Scottish Widows RAC - Investment Switch?

DRS1

I have an old Scottish Widows RAC and about 2/3rds of the value is held in unit linked funds.  40% is in the UK Equity Tracker Fund and 60% in the Mixed Pension Fund.

In August this year I will reach my selected retirement age and I will be buying an annuity then.

I am wondering whether to switch the two funds I have to something else.

What puts me off is that there is a bid offer spread of c 5% on these funds.  Yes I know that is a thing of the past but the only available funds for my policy are Series 1 funds and they all have bid/offer spreads.

The Mixed Fund has some fixed interest but as far as I can see only about 20% of it is in fixed interest.  Most of it is in global equities.

Should I switch now and bake in a 5% loss against the possibility of losing that much or more on the UK Equity and Mixed Funds between now and August?  Last year I faced a similar decision and stayed put (which I think was the right decision then)

If I do switch what should I switch to?  I have excluded the Indexed Stocks Fund (which invests in index linked gilts) because I shall not be buying an RPI linked annuity.  That leaves a Fixed Interest Fund (which invests in normal gilts) or a Cash Fund which seems to invest in corporate bonds and money market funds.  I am inclined to go for Cash on the basis it is less likely to be volatile though it did lose money in 2019/20 and 2020/21.  By contrast the Fixed Interest fund lost money as recently as 2023/24.  But would normal gilts be the thing to go for if the annuity I am buying is one with flat 5%pa increases?

dunstonh

What puts me off is that there is a bid offer spread of c 5% on these funds.  Yes I know that is a thing of the past but the only available funds for my policy are Series 1 funds and they all have bid/offer spreads.

Have you checked to see whether the spread still applies?   
SW couldn't get rid of spreads but it introduced increased allocations to compensate on many of its plans which cancelled out the spread.  On others, the spread only applied to new money and not switches.

I am inclined to go for Cash on the basis it is less likely to be volatile though it did lose money in 2019/20 and 2020/21

Its worth noting that the issues that impacted on gilts and values were the same that caused annuity rates to rise.  So, actually gilts are a good option if you intend to buy an annuity.

DRS1

dunstonh said:

What puts me off is that there is a bid offer spread of c 5% on these funds.  Yes I know that is a thing of the past but the only available funds for my policy are Series 1 funds and they all have bid/offer spreads.

Have you checked to see whether the spread still applies?   
SW couldn't get rid of spreads but it introduced increased allocations to compensate on many of its plans which cancelled out the spread.  On others, the spread only applied to new money and not switches.

I am inclined to go for Cash on the basis it is less likely to be volatile though it did lose money in 2019/20 and 2020/21

Its worth noting that the issues that impacted on gilts and values were the same that caused annuity rates to rise.  So, actually gilts are a good option if you intend to buy an annuity.

Thanks for that.

I spent the last 50 minutes on the phone to Scottish Widows and they confirm that for this policy the bid offer spread applies - no increased allocations or other sweeteners to soften the blow.

So it is a question of how optimistic I feel about equities for the next 5 months

dunstonh

I spent the last 50 minutes on the phone to Scottish Widows and they confirm that for this policy the bid offer spread applies - no increased allocations or other sweeteners to soften the blow.

Thats a pain as so many of them have moved over (although probably on the PPPs rather than the RACs)

So it is a question of how optimistic I feel about equities for the next 5 months

Equities are circa 10% off the peak.  So, a switch out now costing you 5% means 15% down.  So, yes, it does depend on how you feel and what your crystal ball tells you.

DRS1

Well, after dithering a while, I bit the bullet and switched.  I got the statement today and it looks as if they have not applied a bid/offer spread.  Which is great news.  It looks like @dunstonh knows more about how Scottish Widows does this sort of thing than the people who answer the phones at Scottish Widows.

Of course the direction the prices of gilts is heading will probably take care of that 5% I haven't lost yet.