Trying to understand pension changes and feeling out of my depth

Cobbler_tone

NickPoole said:

Cobbler_tone said:

NickPoole said:

Bostonerimus1 said:

NickPoole said:

Let me ponder. I sort of wanted a FTSE tracker fund anyway and it being cheaper does tempt me. Understand that a crash will hit it harder than the Multi Asset fund and also that any recovery might take years!

I don't have to actually do anything except think about it at the moment.

How much is the US index tracker..?

Just take a couple of days to read up on portfolio construction and asset allocation. You need to understand how risk and return should be balanced against the time you plan to be invested and your circumstances, ie still working, approaching retirement or already retired. Here's a starting point...

https://www.bogleheads.org/wiki/Investing_from_the_UK

Cost - I prefer to pay as little as possible!

I don't think that should be a main focus, otherwise stick it in 'cash fund 3' for 0.09%

I guess what I am saying is I want as big as gain as possible for as low cost and smallest risk as I can get. Which is obvious. If I switch it will be to a tracker fund but I'd need to be sure I could sit out drastic market corrections that could take several years to recover. If there is a big crash it will also affect the Multi Asset Fund after all. But not the ISAs!

With the greatest respect you are 66 and not 26. It sounds as though your core income is already set and you are focusing on the final  'excess' money to access. You have a few choices. You could drawdown, sticking it in something high risk and get a year or two extra or a year or two less, depending how it performs.
You could do a fixed term annuity to stay under the 40% bracket (which would be sensible) and forget about it, making it 'crash proof'. If you want to keep 'playing' then choose one with a maturity value. You could buy a lifetime annuity but it doesn't sound as though you want that. I think you are pushing for some optimum strategy which doesn't exist. You could pay someone to do it for you but then you'll be wondering if you could have returned more, or wasted money.
The best advice is to pick your route and enjoy it, you've done the hard work. I'd personally remove the hassle factor judging by the sound of how view things.

ClashCityRocker1

Thank you cobbler-tone

I was responding to the question about how I decided not to switch to Target Date fund (charges) and we not unnaturally started to discuss the factors, risk and performance. I'm well aware that I am already well set up and we are playing about at the edges - I suspect I'll leave money in multi asset fund (drawdown) after taking any tax free cash - as you say I could put it all in equities and it would go up and down more. But although it would be galling if its value plummeted I'd still be all right.

I prefer the idea of drawdown to annuity - I'm not sure how I could decide value of annuity to keep me under 40% threshold without knowing future value of pensions and thresholds

Cobbler_tone

NickPoole said:

I prefer the idea of drawdown to annuity - I'm not sure how I could decide value of annuity to keep me under 40% threshold without knowing future value of pensions and thresholds

You could set it a couple of grand under the 40% and as it would be relatively short term you'd stay out of that bracket. More so if you choose one with a maturity rate and then you can review. I'm facing a similar situation.

Addlepate

All, thanks very much for all your replies, and my sincerest apologies for being a bit fly by night and taking so long to reply - I have a lot going on and am struggling a bit.

I must admit I'd expected to come back sooner and to fewer replies, so rather than dash something off now, I'll work through them later and respond or ask further as needed.

Thanks again, it is much appreciated.

Addlepate

Thanks again all, some helpful comments. It;s sounding as though I can go with L&G's change without affecting things too much in the short term at least. I hadn't realised four pages were a thread hijack , but it's brought out some useful thoughts so all good!

Brie said:

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

I can't tie it in with a birthday. It might relate to the anniversary of the start date, though even that's a couple of months out, but I wonder if it's a more general decision they've made; there's a lot of comms about it, a dedicated part of the L&G site set up, and so on.

eskbanker said:

Addlepate said:

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

Against what benchmark?

dunstonh said:

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

I was partly thinking of L&G's chosen ABI 40-85 benchmark, but I hadn't understood the point @dunstonh made about the equity level; partly of the higher anticipated performance shown on our employee benefits site; and partly to be honest I think I hoped for better

Albermarle said:

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

Thanks - that's interesting to know.

Albermarle said:

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____ said:

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.

I think this is very much where I am; it's not just trying to understand the change, it's trying to understand where I am as a whole and how (or whether) the change affects that

dunstonh said:

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 lifestyling selected on your plan.

hara____ said:

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.

Thankyou, that's helpful. I'm not sure if I have lifestyling selected, or even if it's a selection I can make or my employer makes (i.e. automatic).

I think also if I am thinking of making my own changes, that suggests it'll make little difference in the short term, and I don't have to rush into a decision either about the L&G fund change or my decision?

I suppose another question is whether the new fund will take me into timescale and reduced risk quickly, perhaps more quickly than I want to even short term.

Cobbler_tone said:

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!

Just to add ...

Thanks, that's interesting and very useful. I've just left this be before but been prompted to think about it by the fund change. I'm almost in the opposite situation to wanting a safe cash fund; I'm concious that as a very late starter I could have done with that 34+% performance, and the default fund may not be at all suitable for my situation. On the other hand, I'm very concious of the risk!

