Royal London pension portfolio choice

pinknsparkly

Good evening all.

My husband's workplace pension has recently moved to a new provider (Royal London). He has been auto enrolled into the Balanaced Lifestyle Drawdown option (see this webpage for the various options: https://www.royallondon.com/pensions/investment-options/fund-prices/factsheets/#Target-Drawdown)

I feel he has time to take more risk with it (he's 37). Which approach would you guys take? Or do any of you take if also enrolled with Royal London? I spent years intending to revise his previous pension and never actually pulled the plug on making a decision and so I'm keen to make sure I don't do the same this time! Obviously, this will all be done with his input and agreement and blessing, but he genuinely couldn't care less and just trusts his pension provider to be looking out for his best interests :-)

Thanks for any and all thoughts!

My current thoughts and a bit more information about us:

I'm pondering adventurous lifestyle vs adventurous tracker, or possibly the same choices as moderately adventurous. As I don't have a strong feel as to what sort of age you should switch to less adventurous!

We have two children (4 and 1), are on very similar pay (both on a little under £60k). I'm in the NHS pension scheme. He contributes approximately 13% with his work, adding, I think, 3% on top. We hope to attempt to retire slightly early, but I don't know how feasible this will be. If we did, I would anticipate bridging the gap between retirement and state pension age using non-pension savings. We have a mortgage (£1600 per month) that we are slightly overpaying, but whilst we are in the depths of extortionate nursery fees (£1400 per month plus an unknown amount extra for school holiday childcare as required once oldest starts school next month), the overpayments aren't enough to make much difference.

El_Torro

The fund he's already in doesn't seem too bad to me, though it does have about 10% in property. The other funds you're looking at also have about 10% in property. Not that property is a bad thing, though traditional shares should give better long term results (with more volatility). I don't see a big difference in the 3 funds today, though the two Adventurous funds should give better returns than the Balanced fund. Remember that more Adventurous means that when stock markets dip the Adventurous funds will be hit harder than the Balanced fund. 

Based on how things are today your husband should be able to take his pension at 58, not sure if this is early enough since you plan to retire early. It's probably earlier than your NHS pension will pay out. Bear in mind that legislation at some point over the next 20 years might increase the age at which we can take our DC pensions. 

Your husband is currently contributing more than most people to his pension. It's worth forecasting how much his pension will be worth in the future and understanding whether he is currently paying in enough. Since he's currently earning a little under £60k a year he will be paying some income tax at 40%, so paying more into the pension is tax efficient. It might be worth you also paying into a DC pension / SIPP, or even AVCs into your NHS pension to get below the 40% tax band too. 

Dazed_and_C0nfused

pinknsparkly said:

Good evening all.

My husband's workplace pension has recently moved to a new provider (Royal London). He has been auto enrolled into the Balanaced Lifestyle Drawdown option (see this webpage for the various options: https://www.royallondon.com/pensions/investment-options/fund-prices/factsheets/#Target-Drawdown)

I feel he has time to take more risk with it (he's 37). Which approach would you guys take? Or do any of you take if also enrolled with Royal London? I spent years intending to revise his previous pension and never actually pulled the plug on making a decision and so I'm keen to make sure I don't do the same this time! Obviously, this will all be done with his input and agreement and blessing, but he genuinely couldn't care less and just trusts his pension provider to be looking out for his best interests :-)

Thanks for any and all thoughts!

My current thoughts and a bit more information about us:

I'm pondering adventurous lifestyle vs adventurous tracker, or possibly the same choices as moderately adventurous. As I don't have a strong feel as to what sort of age you should switch to less adventurous!

We have two children (4 and 1), are on very similar pay (both on a little under £60k). I'm in the NHS pension scheme. He contributes approximately 13% with his work, adding, I think, 3% on top. We hope to attempt to retire slightly early, but I don't know how feasible this will be. If we did, I would anticipate bridging the gap between retirement and state pension age using non-pension savings. We have a mortgage (£1600 per month) that we are slightly overpaying, but whilst we are in the depths of extortionate nursery fees (£1400 per month plus an unknown amount extra for school holiday childcare as required once oldest starts school next month), the overpayments aren't enough to make much difference.

That seems an odd choice.

You for example could start a personal pension or SIPP and contribute a bit each year, benefiting from basic rate relief (as a relief at source (RAS) contribution each £100 you pay has 25% added by the pension company).

There could even be a slight personal tax saving from some higher rate relief although your taxable earnings will no doubt be well under £60k due to your NHS "net pay" pension contributions.

Then say you retire from the NHS at 63 and have 5 years to bridge until your NHS and State Pensions start.

You could take £16,760 from your personal pension/SIPP each year and pay no tax on the way out.  25% being the TFLS and the remaining 75% being covered by your unused Personal Allowance.

pinknsparkly

El_Torro said:

The fund he's already in doesn't seem too bad to me, though it does have about 10% in property. The other funds you're looking at also have about 10% in property. Not that property is a bad thing, though traditional shares should give better long term results (with more volatility). I don't see a big difference in the 3 funds today, though the two Adventurous funds should give better returns than the Balanced fund. Remember that more Adventurous means that when stock markets dip the Adventurous funds will be hit harder than the Balanced fund. 

Based on how things are today your husband should be able to take his pension at 58, not sure if this is early enough since you plan to retire early. It's probably earlier than your NHS pension will pay out. Bear in mind that legislation at some point over the next 20 years might increase the age at which we can take our DC pensions. 

