for having them in mind.

Now there are market conditions - such as a 60-70% equities negative correction and long term trend overshoot.  Like the GFC or the .com bust or similar thing boosted.  That is where being in a volatile growth equities fund would deliver on its much higher risk promise. Shooting downward and hopefully temporary 1-2-10 year capital losses. 
Buy the ticket, take the ride.  The Diversified fund might prove more capital protective during that future global panic.  And lose less.  Over the cycle - you seem to miss all the gains.  To mitigate volaltility losses (lose less temporarily, but with a slow recovery) so you really have to want the loss avoiding protection.

That seems to be so with a long term perspective for investment.   Time horizon for someone contemplating drawdown is time to retirement PLUS time IN retirement as you stay invested - albeit perhaps with some adjustment in portfolio shape for deaccumulation.  So optimistically for early retirees thinking about pensions late 40s-50 that can be 50 year horizon.  Long enough for long term trend asset class returns to show through volatility - even of 10 year duration cycles. So equity volatility is not a problem for investment decision making that far ahead.  It is a problem for cashflow during retirement (avoiding sales at depressed values).  But far ahead - a swing to and fro is just an opportunity to buy cheap and hold for a long time during the saving journey.  By the time pension access age comes you need to be in the portfolio shape you want - for tax free cash if any, and investment while drawing income.

My target moved down from 100% equities to more like 70% - 80% - most people move down but as always - people have their own ideas and financial circumstances and risk attitude.

The funds

The primary decision is how comfortable you are with equity investments during accumulation.
And what your target for the remainder of saving will be.  Anywhere from 40% to 100% is a perfectly reasonable position that people will argue for - from the risk averse, loss avoiding group to the "all in on equities" group.
I saved at 100% equities from my 20s to my mid 50s.  It's not for everyone and your timing is not my timing.  Nobody can say.  And with valuations as they are.  Switching near a peak is a distinct risk.  Emotionally drip feeding would likely feel better than a lump sum adjustment + immediate crash scenario - even if the numbers don't back that idea up on average - long term.  Little consolation if you make the bad timing decision.

Of the L&G funds - simple is good.  I like World ex UK and UK Equitiy Index to build a cheap world developed equities holding.  Those two funds will just follow the global developed equities market average for good or ill.

The other two you mention are "one fund" solutions - a high UK (home market bias 30% vs 4%) so a bet on a UK market valuation recovery and in the background a mild reduction in USD FX risk taken.  
And Consensus looks fairly harmless but again with a very high UK market bias. 

To choose either of those you want that % equties overall and a much higher than market weight (4%) UK content for the global equties.  At 25% - 30% these are very heavy on UK. 

Not my choice - due to that high UK bias.  Based on my own investing biases - if I choose (and I do) to tilt a little bit away from the US megacap few stocks which dominate the US part of a global equities holding. 
Then typically.  UK LSE index (loaded with large capitalisation big companies) is not where I wish to tilt towards instead.

But choice is a constraint.  So when using L&G I generallly keep things simple. And buy the market World ex UK, UK (at chosen %).  And then do specific tilts with other platforms to specific regions.

I also had good results with their Global Ethical Index tracker as a passive global equities fund.  (FTSE4Good)
But price is a concern there.  If you have it the price could be anywhere from 0.05% to 0.3%.  At the one end it makes a kind of sense.  At the other it doesn't as you can get global equities for 0.11% fairly easily the other way.

JohnWinder

There's a lot of money at play here, so you should look for a good reason not to read Tim Hale's book Smarter Investing. If you can't find one, do yourself a big favour and take advantage of valuable information about personal investing. Probably the only book you need.

SavvySaver24

JohnWinder said:

There's a lot of money at play here, so you should look for a good reason not to read Tim Hale's book Smarter Investing. If you can't find one, do yourself a big favour and take advantage of valuable information about personal investing. Probably the only book you need.

It seems quite old? 2006, still worth a read/ relevant today? Or is there a better alternative?

SavvySaver24

@gm0 thank you so much for such a comprehensive response! I need to keep re-reading it I think to help it sink in but my worry too was on the heavy skew to UK holdings. I feel I've just gone through this all with stocks and shares ISAs but the choice seems more limited with L&G and obviously a much more costly mistake if I get it wrong.

JohnWinder

I've got August 2023 as the date of the fourth edition. But if you can only get your hands on the first edition it's fine. Quite a bit of it can be read on google books, and you can search the catalogue of your local library from the comfort of your own castle. I'm not aware of a better alternative for UK investors, but many of the principles and applications are in a handful of US books. Let us know if you need directions.