Pension fund splits

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SuperCoolName

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Hello all,
Would appreciate your thoughts on my pension fund split. Current position is that I am using the default 'do it for me' plan:
• High Growth Fund - 70% of fund. Fee of 0.26%.
• Moderate Growth Fund - 30% of fund. Fee of 0.32%. Return is approx. 8% below the High Growth Fund. According to the plan, this will be 100% at the age of 49.
• Current value is €470k, with a projected value of €1.43m at retirement. Age is 45, but hope to be able to retire early - target of 58 if possible ('hope' probably being the key word!).
• Maxing AVCs. No mortgage. Married, with one child. Savings in cash (but aiming to put some in ETFs).

As the funds are starting to adjust due to my age (and as I get closer to pension age), I have started looking at what funds I should be in. Looking at the available options, I would be tempted to adjust the plans to the below:
• 50% of pension value in a passive 'sustainable' equity fund (has the highest returns of the available funds - forecasting approx. 49% higher than my existing 'High Growth Fund') - fee is 0.15%.
• 25% of pension value in a passive Global Equity Fund (2nd highest returns, more diversified than the sustainable fund - forecasting approx. 23% higher than my existing 'High Growth Fund') - fee is 0.14%.
• 25% of pension value staying in the High Growth Fund that I currently have the majority of value in (more diversified than the other funds as it is not just equity - 4th best performance of available funds, but fees are 12bps below the 3rd best while performace is only 2% lower) - fee is 0.26%.

In essence, this would be chasing returns with increased risk, which is contrary to the default plan I am currently in & probably contrary to the normal/wise approach at this age…………….but when I have looked at the performance of the funds, they all appear to follow a relatively similar flow (i.e. the riskiest funds do not appear to crash more than the less risky ones). Basically, I just want to make sure I am doing things right, and would appreciate thoughts before I interfer with things as I don't really have much knowledge in this area.
 
45 years old is far to young to be lifestyled into 'safer' funds (if we ignore that lifestyle doesn't make sense for most people).
 
Fortune said:
45 years old is far to young to be lifestyled into 'safer' funds (if we ignore that lifestyle doesn't make sense for most people).
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I have flip flopped on this mindset over the years and at the moment im 100% in equities with 20 yrs to retirement. However, is there not a lot to be said for having some less risky assets to protect against market downside? At end of day still getting tax break when paying into pension as well as with growth and then at end with tax free lump sum.

So why not protect what you have as well as look to grow it i.e mix risky with less risk assets? Surely thats just wise?
 
Traditionally it was recommended to have a split along the lines is
60% equities
40% government bonds

When interest rates fell to zero from 2015 to 2022 that thinking was ditched but now it's more valid with bond yields of 4%

Because bonds were out of favour for so long, I'm thinking there may be value in them and particularly with interest rates falling. So I'm holding bonds until rates fall to at least 2%
I'm also holding some cash, it's yielding 3%.

But mostly global equities. I don't see myself ever choosing the lifestyling option.

So yes after gains in equities I think it's wise to shift some small portion to property, cash and bonds.
 
jim said:
I have flip flopped on this mindset over the years and at the moment im 100% in equities with 20 yrs to retirement. However, is there not a lot to be said for having some less risky assets to protect against market downside? At end of day still getting tax break when paying into pension as well as with growth and then at end with tax free lump sum.

So why not protect what you have as well as look to grow it i.e mix risky with less risk assets? Surely thats just wise?
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It depends on what you plan to do in retirement.

Even before the big fall in bond values a few years back, I've had my doubts about the 'safety' of investments in bond funds. I'm not saying they're extremely risky, but I'm not convinced that the nature of a pooled investment fund that holds bonds is giving all the benefit of bond investing to it's investors.
 
Fortune said:
It depends on what you plan to do in retirement
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To maintain a certain lifestyle. But the point is we all want the same thing - our pension fund to be healthy, ideally growing, certainly safe and not depleting due to market downturns.

100% in equities exposes a lot of risk. Ye sit offers great growth too. But a certain mix of assets can offer growth/risk exposure but also protection.

Having said this i intend to stay 100% in equities becasue of my outlook and risk appetite but i think this is worth of debate because the general view on AAM seems to be go 100% equities.
 
IMO it’s bonkers to retire with a portfolio that is 100% allocated to equities.

