Pension Fund Choices

[Redline88]

Hi all,

I have some questions around pension planning and would appreciate somebody pointing me in the right direction to get some proper advice.

Currently mid 30s with an employer pension pot of £185k via Scottish Widows. This is just in a lifestyle fund however the performance has been awful to say the least there have been several loss making years over the past 5 years and the overall return appears to be 3.5% per annum. Being locked into this provider, my thought is that I should look to move into a global equity tracker - I think something along the lines of the BNY Mellon Global Equity Tracker then just let that do it’s thing as opposed to trying to beat the market. Looking over the past 10 years, I would be considerably up following this path.

What I would like to find out more information on is:

• Is this the best type of tracker (bearing in mind that I am limited to choices available on the platform)
• Should I move my current investments within this pension over to a tracker like this - if so, should this be done gradually, say 8% per month or in one hit.
• If I want to move funds back to a lifestyle type strategy, am I able to do this.

Im tempted to make the change for future payments now and leave the current investments where they are but it does seem to be a huge missed opportunity it’s based on historical performance. I’m not too sure about the best way to get answers to these points (and anything else which may come up that I haven’t thought of). Happy to pay for one off financial advice if that is the best way to go and somebody has a good recommendation. Based near London.

Thanks!

[Mr Whippy]

Pretty sure you can login to SW 1990s style website (last time I used it) and choose from a myriad of funds which gives you some options.


Not sure but can’t you transfer out the vast majority to a provider of choice (inc SIPP) then continue to accumulate your SW via employer?


I moved from SW, found them rubbish all considered.

[Redline88]

Yes you can move the funds within the SW website (and you’re right about it looking like it’s straight from the 1990s!). I’m not sure about transferring out but I would have thought it best to keep it all with the same provider (or maybe that’s my first error)!

[boombang]

I used to periodically move money out of the shambolic SW offering and into my SIPP.

Finally moved jobs and closed it, ended up with no less than 3 detriment calculations and additional payments to make things good (they forgot to setup the transfer, they forgot to sell the assets, then forgot to send the money).

Back with a new employer who use SW and thankfully have the option of paying directly into my SIPP instead.

[Redline88]

It’s more around the growth. Looking back at the past six years, the growth is under 10% total growth which is ridiculous. I don’t expect to out perform the market but I would like to keep up with it.

[bitchstewie]

Remember market reward means market risk and the lifestyle fund almost certainly won't be taking full market risk so you need to judge accordingly on "lost" returns.

Pension funds by default don't tend to put people into funds that could be 50% down.

[Redline88]

Fair point but surely a tracker like the one mentioned above would be highly unlikely to do that (in the short term it could take a hit but over 5+ years).

[Uncle boshy]

Worth checking if they have a shariah compliant fund, they,ve tended to do well recently as the original green fund, although possibly a bit biased towards tech funds.

In the lifestyle fund, do they give you a risk choice? In the one I had with WTW they gave you low, mid and high risk. Low biased towards dividend stocks and bonds, high more exposed to growth stocks.

[VR99]

I would review the charges you are paying for the available Global Equity funds or trackers, compare performance and go from there. Typically work pensions have fund/platform discounts that make overall costs more reasonable. It should be fairly straightforward to switch to/from the Lifestyle option but based on your age not sure why you would want to come back to that....unless you prefer a middle of the road fund that will bob along unlikely to maximise returns but also without the potential 40/50% drops of a 100% Equities fund. I should add those are very rare but they can and do happen as history shows.

I never had the option for partial transfers for my various work pensions so over the years I've used both the active and passive equity options that were available including BNY Mellon, JPM and Baillie Gifford....good during the upward moving markets but the BG fund took a hammering during the switch from Growth to Value a few years back....it shouldn't really matter though during the 'accumulation' phase. Not sure what your charges are for the BNY Mellon fund you mentioned but their Equity funds are fine though somewhat expensive compared to passive trackers.

Once I had amassed 3 different work pensions, made a decision to consolidate them all into a Fidelity SIPP and take advantage of the capped platform fees for ETF's as well as the lower fund fees. My current work pension is invested into two Global Equity funds and charges are reasonable so may just leave that to run on its own rather than merge with my SIPP...who knows.

[BAMoFo]

I am relatively new to pensions because I have been self employed for most of my life. However, since taking a PAYE job four years ago, I joined the company pension scheme and have been paying in 100% of my salary for the last 18 months. The pension is provided by Mercer MMT (Magic Money Tree?), which is in actual fact something to do with Scottish Widows, and I am sick of the fund losing money seemingly every month. The pension fund is worth about what I've paid in, so in real terms has fallen behind massively due to inflation. As a result I've moved the money into one of their interest rate tracker funds because I want to preserve as much of the value of the pot until I potentially retire in a couple of years. I appreciate that it is going to return a rate lower than inflation, but at least it is guaranteed to increase in value. To many of you it might seem like a daft thing to do but I don't have time on my side to ride out any market falls.

[xeny]

BAMoFo said:

have been paying in 100% of my salary for the last 18 months.

Why contribute 100% of your salary? I can see logic in contributing until your salary is the Personal Income Tax Allowance, but not below that.

[P1Fanatic]

What specific SW Pension Fund are you in? I'm with SW through work and all mine is in Pens Portfolio One (was PP Two until a couple of years ago) and the post lockdown peak 2020-2021 was the largest increase since I started this pension in 2011. Admittedly 2019-20 was a loss, 2021-22 small gain 2022-23 small loss.

