Trying to understand pension changes and feeling out of my depth

Addlepate

Cobbler_tone said:

I was going to suggest staying in the default fund. That way it kinda relinquishes personal responsibility. i.e. it will do what it will do and your return will be the same as the vast majority of people. A target date fund will be profiled to match your planned retirement date. It will already have a proportion of equity investments in it. It also removes most of the worry and stress of thinking you did the 'wrong' thing.

I'm not sure what you mean by 'it' in the last two sentences - target date fund?

Addlepate

Albermarle said:

NickPoole said:

Thing is, the Multi Asset fund is already medium risk at best, probably lower than that, so de-risking it more (and charging you extra for doing so, even if it is a pittance) seems like overkill to me

Interestingly though, even though its equity % ( at 40%) is the same as Vanguard Lifestrategy 40, its 5 year performance is better . 25% as compared to 15%. Presumably because the 60% part is not all bonds.

From what I could understand from the link to the target retirement fund, the OP would coincidentally be at about 40% equity 8 years out from retirement. However dropping to 20% eventually, which is too low even for a cautious investor, and could effect how well the pot would survive a long drawdown.

I guess you've already seen the mix, but 16% 'Developed Corporate Bonds' (whatever they are), 14% 'Developed Government Bonds', 40% equities, 15% 'Alternative Credit', 14% 'Alternatives'.

20% equities sounds very low to me but I know nothing.

Cobbler_tone

Addlepate said:

Cobbler_tone said:

I was going to suggest staying in the default fund. That way it kinda relinquishes personal responsibility. i.e. it will do what it will do and your return will be the same as the vast majority of people. A target date fund will be profiled to match your planned retirement date. It will already have a proportion of equity investments in it. It also removes most of the worry and stress of thinking you did the 'wrong' thing.

I'm not sure what you mean by 'it' - target date fund throughout?

It just means the target date fund as the default and clearly designed to give a balanced investment profile. It is the option the vast majority stick with, rightly or wrongly. If someone is over thinking it and doesn’t really understand the benefits, risks and associated costs of the numerous funds, it has to be sensible to leave it there.
So yes, I meant the TDF, which probably confused things as opposed to the multi asset fund.
I’ll be brutally honest. I have moved mine around and it has done OK. It causes worry though, as the relevant risks don’t sit well and you can see big swings. Probably mainly due to being close to retirement. I’m back in the TDF and thankfully not tied to needing a big pot but I’m clearly risk adverse. 

Addlepate

Cobbler_tone said:

Addlepate said:

Cobbler_tone said:

I was going to suggest staying in the default fund. That way it kinda relinquishes personal responsibility. i.e. it will do what it will do and your return will be the same as the vast majority of people. A target date fund will be profiled to match your planned retirement date. It will already have a proportion of equity investments in it. It also removes most of the worry and stress of thinking you did the 'wrong' thing.

I'm not sure what you mean by 'it' - target date fund throughout?

It just means the target date fund as the default and clearly designed to give a balanced investment profile. It is the option the vast majority stick with, rightly or wrongly. If someone is over thinking it and doesn’t really understand the benefits, risks and associated costs of the numerous funds, it has to be sensible to leave it there. So yes, I meant the TDF, which probably confused things as opposed to the multi asset fund.

Thanks, I follow you. For me probably translates to leaving it in the Multi-Asset.

Addlepate

Yorkie1 said:

I am in the 2035 - 2040 Target Date fund 3. Here's the link to the factsheet, ...

@Yorkie1 were you moved by L&G to the 2035 - 2040 TDF, or moved at your request, or was it the default when you started? Were there significant transaction costs for moving? I'm a little worried that a big change if I go for that, e.g. 40% to 65% equities and less other assets, will result a significant transaction costs hit.

Cobbler_tone

Not sure if different company schemes (or L&G) have differing rules, however...

Moves between funds are unlimited and free. They normally take 2-3 working days to take place. The fees are listed on the fund data sheet, e.g. my target date fund is 0.15%, the World Index is 0.12% etc.

