De-risking Pensions

Wrath_of_Kain

I am not too far from starting to think about retirement dates (c.5yrs) but having restless nights thinking about what might happen to my pension pot in the current geopolitical and economic context.

Wars, corruption, AI bubble, chaotic governments etc. so much instability and just have a gut feeling there is something horrible brewing.

Interested in peoples opinions if its worth de-risking my work pension (managed) and how to do it.

I was initially thinking having a look at the lowest risk rated product investments but not sure just how safe even the lowest risk offerings are e.g. bonds, cash etc.

Split my fund with 50% cash and bonds with the other 50% on usual shares ?

Thanks in advance

Moonwolf

What are you intending to do with your pension when you retire.

The biggest de-risk you can do is buy an annuity. If you are close to retirement you should be moving to low risk investments, bonds and cash before retirement. Government bonds very secure and if the UK government wasn’t in a position to pay its bond commitments there would be much bigger problems to worry about.

If you are planning to drawdown then you need to decide on your risk profile and have a balance of investments that meet that but remember, you are probably planning for 30 years so things will go up and down.

Sam_666

What kind of pension you have ?

Have you considered annuity?
If you want peace of mind, either see GP or IFA. Instability you describe, is what makes human race human.

dunstonh

I was initially thinking having a look at the lowest risk rated product investments but not sure just how safe even the lowest risk offerings are e.g. bonds, cash etc.

It's worth noting that the lowest, or what is generally classed as the lowest-risk, offerings have made nothing for the last seven years. And in one year, 2022 over 2023, they lost more than a typical stock market crash.

Interested in peoples opinions if its worth de-risking my work pension (managed) and how to do it.

It would help to know where you currently are on the risk scale. And what your objectives are. For example, if you're buying an annuity, then you want to be de-risking from about 10 to 15 years before. If you're going into drawdown, you may not need to de-risk at all. However, how you invest will likely be different if you're doing it properly.

bownyboy

Retired 4 years ago with both me and partners ISA and SIPPs in 100% Vanguard FTSE Global fund. We also had a years expenses in cash which we drew down from for the first year.

The markets went down that year (2022) so in November (I retired end of April) I took on a short term contract which gave us another years worth of living expenses so we didn't need to drawdown from the ISAs or SIPPs.

Today we have 2 years of spending in short term money market funds in our GIAs and the rest is still 100% equities.

Our combined pot has grown substantially since 2022 and we have taken withdrawals every quarter for the last two years.

So we're pretty relaxed about any further downturns as we can either reduce our spending by up to 50% if needed; we can draw down from the money market funds and we have two full new state pensions coming online in 6 and 13 years which will cover all our 'keeping the lights on' spending.

daveyjp

An idea of how much you have to invest and how much income you need will also assist.

A pot of £200k may need a different approach to risk and investment strategy than one of £800k.

ali_bear

With 5 years to go you can relax a little bit, despite the worrying situation(s). In the last 5 years before retirement my pot grew a LOT this was partially due to markets in that time and partially due to me stuffing it like a demented squirrel.

It does depend on the size of your pot and what you intend to do with it. You only need to start de-risking funds that you are going to cash-in soon, or perhaps convert into an annuity. Anything else can remain invested, for the growth that equities deliver over the long term.

Cobbler_tone

Such a nuanced decision around 'it depends'. Not forgetting that there is no 'right' answer, so impossible really.

E.g. my backbone is DB (where I'll consider a lump sum to leave a little extra regular pension for incidental spending) and I will retire in 12-36 months time, depending how I feel and could technically retire today if I wished. Even so, I am not a risky person and sitting on a DC pot with £170k which will be extra cash, or used to fund cars and additional spend. I have c£25k in the cash fund, some in a lifestyle fund and 40% across world/UK equities. I intend to drawdown the cash (either take the TFLS or use UFPLS) and move over as and when but not tied to forcing it out quickly. Others might leave far more (or even less) in equities, potentially the whole lot but it is horses for courses and despite what the markets are doing now it is certainly feeling unsettled, maybe it always does/will. I'm winding my contributions right down now to still get max employer contributions and give me more net pay (verses working FT) against a reduced contract on less salary. I think part of the emotional battle is knowing when you have 'won'. I have found making the decision to cut to 3 days a lot harder than I thought I would. More from an emotional than financial position, although it is always hard to give money up!

MEM62

Wars, corruption, AI bubble, chaotic governments etc. so much instability 

Almost all of which will have impacted your pension at some point over the years. Why are you looking at de-risking now? Also, as has been pointed out, de-risking means different things depending on you circumstances and future plans.

tigerspill

One question to ask is how much growth you will need over the long term? This will, in part, determine what risk you might need to take. The growth you need may not align with your risk profile.

I saved until I had enough stashed away that I didny need any "real" growth. At the stage of retiring I had a blend of multi asset funds and global equity trackers and some cash.

My retirement plan is that I hold enough cash on deposit for the next 5 years. I then sold enough equities to allow me buy indexed linked gilts (in a yearly ladder) for years 6 to 15 to lock in spending power (plan to hold to maturity). That gives me as much security as possible for the next 15 years to cover all my spending. After that I have kept most of the rest in global equity trackers.

So, yes, I derisked significantly.

retiringin26

The OP's wish to take a PCLS (or not) of up to 25% before possible drawdown may also be a factor. Because if it is, as for taking an annuity, some preservation of pot value in cash at pension commencement (rather than, say, a series of UFPLS) would also be a reason to move some investments away from more volatile funds.

I have a mix of STMMF and 80/20 funds with international composition for that reason.