Pension providers, costs and funds - Opinions please

Forever_Red

I'm currently 56 and looking at retiring in about 12 months time. No mortgage or dependent children (just 3 grown up ones). I'll be taking an old small DB pension of about £6,500p.a and my wife's (54) DB pension of £11,000p.a. We'll make up the rest of our annual planned budget with savings & shares, which should cover us roughly until the state pension kicks in.

I have a L&G workplace pension that I'm still paying into now which will have approx. £32k in when I retire. I've also got an Aviva sipp with about £370k in (once my other DB pension gets transferred in - all been checked and cleared to go over). I'm currently paying an advisor 1% on the Aviva pension as he advised to do a partial transfer from L&G to set up the Aviva sipp. If I'd have left the money in L&G I'd be better off by over £7k, even if I hadn't paid any charges for the transfer advice I'd be over £2.5k better off staying put, so I'm a bit p**sed off for agreeing to it.
I'm now thinking of going it alone on the pension decisions and have been looking at providers and funds to consider, as I've always picked the funds for my workplace pensions and they've normally done quite well.
Once retired, I may take a small annual amount from this new Sipp to use up my tax free personal allowance or to crystallise a bigger chunk to take a tax free lump sum for house renovations etc, but generally it's just going to sit there invested for 5 to 10 yrs or so.

So far I've been looking at AJ Bell, Fidelity and Interactive Investor (but just heard that ii don't separate the UFPLS from the crystallised part, which put me off a little bit) 
The funds I'm looking at are Fidelity Index World Fund P Acc or Vanguard FTSE Developed World Acc, pretty much comparable over the past 10 years. I was looking at the Vanguard Lifestrategy 80% Equity fund for approx 1/3 of my pot but when I looked into these 'safer' funds, which are supposed to be a bit less risky / volatile, they don't do better than the global index trackers when times are good and they seem to lose more than the index trackers when times are bad - am I missing something or not reading the fund sheets right ???

I suppose what I'm after is a low cost provider, with access to decent global index tracker funds / ETF's and an easy to use interface and good customer service. Any recommendations or ones to avoid?

Am I being foolish just looking at 2 or 3 funds for my whole pension pot?

I would ask my work colleagues for their advice and opinions but unfortunately the majority of them don't even know what their own pensions are invested in  and so I've come to lay my troubles at your door   

Thanks for taking the time to read this, and honest opinions, however brutal, are always welcome.

Forever Red

jim8888

Spend an hour on this forum instead of with your financial adviser and save 1% immediately (you could look up what the impact of paying that 1% will cost you over 20 years, if you want a shock.) I have the majority of my pension in the Lifestrategy 80/20, but the way I look at it is that this is a "fund of funds", so I don't have "one fund", I'm spreading my money across several:
https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-80-equity-fund-accumulation-shares/portfolio-data
I've been investing with Fidelity for twenty years and had no complaints, but I also use AJ Bell and Vanguard. They seem to be good too, but my needs are quite basic as I'm pretty much a passive investor. When it comes to taking your pension, time spent on this forum and thinking through your goals is invaluable. As you seem to take an interest in personal finance I think you might find it enjoyable too, and I'd recommend the Monevator website to keep that interest going.

Keep_pedalling

How much are your DB pensions going to reduce by taking them early?

dunstonh

The funds I'm looking at are Fidelity Index World Fund P Acc or Vanguard FTSE Developed World Acc, pretty much comparable over the past 10 years.

They are not comparable.  One is suitable to be held by itself for the equities allocation. The other is not and is designed to be blended with another fund.

I was looking at the Vanguard Lifestrategy 80% Equity fund for approx 1/3 of my pot but when I looked into these 'safer' funds, which are supposed to be a bit less risky / volatile, they don't do better than the global index trackers when times are good and they seem to lose more than the index trackers when times are bad - am I missing something or not reading the fund sheets right ???

The higher in equities you go the better the long term returns will be (that can mean very long term in some periods).    You are looking at periods that are too short in term.

I have a L&G workplace pension that I'm still paying into now which will have approx. £32k in when I retire. I've also got an Aviva sipp with about £370k in (once my other DB pension gets transferred in - all been checked and cleared to go over). I'm currently paying an advisor 1% on the Aviva pension as he advised to do a partial transfer from L&G to set up the Aviva sipp. If I'd have left the money in L&G I'd be better off by over £7k, even if I hadn't paid any charges for the transfer advice I'd be over £2.5k better off staying put, so I'm a bit p**sed off for agreeing to it.

Whats the difference in risk level?  What period is this over?       Comparisons need to be in context and over a sufficient period and not short term periods which may favour one type of asset than another.

Forever_Red

Keep_pedalling said:

How much are your DB pensions going to reduce by taking them early?

I think mine was forecast to be about £9,400 by 2033, so approx. £2,900

Forever_Red

dunstonh said:
"They are not comparable.  One is suitable to be held by itself for the equities allocation. The other is not and is designed to be blended with another fund."

