IL Pension Lifestyle Strategies are "Recklessly Conservative"

Marc said:

HM Treasury commissioned a review a while back now by Ron Sandler (https://en.wikipedia.org/wiki/Sandler_Review) in which the phrase "reckless conservatism" was coined to describe the investing decisions of a very large proportion of the UK investing public.

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It's generally accepted that when it comes to investing (pension or otherwise), the 2 biggest determinates of your outcome will be 1. your savings rate (what % of your salary you save/invest) and 2. your asset allocation (what % of your investments go into stocks vs bonds).

Irish Life use the following funds in their default Lifestyle strategy (PLS)
Irish Life Lifestyle strategy Funds and their Asset Allocations


They start you 100% in the Empower growth Fund then gradually shift you in the Empower Stability Fund.
Depending on your retirement arrangements, at retirement they shift you into a mix of the Cash fund & Flexible ARF Fund or the Cash and Pension for Life Fund

Based on The Asset allocation for Irish Life Personal Lifestyle Strategy (the default investment strategy for pensions with Irish Life) is as follows
Assuming here that the Benefit Target Fund is made up of 25% in Cash and 75% in the Empower Flexible ARF the Asset Allocations look like this:


Even 20-30 years from retirement the default Personal Lifestyle Strategy only has 63% allocated to Stocks.
1 year from retirement it has only 32% allocated to stocks.

For Comparison
The Vanguard Target Date series gradually moves you from Stocks to Bonds as you near retirement.
This is how they manage the de-risking process.

TR Fund Asset Allocations - February 2021



They start at 90% stocks and only start to reduce that 20 years from retirement (2040 on the table).
At retirement they have roughly 50:50 Stock:Bonds (2020 in the table).
5 Years into retirement they have 35:64 Stock:Bonds (2015 in the table).
The minimum amount of stock, (even 25 years into retirement), that they have allocated to stocks is 30%.

That's the US one. The UK one moves from 80% stock to 30% stocks (Again 50:50 at retirement), so a little more conservative.

Interesting. I note that the ARF Fund is 58% in real assets (stocks, property and alternatives).
So this seems to me a much less "recklessly conservative" approach than used to be the case. Do you know if, in general, retirees are kept in this ARF Fund through retirement?

I’m always puzzled by these % allocations. Do they take into account that most people already have a fixed income in a state pension and often a small company pension scheme as well? This to my mind should lead to a higher risk approach in the ARF. Happy to be corrected.

These things are a matter of degree.

If I was in a Risk No 3 or 4 fund, that might be “recklessly conservative”, because I should be entirely in equities.

But it’s still way better than me sitting in cash or not having a pension at all.

Recklessly conservative is hyperbole…a bit like every player being “world class” these days.

Had an IL pension scheme in work, 3 years back, so had no choice but to join it, as soon as i left that position, i moved it immediately, a very poor experience, i choose funds based on my other policies - risk wise, (appreciate- they are not identical)and there was a fraction of the growth compared to Zurich & Standard Life, and fees were similar to my other policies as well, at about 0.75 %.
Very poor customer service as well, as many of the IL schemes are managed by Aon and other similar companies - so youre chasing a middle man, constantly chasing to get anything done, 1 smallish transfer into IL, was sitting in their bank account for weeks, before they added it on, despite my phone calls and emails, before, during, and after the transfer made. Would never deal with them again.

So, to get back on topic, i fully agree, way too conservative