When to reduce your pensions percentage of equity and by how much?

[Scot]

Hi

I am due to retire in 4 years and my pension is still 100% equity (following advice received a number of years ago - not from the forum), with the result that in 2011 the value of my pension reduced more than the amount I contributed in the year.

At this stage I think it is clear that I need to start changing the majority of this to a cash held fund but how far should I go? Should it be 50:50, 30:70 (equity:cash) or 100% cash? Not sure if I would be likely to make back any of these loses in the coming years if any of the fund is held as equity.

Any advice that could be provided would be greatly appreciated.

Kind regards
Scot

 

[Marc]

Question 1 Do you plan on taking any tax free cash? That amount should be in cash before you retire.

Question 2 Do you intend to purchase an annuity?
If so the whole amount that is going to the annuity should be invested in short term high credit Bonds about three or four years before you retire.

Question 3 do you intend to put anything into an AMRF?
If so you can only draw interest from this until age 75 so this has to be a very long term investment. You should therefore tend to allocate a sum from your cuurent pension roughly equal to the AmRF pot to equities. You will be able to draw any income in excess of the capital in The AMRF but in the short term the capital value is broadly meaningless as you cannot access it.

Question 4 are you going to invest in an ARF?

The capital earnmarked for an ARF should ideally be invested in a balanced strategy with a mix of cash fixed interest equities and real estate. This will give you the best chance of meeting the requirement to take 5% imputed distributions.

This is a fairly simplistic analysis which deals with the high level asset allocation decisions.

If you are not happy holding your ARF in a balanced investment strategy you might be better off with an annuity rather than an ARF depending on how long you live.

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