If you retired at the start of 2000 and withdrew €40k, adjusted for inflation, every year from a €1m equity portfolio you would have gone bust years ago.

IMO it’s prudent to retire with at least 10 years of projected expenses in “safe” assets (cash or short to intermediate term government bonds), with the balance in equities.

But, critically, those safe assets don’t necessarily have to be held within your pension fund. It’s important to look at all your assets in combination and not to focus on one account in isolation.

The OP has a significant pension pot and some after-tax savings. Hence my suggestion that he invests his pension 100% in global equities and keeps his after-tax savings on deposit.

There’s really no need to over-complicate these things.
 
I generally I always agree with you Sarenco on this topic and I still do, broadly speaking.

Im wondering though - what split makes sense in terms of overall assets risky versus safe.

For example, a pension fund of €1m at retirement + savings on deposit of €50k. In this scenario you would want to have a significant portion of pension in safe assets imo.

So what ratio might be a reasonable guide. 60:40 (risky:non risky)?
 
Sarenco said:
IMO it’s bonkers to retire with a portfolio that is 100% allocated to equities.

If you retired at the start of 2000 and withdrew €40k, adjusted for inflation, every year from a €1m equity portfolio you would have gone bust years ago.

IMO it’s prudent to retire with at least 10 years of projected expenses in “safe” assets (cash or short to intermediate term government bonds), with the balance in equities.

But, critically, those safe assets don’t necessarily have to be held within your pension fund. It’s important to look at all your assets in combination and not to focus on one account in isolation.

The OP has a significant pension pot and some after-tax savings. Hence my suggestion that he invests his pension 100% in global equities and keeps his after-tax savings on deposit.

There’s really no need to over-complicate these things.
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Timely post (from my perspective). My current proposed retirement strategy is 50% equities (global with a bias to higher yield) and 50% direct residential property.

I think you must assume a lower yield from your equity portfolio though so as to minimise the risk of having to sell equities to fund income, I am thinking somewhere around 2% should mean you don't need to and you need to accept the risk that you need to rife out a drop in income.

What would the calcs ook like assuming you invest 1m in 2000 and take 2% a year, assume much healthier ?
 
Cameo said:
What would the calcs ook like assuming you invest 1m in 2000 and take 2% a year, assume much healthier ?
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Do you mean (a fixed) €20k, adjusted for inflation, drawn down every year? That would last forever.

For that matter any fixed percentage lower than 100% of a variable amount would also last forever.
 
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jim said:
Im wondering though - what split makes sense in terms of overall assets risky versus safe.

For example, a pension fund of €1m at retirement + savings on deposit of €50k. In this scenario you would want to have a significant portion of pension in safe assets
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Well, IMO, it’s prudent to have 10 years of projected expenses in safe assets on retirement..

That could be held within a pension pot or it could be held outside a pension pot. The main point is to consider a person’s overall financial position and not to focus on one account in isolation.

I know it’s common to think of allocations in percentage terms but I think that’s a mistake.

I should add that I’m assuming a retiree is debt-free on retirement.
 
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That’s what I meant,

I guess the but I missed with my strategy is a couple of smallish db pensions (both schemes in good shape) and mainly due to posts on here both Irish and uk state pension kicking in at 66/67 (assuming both Ireland and the uk aren’t bust by the time we drawdown benefits )
 
Cameo said:
I guess the but I missed with my strategy is a couple of smallish db pensions (both schemes in good shape) and mainly due to posts on here both Irish and uk state pension kicking in at 66/67 (assuming both Ireland and the uk aren’t bust by the time we drawdown benefits )
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In that case, I would hold 10 years of projected expenses, less any guaranteed income from DB/State pensions, in “safe” assets, with the balance in global equities.

That assumes you don’t retire long before those guaranteed income streams kick in.
 
Cameo said:
Timely post (from my perspective). My current proposed retirement strategy is 50% equities (global with a bias to higher yield) and 50% direct residential property.

I think you must assume a lower yield from your equity portfolio though so as to minimise the risk of having to sell equities to fund income, I am thinking somewhere around 2% should mean you don't need to and you need to accept the risk that you need to rife out a drop in income.

What would the calcs ook like assuming you invest 1m in 2000 and take 2% a year, assume much healthier
Click to expand...
So you intend adding extra risk in retirement?
 
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