Cobbler_tone

I was going to start a new thread but can sit here regarding attitude to risk and how we are all different. I use my company share scheme as a prime example.
We get £3,300 worth of shares a year, for £1,440 (20% tax payer) or £1,080 (40% tax payer). We have a lot of long service. Some of my team earning £30k a year hold £150k of shares. The price 30 years ago was less than a fiver, now pushing £70 each.
I take the more pragmatic approach of selling regularly once they become tax free (3-5 years) and my holding rarely goes above £30k. I have no idea how much I have 'lost' (clearly haven't lost and made a killing) compared to if I'd kept them all at the price today. The way I look at it is that you have 'won' once they are tax free. With shares at £70 each, there is a long way down and when you figure your main income (i.e. your wages) is also tied to the same company, the fall of this could impact in multiple areas. That is without watching the holding going up and down several thousands of pounds daily/weekly. 
The other thing to consider is that you pretty much have to sell them the day you leave/retire, or else you start getting into CGT.
Point is, some people would just let them rack up with the view that they don't need the money. I meanwhile take the risk away and make better use of the money today.
Ironically, the ones sitting on £150k are the last people who would consider looking at what fund their pension is in and wouldn't even consider that the shares are a means to retire earlier! Trust me, I know them!

Addlepate

Cobbler_tone said:

Not sure if different company schemes (or L&G) have differing rules, however...

Moves between funds are unlimited and free. They normally take 2-3 working days to take place. The fees are listed on the fund data sheet, e.g. my target date fund is 0.15%, the World Index is 0.12% etc.

That's true for L&G as well, but it's transaction costs rather than fees I'm thinking of. As I understand it these result from market conditions (for example, shares or bonds being high or low at the time of sale) and changes of assets (bonds low vs shares high or whatever) as well as the costs inevitably incurred when buying or selling an asset, which I think the is passed on to the customer as a cost to the fund.

I might have said this earlier, but L&G have said for the change of default fund to TDF they'll monitor market conditions and volatility and could move the date of the change up to 30 days (though apparently that's very unusual). If I stick with the multi-asset (or change to a TDF) then change at a later date it's up to me. That worries me, but I'm not sure that's a reason to jump to the 2035 - 2040 TDF (~60% equities) now.

I suspect a significant change of asset mix will be subject to transaction costs regardless whether L&G do it now or I do it at some future point.

Albermarle

Addlepate said:

Albermarle said:

NickPoole said:

Thing is, the Multi Asset fund is already medium risk at best, probably lower than that, so de-risking it more (and charging you extra for doing so, even if it is a pittance) seems like overkill to me

Interestingly though, even though its equity % ( at 40%) is the same as Vanguard Lifestrategy 40, its 5 year performance is better . 25% as compared to 15%. Presumably because the 60% part is not all bonds.

From what I could understand from the link to the target retirement fund, the OP would coincidentally be at about 40% equity 8 years out from retirement. However dropping to 20% eventually, which is too low even for a cautious investor, and could effect how well the pot would survive a long drawdown.

I guess you've already seen the mix, but 16% 'Developed Corporate Bonds' (whatever they are), 14% 'Developed Government Bonds', 40% equities, 15% 'Alternative Credit', 14% 'Alternatives'.

20% equities sounds very low to me but I know nothing.

Investing strategy is affected by peoples personal opinions, attitude to risk etc,  and the 'experts' do not agree on everything.

However there have been lots of studies on the best way to make a pension pot last for a long drawdown/retirement.
I think from those most would agree with the following statements.
1) Do not withdraw from the pot too quickly . 4% pa is a rule of thumb.
2) Something around 50% equities should give a good result without too much dramatic volatility. A minimum of 30% would usually be recommended.

Of course if you intend to withdraw your pension pot quite quickly/run it out, then that would be different.

Yorkie1

Addlepate said:

Yorkie1 said:

I am in the 2035 - 2040 Target Date fund 3. Here's the link to the factsheet, ...

@Yorkie1 were you moved by L&G to the 2035 - 2040 TDF, or moved at your request, or was it the default when you started? Were there significant transaction costs for moving? I'm a little worried that a big change if I go for that, e.g. 40% to 65% equities and less other assets, will result a significant transaction costs hit.

I was moved by L&G without cost. I've had Civil service AVCs for just under 2 years, I think. I was given the choice about staying put, or choosing a different fund, but the default was to move me and others into the fund I've described as relevant to my age (I get state pension in 2037).

They did the 'swap' (not a technical term) in early July. The value in each (old and new) fund was the same before and after.

I aim to take the first part of my Civil service DB in late 2030 (or perhaps early 2031), with the rest in 2035. I haven't yet had a detailed discussion with my FA about how to fill that gap - from Cash ISAs, S&S ISAs, or the AVCs, although the original thought process in starting the AVCs was for that purpose (as well as to get down under the 40% tax band).