Cobbler_tone said:

The TDF is 0.15% and Multi Asset 3 is 0.13%. Not much difference, £100 a year if you held £500k. The Equity Index 3 is 0.1%

I'd looked at that and decided the same, it's so negligible it's not worth worrying about.

NickPoole said:

... but there will be transaction charges if I switch which I am not sure about.

My AVC is all about the tax relief really

As I understand it, if you are choosing your switch and the timing there are risks of crystallising losses if one fund is low at the time of the switch, though I'm not certain of that.

Bostonerimus1 said:

Just take a couple of days to read up on portfolio construction and asset allocation ... Here's a starting point...https://www.bogleheads.org/wiki/Investing_from_the_UK

Thanks - useful for me too.

Cobbler_tone said:

It is why I like this forum ... although I would be extremely guarded against any 'direct' advice as some posters do have rather strange approaches.

... or drawdown. The latter is an area I know very little about.

I'm sure I'll be back at a later date to educate myself on the approach and pitfalls of drawdown.

Agreed. I need to understand both annuities and drawdown though! I'm leaning toward drawdown, which it seems to me also makes things more flexible as I'm nit tied to that fixed date (and potentially means I can accept higher risk?)

Yorkie1

I think the movement of funds is a general review that L&G have done of their offer to various AVC schemes. The sane has happened to the CS AVCs. The fund selected by them relates to when they expect you to reach the expected retirement date they have for you (default 67).  That is a lifestyling fund.

Addlepate

Spoke to L&G today (again - I'd spoken to them before, but not got much sense). Fund movement is part of a general review, not specific to me. They say, and as far as I can see, the PMC Multi-Asset 3 does not de-risk toward nominal retirement date.

This has thrown me a bit, as according to their info, if I accept the change I will go straight into the lifestyling / de-risking phase of the target date fund, as it starts well in advance of the nominal 2033 retirement date.

I don't know if this is what I want, as I want to take a little more risk given my position, and even if it makes little difference in the short term, I don't know if moving from a fund in a lifestyling / de-risking phase to a more, say, equities based fund might incur costs due to the different mix (market variation, not charges)?

I have until the 11th to decide ...

dunstonh

They say, and as far as I can see, the PMC Multi-Asset 3 does not de-risk toward nominal retirement date.

The fund doesnt.  However, the pension product may do by using other funds to achieve that.

This has thrown me a bit, as according to their info, if I accept the change I will go straight into the lifestyling / de-risking phase of the target date fund, as it starts well in advance of the nominal 2033 retirement date.

That would be a product level and not at fund level.

I don't know if this is what I want, as I want to take a little more risk given my position, and even if it makes little difference in the short term, I don't know if moving from a fund in a lifestyling / de-risking phase to a more, say, equities based fund might incur costs due to the different mix (market variation, not charges)?

You would need to look at the funds list, but don't let charges be a primary driver.  Suitability trumps cost.  Especailly when any differences in cost are likely to be tiny (and in most cases, no different unless you move away from their internal fund range)

Addlepate

dunstonh said:

They say, and as far as I can see, the PMC Multi-Asset 3 does not de-risk toward nominal retirement date.

The fund doesnt.  However, the pension product may do by using other funds to achieve that.

This has thrown me a bit, as according to their info, if I accept the change I will go straight into the lifestyling / de-risking phase of the target date fund, as it starts well in advance of the nominal 2033 retirement date.

That would be a product level and not at fund level.

Hi, thanks. I think the fun is the product, as it were; I'll check, but I don't think I have a product consisting of multiple funds, if I understand you correctly. The fact sheet for the new fund, the target date, says it;s the fund that de-risks? Not sure if I'm missing something.

dunstonh said:

I don't know if this is what I want, as I want to take a little more risk given my position, and even if it makes little difference in the short term, I don't know if moving from a fund in a lifestyling / de-risking phase to a more, say, equities based fund might incur costs due to the different mix (market variation, not charges)?

You would need to look at the funds list, but don't let charges be a primary driver.  Suitability trumps cost.  Especailly when any differences in cost are likely to be tiny (and in most cases, no different unless you move away from their internal fund range)

I wasn't explaining very well, but I was worrying, perhaps unnecessarily, not about charges but about market values and the effect of moving at some near future date from a fund that was de-risking and had a mix of safer assets, to a slightly more risky / higher equities mix.

I wasn't sure whether it might mean a given amount in one mix of assets might buy a lesser amount in a different mix I have no idea which, if either, is more suitable so thinking about the best way of hedging bets.

Yorkie1

I am in the 2035 - 2040 Target Date fund 3. Here's the link to the factsheet, which refers to " The asset allocation of the fund is managed by LGIM and evolves over time. There are four investment phases; ‘growth’, ‘steady growth’, ‘preparing for retirement’ and ‘retirement’, depending on how close investors are to retirement. Over time, as investors move through the four phases, the proportion of riskier investments, such as equities is decreased and the proportion of less risky investments, such as government and corporate bonds is increased"
Factsheet.pdf

Here is the factsheet for the PMC Multi-Asset fund 3 Factsheet.pdf. It does not mention derisking.

The investments for the Civil Service funds can all be found here; I suspect they will be the same for all similar organisations' funds provided through L&G:
L&G - Your investment range