Pension Investment Strategy

N

nest egg

Registered User
Messages
649
I'm a 37 year old with an occupational pension scheme through my employer. My investment is currently in a low cost (by Irish standards) passive global equity fund. However, as I'm in the default strategy, if I do nothing, the investment will automatically be shifted out of this fund over time.

The shift also brings an increase in baseline costs, as the investment moves into funds with lots of dynamic and energetic sounding names, and then ultimately on a sliding scale, completely over to bonds and cash as I approach 65. That may well be a good approach for some, but my view is keeping the investment in equities post 65 is a more prudent way to maximise my return over time. It's obviously a riskier approach too, but these are the choices we have to evaluate in a post-defined benefit world.

So ultimately I feel I have to take control of my pension investment, and therefore I want to start carefully considering what strategy to follow. If I get this right, it'll be very good for my family, but the stakes are high, if I get it wrong, we may run out of money one day.

Can I ask if anyone else is in the same position, and what choices you have made in terms of your investments, and importantly, why you've made them?
 
Similar position in that my occupational pension scheme was allocated to a "balanced" fund. I cant remember exactly but I think it invested "up to 80%" of its funds into equities.
It had a risk rating of 4 I think.

I moved my funds into a higher risk fund with 98% equity, it is a global fund so not concentrated in any region or sector.

Based on historical performance this higer risk fund out performs the balanced one but during recession it goes down more too. But then seems to bounce back higher.

At your age you should be in a higher risk, all equity fund in my opinion (I am not qualified in any way so just what I think).
 
Thanks for the feedback, good to know I'm not the only thinking like this! How long do you plan to stay invested at 98% equities?
 
Same age, I'm 95% in equity, risk category of 6/6. Not sure how I missed that last 5%, but I'd have that in equity as well if I had realised.

So yes I think you should be 100% in equity at your age. I also had my pension provider turn off the life-styling option (to move from equities into cash as I age), I'd intend to look at that again when I'm 50-55. As I would intend moving to an all-equity ARF after retirement, I see no value to moving to cash/bonds as you approach 65 then move back to equity again afterward however.

Having said that I have a high risk tolerance and strong believe in the equity market, YMMV.
 
Zenith63 said:
As I would intend moving to an all-equity ARF after retirement, I see no value to moving to cash/bonds as you approach 65 then move back to equity again afterward however.
Click to expand...

There's an argument that should at least be considered. Preservation of the tax-free lump sum. If we assume that your lump sum will be 25% of fund at retirement, then if the fund value drops by, say, 30% or more just prior to retirement, then so too your lump sum, even though you may be reinvesting the other 75% of the fund in an ARF. It's debatable whether or not this should dictate the investment strategy for the entire fund in the years leading up to retirement. That's a personal choice. Just saying that it's something to be considered, even if only to be discounted and ignored.

Regards,

Liam
www.ferga.com
 
Thanks for the feedback, summarising the advice:
  • Keep most / all of the investment in equities for the mid term
  • Preserve at least the tax free portion of the pot in less risky investments ahead of drawdown
 
mojoask said:
How long do you plan to stay invested at 98% equities?
Click to expand...

I haven't thought about that, I'm 41 so probably will review overall when 50 and see if should be making changes by 55 or something.

The idea of putting the tax free portion into a less risky fund ahead of drawdown sounds like a good idea.
 
mojoask said:
Thanks for the feedback, summarising the advice:
  • Keep most / all of the investment in equities for the mid term
  • Preserve at least the tax free portion of the pot in less risky investments ahead of drawdown
Click to expand...
Also worth trying to get into equity funds with the lowest management fees. If they are available to you, passive index funds are better than highly managed equity funds where most of the growth disappears into fees...
 
Be aware that you have only limited ability to put the tax-free lump sum portion into less risky funds in the lead-up to retirement. If your lump is being calculated as 25% of the overall fund, then simply allocating 25% of your fund to less risky assets will only do quarter of the job of protecting the lump sum. If there's a dip in value of the other 75% of the fund before you retire, then this will bring down the value of the fund as a whole (albeit by 75% of what it might have been if you were 100% invested) which in turn will still affect the value of your 25% lump sum at retirement. Sorry if my explanation is clumsy but do you get the point?
 
You must log in or register to reply here.
Back
Top