Looking to Retire - Pension Question

Typhoonqoc1

Hello, looking for a bit of guidance re Pension.

I aim to take retirement later this year.  I have DB Pension & savings that will cover expenditure for next 5-6 years, before I need to start drawing on DC Pot & then probably some form of drawdown.

DC Pot  £200,000

Currently Workplace provider is managed by Scottish Widows.

An IFA indicated that as it was a lifestyle product, it was poorly performing(from what I see on my Pension Portal it has grown 7% over 18 months after charges. Seems it is in a Cash heavy fund - 58%).

Advisor was quoting 2% to review finances, set up & transfer to another product & then 1% for management after. Which although sounds a lot, looks like standard for IFA from what have read

My questions: 

As there is no need to touch pot for a few years, is there a better way to manage this by doing it myself & are there products that do not need constant management.

Any thoughts, much appreciated.

Albermarle

One point to check is that when you retire you will have full control of the SW pot. Normally that will be the case but worth checking.
If so then, apart from the IFA route, you could ;

1) Leave it with SW and transfer the funds to something more suitable. If you do not intend to drawdown from the pot for over 5 years ( and then maybe for many more years after that) then 58% cash is far too high.
In fact there is nothing to stop you changing the investment fund now, rather than waiting.
Very few ( if any) pension funds need constant management . Buy and hold is the usual situation.
2) Once you retire, you can transfer out the pension to another provider. This is very easy nowadays.
One advantage would be that SW website/software has always been a bit clunky, although I think they have improved recently. However even with a new pension provider you will still have to make some investment decisions, although most will have some sort of general guidance on their websites. 

Linton

Typhoonqoc1 said:

Hello, looking for a bit of guidance re Pension.

I aim to take retirement later this year.  I have DB Pension & savings that will cover expenditure for next 5-6 years, before I need to start drawing on DC Pot & then probably some form of drawdown.

DC Pot  £200,000

Currently Workplace provider is managed by Scottish Widows.

An IFA indicated that as it was a lifestyle product, it was poorly performing(from what I see on my Pension Portal it has grown 7% over 18 months after charges. Seems it is in a Cash heavy fund - 58%).

Advisor was quoting 2% to review finances, set up & transfer to another product & then 1% for management after. Which although sounds a lot, looks like standard for IFA from what have read

My questions: 

As there is no need to touch pot for a few years, is there a better way to manage this by doing it myself & are there products that do not need constant management.

Any thoughts, much appreciated.

The key role of the IFA is to understand your circumstances, objectives, and attitude to risk and then come up with an appropriate portfolio.  Without going through the first step it is difficult to give much more of an answer than "probably".   If you went to an IFA you could get compensation if the recommendations proved to be inappropriate.  Asking a group of strangers on the internet means you have to make your own judgement and accept the consequences. There are no off the shelf products that will be right for everybody

The sort of information it would be useful to know:
 - What is the composition of your current pension pot?
 - When you do access it in 5-6 yers time will you want to take a steady income? Is so how much? how often? 
 - Do you have a spouse? If so what is their financial position?
 - What is your total income requirement and how much of it has to come from drawdown?
 - Have you considered an annuity - there are both advantages and disadvantages?

 The higher the return you seek the more volatile the capital value:
 -  Can you accept falls in income during bad economic times?
 -  What level of crash could you accept without having sleepless nights and possibly panicking and selling the whole portfolio - 10%, 20%, 50%?

- Are you wanting to leave the pension pot as a significant inheritance on your death? 

These are rhetorical questions intended to give some understanding of the sort of issues involved.

If you do decide to manage everything yourself you need to have a reasonable level of understanding of finance and investing.  Also spreadsheet skills would come in useful.  There are some useful resources to help with the understanding.  I quite like James Shack's podcasts on Youtube and there are a number of books that some people recommend. Whilst on the subject of educational resources you should ensure that you they are based on the UK situation.  The US is different.

Typhoonqoc1

Thanks for information. I will do some more reading.

Current pension Fund - US Equities 9.62% Global Fixed Interest 8.29% Global Government Fixed Interest 3.38% Global Corporate Fixed Interest 2.77% Global High Yield Fixed Interest 2.53% Global Emerging Market Equities 2.39% Global Emerging Market Fixed Interest 2.38% Europe ex UK Equities 1.79% Global Index Linked 1.71% Japanese Equities 1.58% Property Shares 0.62% UK Equities 0.39% Commodity & Energy 0.38% Money Market 58.34% Other 3.82%

Aim to just draw out sums to top up DB & SP.  Est will need around 12K to start.

Wife will be working for a few more years(part time), has a few pensions, all quite small, need for her to be able to access the pot in future if required,

Albermarle

Aim to just draw out sums to top up DB & SP.  Est will need around 12K to start.