Btw I believe the old SW pension website closes end of the month. Tbh I prefer some of the functionality vs the new site.

[BAMoFo]

xeny said:

BAMoFo said:

have been paying in 100% of my salary for the last 18 months.

Why contribute 100% of your salary? I can see logic in contributing until your salary is the Personal Income Tax Allowance, but not below that.

I don't need the money from my salary and reduce my tax by paying my salary into my pension.

[xeny]

BAMoFo said:

I don't need the money from my salary and reduce my tax by paying my salary into my pension.

Ah, so you've got something else consuming your personal allowance?

Otherwise you're putting some money into the pension that doesn't reduce your tax bill, but you potentially will have to pay tax on when you withdraw it.

Apologies if I state the obvious.

[BAMoFo]

xeny said:

BAMoFo said:

I don't need the money from my salary and reduce my tax by paying my salary into my pension.

Ah, so you've got something else consuming your personal allowance?

Otherwise you're putting some money into the pension that doesn't reduce your tax bill, but you potentially will have to pay tax on when you withdraw it.

Apologies if I state thewwl obvious.

Yes. you are correct that I use my allowance elsewhere. Thanks for commenting though because it is something that I / others could miss a trick on.

[BAMoFo]

NowWatchThisDrive said:

How and when are you going to access it though? Unless you plan on crystallising all (or a big chunk) of it on day 1, most of it's going to stay invested for a while yet - possibly several decades - so seeking to derisk* at this point doesn't necessarily make sense like it did when you had to buy an annuity and lock in the whole thing straight away.

*never mind that the received wisdom on how to do so - buy bonds - is not a dead cert, as the last year or so will have reminded people

I assume that you are replying to me? If so, I intend to monitor the markets over the next couple of years with a view to take the full 25% tax free at the earliest opportunity (and while such a facility still exists). If things don't turn out to be as bad as I expect them to be over that period I may change strategy. That could mean re-investing into global tracker funds and extracting some or none of the tax free amount out. The latter is variable because I don't need the money and it would only be locked away in an ISA or given to my missus to put into her pension.

[Mr Whippy]

NowWatchThisDrive said:

*never mind that the received wisdom on how to do so - buy bonds - is not a dead cert, as the last year or so will have reminded people

It wouldn’t be so bad if you could buy gilts properly, rather than within a fund.

Still sell early at a loss if you need to, but to be exposed to that loss when you don’t need to be is bonkers.

Why exactly are pensions buying gilts like they do?

[NowWatchThisDrive]

Mr Whippy said:

NowWatchThisDrive said:

*never mind that the received wisdom on how to do so - buy bonds - is not a dead cert, as the last year or so will have reminded people

It wouldn’t be so bad if you could buy gilts properly, rather than within a fund.

Still sell early at a loss if you need to, but to be exposed to that loss when you don’t need to be is bonkers.

Why exactly are pensions buying gilts like they do?

Because they're generally targeting a constant (weighted average) duration, rather than undertaking specific asset-liability matching, so they have to constantly turn over their holdings to maintain that duration and provide liquidity to their investors. But inherent to doing so is that you're taking interest rate risk.

When you have a known stream of future liabilities that you want to offset, that's when you might want to buy individual bonds with declining durations and hold them to maturity to match when those liabilities come due (which you're perfectly at will to do within a SIPP). Then you remove interest rate risk from the matter entirely, unless you do it on a rolling basis at which point you're effectively doing the same thing as a bond fund just with greater hassle and expense.

[Mr Whippy]

I suppose you’d never own a long dated gilt beyond retirement age, as chances are you’d want access.

So yes short dated rolling basis. If prices dipped you’d just hold to maturity. Selling crystallises the ‘loss’


It is confusing and counter-intuitive which is why I’d only ever hold them how I understand them, and that’s as an actual gilt I’d hold to maturity, never lose money on (notionally, I know there is inflation risk etc), and accept illiquidity issues may arise in the interim.

But arguably in a pension, you can’t do anything with the money till 57 now?
You’ve got a line in the sand. You should never need to worry about liquidity and thus not need to worry about using a fund.


Ie, can a fund ever out-perform just buying gilts directly?

Or is it just risky downsides with the benefit of liquidity?

[AdamV12V]

Mr Whippy said:

But arguably in a pension, you can’t do anything with the money till 57 now?
You’ve got a line in the sand. You should never need to worry about liquidity and thus not need to worry about using a fund.

Its 55 at the moment, but it will be 57 soon and likely 57 for the majority of readers I accept...

liquidity is something you do need to worry about as you approach your retirement goal. I was planning on accessing my pension when I turn 55 at year end, but its performed so poorly over the last quarter, indeed over the last 2yrs really, that I am reconsidering that now that the end is in sight.

You have to liquidate whatever amount you want to withdraw from your funds into cash first in order to actually able to withdraw, and there's always a lag from requesting a sale of an amount from any fund to the pension provider then actually executing it, so you are always at risk of sudden downturns in that time lag too. In volatile times a fund can loose 5% in a week easily, so its always a tad risky.

Right now my provider's (Aviva) cash interest rate is outperforming almost all my funds, its just in order to get it into cash I would be crystalising the downturn, so I think I will be just riding it out beyond 55 now until things recover at least a little.