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  • FIRST POST
    • fcjf
    • By fcjf 10th Feb 18, 6:45 PM
    • 47Posts
    • 1Thanks
    fcjf
    New DC Pension Funds Choice
    • #1
    • 10th Feb 18, 6:45 PM
    New DC Pension Funds Choice 10th Feb 18 at 6:45 PM
    I have just started a new job and will be starting a new DC pension. I already have a protected rights DB pension of £21,500 (which will now be reduced to 85% as it is going into PPF due to my former employer being liquidated) and an accrued DC pension of £188,000 from my former employer which is currently invested 100% in LGIM Global Equity Index Fund (30% UK / 70% World). I need to decide what to do with this depending on what happens to the pension fund but my preference would be to transfer it to my SIPP and make a choice from there.

    I now have to decide on funds for my new DC pension which are also from L&G. I am 48 years old with a target to retire in my early 60's. The Lifestyle choice would see me invested in the L&G Diversified Fund which has 37.5% equities, 16% corporate bonds, 11% government bonds and 35.5% alternatives. This would then be progressively transferred into the Pre-Retirement Fund, along with all of my ongoing contributions from age 60.The Equity fund choices are UK Equity Index Fund, Ethical UK Equity Index Fund or Global Equity Fixed Weights (60% UK: 14% North America 14% Europe; Japan 7%; 5% Asia Pacific excl Japan). There are Gilts and Corporate Bonds choices which I am ignoring at present.

    Given the time period I will be looking to invest in the DC pension, 12-14 years, I am favouring the Global Equity Fixed Weights. I believe that 10 - 12 years is sufficient enough a period of time to be 100% in equities without needing to diversify and would look to move out of equities closer to my 60's. Likewise with my current accrued DC pension pot I will continue to invest 100% in equities for the time being.

    Is this a risky strategy? Should I be looking to diversify a bit more either with my current £188,000 pot and or the new DC pension i.e. split my new DC pension contributions 50/50 with the Diversified Fund. I plan to take the TFLS at 55 from my current DC pot so should I be looking to protect this by reducing the equities %?
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    • Prism
    • By Prism 11th Feb 18, 1:06 PM
    • 336 Posts
    • 254 Thanks
    Prism
    • #2
    • 11th Feb 18, 1:06 PM
    • #2
    • 11th Feb 18, 1:06 PM
    I am about your age with almost the same amount of savings. I am also 100% equities but I'm open to adjusting that if the return from bonds or cash increases. For the time being however equities still seem to be the strongest option.

    I don't really like the look of that diversified fund. I would stick with the equity fund and then maybe introduce the gilts and bonds funds at a later point when you get a bit closer to 55. If you are not fully committed to 55 then you can be a bit more flexible with when you lower the risk level. For example if there was a crash when you are 52, would you be willing to wait until maybe 57 or even later to take drawdown?

    Are they the only fund choices you have? Seems quite limited - I assume its a stakeholder. You could always withdraw some of it after a while into your SIPP to open up some better fund choices.
    • fcjf
    • By fcjf 12th Feb 18, 4:48 PM
    • 47 Posts
    • 1 Thanks
    fcjf
    • #3
    • 12th Feb 18, 4:48 PM
    • #3
    • 12th Feb 18, 4:48 PM
    No, there are only the 3 Equity fund choices, the Diversity fund, two Gilt fund options, a corporate bond fund, a Cash fund and the Pre-Retirement Fund which includes a selection of the gilts, bonds and cash funds.

    I am flexible in that I want to take a TFLS at 55 but don’t need to so if that coincides with a drop in the equities markets I could carry on invested in equities for a number of years. I guess the key is in timing the move out of equities and into defensive investments at an appropriate age to align with my retirement objectives.

    It is a company DC pension, I am contributing 8% which is matched by my employer (the max employer contribution is 8%). I am also contributing a further 8% into a SIPP. If I transfer my former DC Pension into my SIPP this will give me a bit more flexibility in getting the asset allocation right for my overall investments over the next few years.

    Is there a ‘model’ asset allocation for the 10-14 year period leading up to retirement?
    • Prism
    • By Prism 12th Feb 18, 7:21 PM
    • 336 Posts
    • 254 Thanks
    Prism
    • #4
    • 12th Feb 18, 7:21 PM
    • #4
    • 12th Feb 18, 7:21 PM
    Is there a ‘model’ asset allocation for the 10-14 year period leading up to retirement?
    Originally posted by fcjf
    There is no set model. Lots of suggestions though. The theory is to lower your risk but you need to be flexible. For example, historically investing in bonds, gold, property has been a way of lowering risk from pure equity. However there are some arguments that none of these things might work this time around. They certainly all dropped simultaneously during the last few weeks correction. So cash is the only truely safe option I guess, but thats a sure way to lose money (though inflation) if you do it too early or too much.

    I would say be flexible. Sometimes it is good to hold more equities, other times more bonds, maybe even cash with better interest rates. Be flexible about retirement date if possible. Be flexible about how much you might safely withdraw during retirement.

    One suggestion (that I like) is the standard 60/40 equity/bond spilt as you head into retirement, but that might be to risky for many people at that stage. Take too liitle risk though and you might find you have lower funds later in retirement than you imagined - or less income early in retirement than you want.
    • tacpot12
    • By tacpot12 12th Feb 18, 9:02 PM
    • 926 Posts
    • 780 Thanks
    tacpot12
    • #5
    • 12th Feb 18, 9:02 PM
    • #5
    • 12th Feb 18, 9:02 PM
    You are not just investing for the 10-15 years, but also for the next 30-50 years, so I would say you need to be mostly invested in the Global Equity Fixed Weight fund. While this is a global fund, it is heavily biased to the UK, perhaps more so than is ideal at the moment, but it's the best you can do with the limit fund choice.

    I had an L&G Equity fund as a result of a change of pension provider for a employers DC pension scheme and it did quite well compared to other Equity investments I had in other pensions.

    My view of the "Lifestyling" option where the provider gradually moves you from one asset allocation to another is that it takes too long to change the asset allocation. With my pension I managed the change over myself and was happy with the outcome.
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