£12K from £200K is a relatively high withdrawal rate, if you want to continue at that rate for the longer term.
A more sustainable amount would be around £7K, rising with inflation each year. 

Linton

Typhoonqoc1 said:

Thanks for information. I will do some more reading.

Current pension Fund - US Equities 9.62% Global Fixed Interest 8.29% Global Government Fixed Interest 3.38% Global Corporate Fixed Interest 2.77% Global High Yield Fixed Interest 2.53% Global Emerging Market Equities 2.39% Global Emerging Market Fixed Interest 2.38% Europe ex UK Equities 1.79% Global Index Linked 1.71% Japanese Equities 1.58% Property Shares 0.62% UK Equities 0.39% Commodity & Energy 0.38% Money Market 58.34% Other 3.82%

Aim to just draw out sums to top up DB & SP.  Est will need around 12K to start.

Wife will be working for a few more years(part time), has a few pensions, all quite small, need for her to be able to access the pot in future if required,

According to a quick calculation you have about 20% in equities.  In my view this really is at or beyond the extreme end of derisking if you plan to drawdown.  The problem is that your fixed interest investmentss which make up almost all the portfolio will not, over the long term, keep up with inflation. So as your income needs rise you will be increasingly depleting your pot risking running out of money before you die.

If you were buying an annuity, fine.  You need to have a good idea of how much income you will be able to buy well before you retire.  However with drawdown you may not be touching perhaps half of your pot for perhaps 15-20 years.  This is plenty of time to enjoy the benefits of long term equity growth.  You only need your current level of caution to cover say 5, or perhaps a bit more,  years of income.

As Albemarle notes your desired withdrawal rate is high. As a rule of thumb a withdrawal rate of around 3-3.5% of the initial pension pot increasing with inflation is considered safely sustainable for a lifetime.  But that is with a 60% equity portfolio.

Typhoonqoc1

Thanks again for information & Knowledge - seems to make more sense. Having looked again at Workplace Pension options in SW, there are specific Drawdown Funds, one of which is aligned to 2030  when possibly start to dip into pot & has greater % of Equities. 

US Equities 34.53% Global Government Fixed Interest 9.76% Global Emerging Market Equities 8.25% Global High Yield Fixed Interest 7.70% Global Emerging Market Fixed Interest 7.32% Europe ex UK Equities 6.42% Global Corporate Fixed Interest 6.17% Japanese& Knowledge Equities 5.35% Global Index Linked 4.63% Property Shares 1.97% Global Fixed Interest 1.66% Commodity & Energy 1.61% UK Equities 1.43% Asia Pacific Developed Equities 1.22% Other 1.97%

SW Mercer Target Drawdown 2030 Retirement CS6.
This fund is designed by Mercer Limited for investors planning to retire in 2030 and intending to enter drawdown and continue to invest their portfolio after retirement. It invests in one or more underlying funds to produce a portfolio with access to a range of asset classes. The emphasis of the fund gradually changes over its lifetime to ultimately invest in a range of assets aiming to provide moderate long-term capital growth. It invests in one or more underlying funds to produce a portfolio invested in UK and overseas shares, a substantial holding in government and corporate bonds and the remainder spread across other asset types such as commodities, property, infrastructure and money market instruments. At the end of 2029, investors in this fund will be automatically switched into the SW Mercer Drawdown Retirement Fund to maintain a similar asset split over time. Derivatives may be used for investment purposes as well as risk reduction.

LHW99

Possibly your existing lifestyling on the funds was intended for those planning on buying an annuity.

The drawdown target fund will do it differently (hopefully more gently), but you would have to judge if it would still take the equities level too low for your liking.

Unless you really plan to drawdown all the fund in the next few years, you probably still want at least a reasonable amount in equities for the longer term.

It used to be said variously that you want 100% - (your age) in equities. Alternatively, 60% equities/40% bonds gets suggested.

The main thing is to know just how much you would panic if equities dropped 10% or more (not unlikely at least once during a 10-20 year timescale). If that would worry you, then you may be better to have an IFA to talk to and "unpanic you". If you can cope with a degree of volatility, then going DIY could certainly be an option.

Typhoonqoc1

Excuse my lack of knowledge, but does the impending Tariff war Trump has started mean equities will possibly drop in value & is it more prudent to wait for that to settle, before increasing % of equities in portfolio? 

QrizB

We'll find out what the markets have already priced in, and what they haven't, when they reopen tomorrow.

Until then it's just speculation.

Albermarle

Typhoonqoc1 said:

Excuse my lack of knowledge, but does the impending Tariff war Trump has started mean equities will possibly drop in value & is it more prudent to wait for that to settle, before increasing % of equities in portfolio? 

When it comes to seeing into the future, we all have a lack of knowledge.