Which fund was designed to be blended with another fund? I take it the Vanguard one could stand alone due to the amount of companies it holds. And if so, what would you get to accompany the Fidelity fund?

dunstonh said:
"The higher in equities you go the better the long term returns will be (that can mean very long term in some periods).    You are looking at periods that are too short in term."

I was only looking at the past 5 years and it looks like the more equities you have, the better returns you have. Even when the market dropped, it still outperformed the ones with bonds & gilts etc.

These are the rate of returns for the past 5 years for all the Vanguard LifeStrategy funds:

                           20/21          21/22          22/23          23/24         24/25
100% equity       7.72%        16.03%        1.53%        8.70%        21.65%
80% equity         7.34%        11.65%        -1.75%       7.19%        17.37%
60% equity         6.62%         7.53%         -4.89%       5.68%        13.16%
40% equity         5.56%         3.79%         -8.05%       4.19%         8.92%
20% equity         4.52%         0.25%         -10.97%     3.11%         5.47%

I look at these returns and think why would you put money into a so called safer fund when they haven't outperformed 100% equities. Even in 22/23 when returns dropped, 100% equities still gave a positive return compared to a near 11% loss on 20% equities. Am I missing something here??

dunstonh said:
"Whats the difference in risk level?  What period is this over?       Comparisons need to be in context and over a sufficient period and not short term periods which may favour one type of asset than another."

I was told that the risk was lower but the returns would be the same. It's only over a 5 month period, but I look at it as losing £7k in fees and losses, against keeping it where it was.

AlanP_2

What you are missing on the VLS comparison - and it would be the same for other, similar, multi-asset fund ranges - is that the "safe"portion in bonds wasn't safe over the period you are looking at.

Low interest rates and QE made bonds a "return free risk" as it was sometimes referred to. The prices could only fall as there was little scope for them to rise when yields were at 0% or even negative at times.

Once interest rates rose then the prices fell and unfortunately, the whole thing unwound in a "big bang" rather than gradually over a couple of years, a 1 in a 100 year event has been mentioned.

The result was that the higher your exposure to bonds the higher the paper loss you saw.

dunstonh

Which fund was designed to be blended with another fund? I take it the Vanguard one could stand alone due to the amount of companies it holds. And if so, what would you get to accompany the Fidelity fund?

The other way around.  The clue is also in the fund name.    Developed means it only includes countries that are classified as developed.   

I was only looking at the past 5 years and it looks like the more equities you have, the better returns you have. Even when the market dropped, it still outperformed the ones with bonds & gilts etc.

5 years is way too short. Especailly a 5 year period that has seen US equity outperform its long term average significantly.  And a period that has seen bonds perform poorly (indeed, some types have had their worst period in over 100 years).

I look at these returns and think why would you put money into a so called safer fund when they haven't outperformed 100% equities. Even in 22/23 when returns dropped, 100% equities still gave a positive return compared to a near 11% loss on 20% equities. Am I missing something here??

5 years is far too short.  For example, the first 10 years of this millennium, US equities were lower after 10 years and bonds were higher.

I was told that the risk was lower but the returns would be the same. It's only over a 5 month period, but I look at it as losing £7k in fees and losses, against keeping it where it was.

whoever told you that is wrong.    Lower risk means lower long term returns but can mean better short term returns.   Higher risk means higher long term returns but can mean lower short term returns.

5 months is a completely pointless timescale for comparison.

Nick_Dr1

So, given that a 1 in 100 year event has happened with bonds, do we think that bonds are now a good investment and that returns on lower % equity lifestyle funds should pick up? From a simplistic view of buy when cheap or distressed, that would appear to be a reasonable conclusion?

Linton

Nick_Dr1 said:

So, given that a 1 in 100 year event has happened with bonds, do we think that bonds are now a good investment and that returns on lower % equity lifestyle funds should pick up? From a simplistic view of buy when cheap or distressed, that would appear to be a reasonable conclusion?

The fall in bond capital values was not a random 1 in 100 year event.  It was the inevitable consequence of decreasing interest rates over 40 years when old bonds were continually more valuable than lower coupon new ones giving rise to unsustainable capital gains.  It was obvious that before interest rates reached zero something had to happen.  The only doubt was the time scale over which the reset would occur.  Many people, including myself, were surprised that it could happen in a few weeks.

One should not buy bonds on the basis of whether they are good value and likely to provide capital gains over a short time period.  Bonds are there to provide a known steady return over a known time period at which time you get your money back.  If that is what you want buy bonds, if not dont.  Safe bonds are never cheap, they are priced at the right level given current circumstances.

Shimrod

Forever_Red said:

So far I've been looking at AJ Bell, Fidelity and Interactive Investor (but just heard that ii don't separate the UFPLS from the crystallised part, which put me off a little bit) 

If you are taking an UFPLS then you are also taking the crystalised part of the pot that goes with the tax free amount. So if you withdraw £20,000, you would be taking £5000 tax free and £15,000 of crystalised funds, so the notional split would not apply in this case. I quite like the notional split approach and it leaves everything in a single account. 

There is a full explanation of the notional split approach with examples on the ii website: https://www.ii.co.uk/ii-accounts/sipp/income-drawdown/notional-split