Trying to understand pension changes and feeling out of my depth

Addlepate

Hello all. I've just been notified by my company pension provider, L&G, that they are going to change the fund my pension is in.It's currently in L&G PMC Multi-Asset 3, and they have notified me that they plan to change it to the L&G PMC 2030 - 2035 Target Date 3. They have not explained why, other than a very generic 'we think this would be better', and the funds seem to my untrained eye almost identical. I'm worried as I already feel the fund I'm in is underperforming, there isn't a solid explanation for the change, and I don't understand whether there is market risk to the transfer given current volatility and the fixed date for the transfer. I don't feel I understand these things well and would be grateful for any pointers that might help me feel better informed. Thanks.

Brie

have you recently had a birthday which might mean they think your funds need to be moved into something that is at least slightly less risky?  Often there's something to trigger this 5 or 10 years before reaching either the scheme or your chosen retirement date.

And yes in general funds due change - almost every DC pension I've been in have done a "we don't like X anymore so we're switching to the nearly identical Y".  They have fund managers who, supposedly, know the stock market, which way the wind is blowing, whatever, better than you or I.  

eskbanker

Addlepate said:

I'm worried as I already feel the fund I'm in is underperforming

Against what benchmark?

Albermarle

Addlepate said:

Hello all. I've just been notified by my company pension provider, L&G, that they are going to change the fund my pension is in.It's currently in L&G PMC Multi-Asset 3, and they have notified me that they plan to change it to the L&G PMC 2030 - 2035 Target Date 3. They have not explained why, other than a very generic 'we think this would be better', and the funds seem to my untrained eye almost identical. I'm worried as I already feel the fund I'm in is underperforming, there isn't a solid explanation for the change, and I don't understand whether there is market risk to the transfer given current volatility and the fixed date for the transfer. I don't feel I understand these things well and would be grateful for any pointers that might help me feel better informed. Thanks.

I think it is part of a general trend for providers to move their default funds into lifestyle type arrangements, where the portfolio changes as you move towards retirement.
They have been around for a long time, but seems that more are heading that way.

You will have the choice to pick your own investments , if you do not like the change. Maybe you should have done this already as you say.
I'm worried as I already feel the fund I'm in is underperforming, 

GrumpyDil

A quick Google search shows that is a fund which targets a retirement date between 2030 and 2035. It works by gradually changing the underlying investments to less volatile ones as you near those dates.

It is classed as medium risk and as above if you are unhappy with the performance I'd suggest you need to review the funds that are available to you to see if they might suit you better rather than relying on the default fund.

squirrelpie

What do you want to do with your pension fund when you retire? Do you want to buy an annuity or do you want to use flexi-drawdown or what? The default choice they have made for you assumes you want to buy an annuity. Only you know whether that is the right choice for you.

dunstonh

 L&G PMC Multi-Asset 3 is not underperforming.   It is in the 40-85% mixed equity sector but its at the lower equity level.  So, as expected, its performance is in line with that.

 They have not explained why, other than a very generic 'we think this would be better', and the funds seem to my untrained eye almost identical

The former doesn't include timescale in its risk level.  The latter does but it starts more or less at the same starting point before it risks down.

This would suggest that you have lifetstyling selected on your plan.

Albermarle

squirrelpie said:

What do you want to do with your pension fund when you retire? Do you want to buy an annuity or do you want to use flexi-drawdown or what? The default choice they have made for you assumes you want to buy an annuity. Only you know whether that is the right choice for you.

Most default  lifestyle funds are nowadays targeted at someone wanting to use drawdown. It did not used to be, but things have changed. So they still derisk but not to the same extent as ones targeted at annuities.
It could well be though that some are in the wrong type.
The OP ( and may others I guess), really need to check properly what they are invested in, and whether it is suitable for them.

hara____

I don't think there's any real reason to be concerned about the change. L&G have been changing the default fund from multi-asset to target-date for various pension schemes that they run.

The asset allocation of the two funds will be similar in the short-term so don't worry about the timing of the move in relation to market risk.

If anything, you might want to take it as a prompt to decide whether the new default fund is the best option for you personally. If your plans for your pension mean you'd prefer a different risk profile you could switch funds within L&G.

Cobbler_tone

Target date funds are common in work place schemes and reduce risk as you approach retirement.
If you think it is underperforming there will be higher risk funds but prepared for it to potentially ‘underperform’ more
drastically!