Moving pension to low risk fund

JohnnyFlame

I've been slowly building up my defined contribution workplace pension knowing that I will want to start to take it relatively soon, however the pension funds are still classed as 'balanced', which probably means moderate risk.

I'm nervous about a stock market crash and a big chunk being wiped from the value of my pension.

Having looked into the various funds available, there is one which seems to have been steady and not affected by market fluctuations.

I'm looking for reassurance about the following 2 points:
1. I'm nervous about asking the provider to move my pension to this fund in case of anything unforeseen happening or its value declining.
2. Is the rate of inflation and fund charges the only things that need to be considered for this fund to maintain its value in 'real terms'?

Thanks.

mebu60

Might help to share what this 'low risk' fund is.

Also your intentions for how you are planning to 'take' your pension.

1 applies whether or not you take any action.

Some people find comfort in Short Term Money Market funds which may be available to you from the likes of Royal London, L&G, Fidelity, etc. These are relatively low risk and less volatile but are subject to erosion by inflation when it exceeds the bank rate which is roughly the return you would expect from these type of investments. 

Linton

JohnnyFlame said:

I've been slowly building up my defined contribution workplace pension knowing that I will want to start to take it relatively soon, however the pension funds are still classed as 'balanced', which probably means moderate risk.

I'm nervous about a stock market crash and a big chunk being wiped from the value of my pension.

Having looked into the various funds available, there is one which seems to have been steady and not affected by market fluctuations.

I'm looking for reassurance about the following 2 points:
1. I'm nervous about asking the provider to move my pension to this fund in case of anything unforeseen happening or its value declining.
2. Is the rate of inflation and fund charges the only things that need to be considered for this fund to maintain its value in 'real terms'?

Thanks.

In order to understand your situation and make appropriate suggestions one would really need to know more about your circumstances...

How soon is "relatively soon"?

The point is that if the global stock markets crash they will rise again - if they don't you and the rest of the world will have a lot more to worry about than your pension as the global economic system will have collapsed.  In the mean time your contributions will have bought extra investments at a very low price.  But of course you will need time for this to happen.

It would be useful to know what the "balanced" funds are and also the name of the fund you have found.

The final question is what will you do after you retire? If you are planning to buy an annuity then it makes sense to move your money into very safe funds as soon as they have reached the size you need.  On the other hand if you are planning to drawdown the money over many years then investing in very safe investments will bring its own problems such as keeping up with inflation and the danger of running out of money before you die.

Mikey1985

I think you should seek independent financial advice. What are your ambitions with your current pension pot?

1. Consume it all until state pension
2. Consume it all until death
3. Maintain the pot and only take 4% per year until death. 

My personal plan is to start taking my private pension at 57 but I will continue to keep it invested in the stock market with significant risk and the commercial property in our SSAS. It wont be moved to lower risk investments because its a big enough amount to see the rise and falls. Taking 4% per year and see what happens. 

In your pension options you should be able to choose your retirement age and then they should lower your risk based upon that. Predicting a crash is very difficult but if you have no risk appetite, get out. 

dunstonh

I've been slowly building up my defined contribution workplace pension knowing that I will want to start to take it relatively soon, however the pension funds are still classed as 'balanced', which probably means moderate risk.

Balanced can mean anything from 40% equities to 85% equities. Depending on your risk scale and timescale, that could range from cautious to moderate to moderate to adventurous.

1. I'm nervous about asking the provider to move my pension to this fund in case of anything unforeseen happening or its value declining.

Historically, for most people, trying to time the markets results in lower returns.   You are proposing that . So, some nervousness about outcome is a good thing.
however, if its a timescale risk reduction, or for a specific objective (i.e. a withdrawal in the near future) then that is fair enough.

If you are still paying in monthly, then not continuing with equities would be daft in respect of the monthly contribution.   You want a market drop when paying in monthly.  Its how you get better returns over the long term.

ali_bear

JohnnyFlame said:

: 
I'm looking for reassurance about the following 2 points:
1. I'm nervous about asking the provider to move my pension to this fund in case of anything unforeseen happening or its value declining.
2. Is the rate of inflation and fund charges the only things that need to be considered for this fund to maintain its value in 'real terms'?
: 

1) are you worried the equity fund will drop at the exact wrong time you make the switch? This is very unlikely, although equities can move by 2% in a day. But you can mitigate this if you really are nervous by making the transfer in a series of smaller amounts, like five tranches of one fifth each spread over five days. 

2) yes, pretty much. 

Remember that past performance is no guarantee of future ..

scoobyjones1

I would recommend moving it to a SIPP. I'm with II, who are pretty good...they charge a flat fee as opposed to a percentage.
Within the SIPP you can put it all in a fund, choose individual stocks, or put a percentage of it into those and the rest as cash.
They also do ISAs and you should make the most of your 20k a year allowance into either a cash ISA or stocks and shares ISA.
They also do flexi access drawdown...so you can decide how much you draw out...and when.
You can take advice if you need it as to how you invest it and II do have some low risk funds, some they manage for you for a fee....though personally I make my own decisions.
Markets are high, Trump is volatile so there will probably be a market pull back soon, possibly end of the year.
Any big drop would be a good place to start...so it would be wise to have some in cash before that, IMO.
As for risk...yes, it is a worry but do you own your own home? That at least means security...you can always take equity out of that, if it were all to go pear shaped. Hopefully not! 

MallyGirl

scoobyjones1 said:

I would recommend moving it to a SIPP. I'm with II, who are pretty good...they charge a flat fee as opposed to a percentage.
Within the SIPP you can put it all in a fund, choose individual stocks, or put a percentage of it into those and the rest as cash.
They also do ISAs and you should make the most of your 20k a year allowance into either a cash ISA or stocks and shares ISA.
They also do flexi access drawdown...so you can decide how much you draw out...and when.
You can take advice if you need it as to how you invest it and II do have some low risk funds, some they manage for you for a fee....though personally I make my own decisions.
Markets are high, Trump is volatile so there will probably be a market pull back soon, possibly end of the year.
Any big drop would be a good place to start...so it would be wise to have some in cash before that, IMO.
As for risk...yes, it is a worry but do you own your own home? That at least means security...you can always take equity out of that, if it were all to go pear shaped. Hopefully not! 

If the OP is still contributing to the workplace pension this suggestion should be treated with caution. They would need to do a partial transfer in order to not lose ongoing employer contributions and that might not be possible.

tacpot12

mebu60 said:

...
Also your intentions for how you are planning to 'take' your pension.
....

This is important. If you are intending to draw down your pension throughout your retirement, you have quite a large tranche of your pension that is going need to remain invested in asset classes that will protect against inflation for 20-30 years more, possibly longer if you are looking to retire in your fifties. 

Albermarle

I've been slowly building up my defined contribution workplace pension knowing that I will want to start to take it relatively soon, however the pension funds are still classed as 'balanced', which probably means moderate risk.

As mentioned already if you intend to drawdown from this pot for many years, then the actual date you retire is not that important, and most advice is to keep most of  the pot invested in 'balanced funds' during retirement , with maybe some kept as cash ( although as also mentioned it depends on what 'balanced' means exactly in this case) 

scoobyjones1

MallyGirl said:

If the OP is still contributing to the workplace pension this suggestion should be treated with caution. They would need to do a partial transfer in order to not lose ongoing employer contributions and that might not be possible.

Yes that's good advice, Mally.
I was meaning to perhaps move it to a SIPP later on, for drawdown, if she is about to stop contributions etc
Once she had a SIPP, even with no earnings elsewhere she could still put in the £2880 every year which gets topped up...