Your husband is currently contributing more than most people to his pension. It's worth forecasting how much his pension will be worth in the future and understanding whether he is currently paying in enough. Since he's currently earning a little under £60k a year he will be paying some income tax at 40%, so paying more into the pension is tax efficient. It might be worth you also paying into a DC pension / SIPP, or even AVCs into your NHS pension to get below the 40% tax band too. 

Thanks! That's a very valid point about increasing the higher tax bracket. I'm about to return to work from maternity leave and once we have figured out what our "new" expenditure will look like, this is something I was going to look at for him. For some odd reason, it can't occurred to me that I could do the same!! And some very helpful points about his current pension options.

pinknsparkly

Dazed_and_C0nfused said:

pinknsparkly said:

Good evening all.

My husband's workplace pension has recently moved to a new provider (Royal London). He has been auto enrolled into the Balanaced Lifestyle Drawdown option (see this webpage for the various options: https://www.royallondon.com/pensions/investment-options/fund-prices/factsheets/#Target-Drawdown)

I feel he has time to take more risk with it (he's 37). Which approach would you guys take? Or do any of you take if also enrolled with Royal London? I spent years intending to revise his previous pension and never actually pulled the plug on making a decision and so I'm keen to make sure I don't do the same this time! Obviously, this will all be done with his input and agreement and blessing, but he genuinely couldn't care less and just trusts his pension provider to be looking out for his best interests :-)

Thanks for any and all thoughts!

My current thoughts and a bit more information about us:

I'm pondering adventurous lifestyle vs adventurous tracker, or possibly the same choices as moderately adventurous. As I don't have a strong feel as to what sort of age you should switch to less adventurous!

We have two children (4 and 1), are on very similar pay (both on a little under £60k). I'm in the NHS pension scheme. He contributes approximately 13% with his work, adding, I think, 3% on top. We hope to attempt to retire slightly early, but I don't know how feasible this will be. If we did, I would anticipate bridging the gap between retirement and state pension age using non-pension savings. We have a mortgage (£1600 per month) that we are slightly overpaying, but whilst we are in the depths of extortionate nursery fees (£1400 per month plus an unknown amount extra for school holiday childcare as required once oldest starts school next month), the overpayments aren't enough to make much difference.

That seems an odd choice.

You for example could start a personal pension or SIPP and contribute a bit each year, benefiting from basic rate relief (as a relief at source (RAS) contribution each £100 you pay has 25% added by the pension company).

There could even be a slight personal tax saving from some higher rate relief although your taxable earnings will no doubt be well under £60k due to your NHS "net pay" pension contributions.

Then say you retire from the NHS at 63 and have 5 years to bridge until your NHS and State Pensions start.

You could take £16,760 from your personal pension/SIPP each year and pay no tax on the way out.  25% being the TFLS and the remaining 75% being covered by your unused Personal Allowance.

To be completely honest, the reason I said about assuming we'd not use pension contributions to retire early is:

1. I assume that we won't be able to afford to start drawing them down early and
2. We are in the insanely expensive part of life with a large mortgage and full time nursery fees, so the thought of trying to find money we can afford to lock away to put towards an additional pension product or retirement savings doesn't seem totally feasible right now.

I definitely need to have a solid think about your points though and consider our next steps. Thanks so much!

Bostonerimus1

Looks like your husband's pension is 74% equities right now and that percentage will fall as he approaches retirement. You should do some research and see if that's what you want to do. I would take a look at the returns of his pension fund over that last few years, it should be pretty good with that level of equities.

I would keep doing what you are doing right now and look to increase your pension contributions as that's an immediate tax benefit and also look into ISAs as they will give you tax free gains and the flexibility to retire a bit early. Also try to synchronize your retirement date with paying off your mortgage, or even pay it off earlier, as not having a mortgage takes a lot of pressure off your budget,

Hoenir

pinknsparkly said:

I'm pondering adventurous lifestyle vs adventurous tracker, or possibly the same choices as moderately adventurous. 

Why the desire to be adventurous. The past decade or so has been and will remain a one off period in history. Equities aren't magical ATM's. Extremely easy to become complacent and extrapolate forward returns without substance and foundation. The real art of making money is minimise one's losses. As stock markets don't move upwards in a linear fashion. 

Rich1976

My other half’s workplace pension is also in that Balanced fund and it is perfectly fine, and performance has been good. 

If you go too risky, what’s to say that you won’t panic when there is a downturn and move out to a lower risk fund? Been there and done that several times until we realised a more balanced approach is best suited to us.

Adventurous funds are good when things are going well but you need a strong stomach when they’re not, and from what I’ve read on these forums high risk is way above most peoples risk tolerance.

Strummer22

I'm with RL and invested in the adventurous lifestyle strategy (drawdown) fund. I'm 38. 

In my view, there is next to no risk being invested in such a fund up to and beyond retirement, because it's aiming for drawdown, not an annuity. The risks are:

1. The adventurous (higher risk) fund underperforms lower risk funds over the long term. Historically this has not been the case however.
2. There's a huge downturn at the time you retire, so that when you start drawing down you're taking a higher % of your pot, limiting the potential for regrowth because you simply don't have as much capital as you started with.

For 1, you'd be crystal ball gazing. Higher risk funds would outperform medium/low in >99% of scenarios over the 20+ year timescales remaining until retirement. You just have to not bail out when prices fall - if anything, try and increase contributions during downturns.

For 2, keep an eye on things maybe 3 - 10 years before retirement, and lower your risk profile at any time when the fund is at or near record highs. Then you're limiting the potential for losses from the highest possible starting point. The fund will be redistributed to lower risk assets as you approach retirement anyway, so this would be in addition to the adjustments RL make on your behalf.

Good luck with whatever strategy you employ!