Workplace Pension Gradual de-risking
Discussion
I’ve just received a note from my workplace pension provider saying they’ll gradually start moving my pension pot into a fund called My Future Target Drawdown (Pre-2025) from the end of October.
I’m turning 50 this year and while I’ve always thought about retiring around 57, I’m not sure if that’s a firm plan or more of an aspiration. Given that, this transfer into a more cautious fund feels a little early, even though they describe the move as gradual.
I don’t currently have an IFA, but I imagine the provider can give me performance data or modelling to help me decide. Has anyone been through a similar process? What approach did you take? Did you go with the default or actively change course? And is there a logical way to evaluate this, e.g. modelling potential pot growth under each scenario?
Any experience, thoughts or pointers would be very welcome!
I’m turning 50 this year and while I’ve always thought about retiring around 57, I’m not sure if that’s a firm plan or more of an aspiration. Given that, this transfer into a more cautious fund feels a little early, even though they describe the move as gradual.
I don’t currently have an IFA, but I imagine the provider can give me performance data or modelling to help me decide. Has anyone been through a similar process? What approach did you take? Did you go with the default or actively change course? And is there a logical way to evaluate this, e.g. modelling potential pot growth under each scenario?
Any experience, thoughts or pointers would be very welcome!
You may be able to change the funds you’re invested in as well which can change your risk profile. Depends on your pension provider.
To answer your questions, I had plans to retire earlier, but didn’t. I changed my pension investments into less cautious funds, and with the benefit of hindsight this was a good move. They have performed well.
I understand why pension funds do what they do, but it doesn’t suit me. YMMV.
To answer your questions, I had plans to retire earlier, but didn’t. I changed my pension investments into less cautious funds, and with the benefit of hindsight this was a good move. They have performed well.
I understand why pension funds do what they do, but it doesn’t suit me. YMMV.
I don’t see the point in “derisking” as one gets closer to retirement. You are potentially going to live twenty or thirty years post retirement and you are going to want your money to continue working hard for you. My appetite for risk is the same pre and post retirement so “derisking”doesn’t make sense.
Little bit of a guide here on the Aviva schemes.
https://static.aviva.io/content/dam/document-libra...
If you look at something like the Vanguard Target Retirement funds you see a similar thing there the close you get to your planned retirement date the more the fund will move away from risky assets.
I think it depends on your overall financial situation.
If your workplace pension is part of a bigger overall picture you may be willing or able to take more risk than someone who is entirely dependent on it to fund their retirement - and if you're that person on average you don't want to be waking up to find you're in the middle of a sustained downturn and your pension pot is worth 30% than it was the last time you looked.
Anyone can make a case on a piece of paper for "you're going to live longer so take on more risk equities will probably be fine in the long run" but it's not that simple for most people.
https://static.aviva.io/content/dam/document-libra...
If you look at something like the Vanguard Target Retirement funds you see a similar thing there the close you get to your planned retirement date the more the fund will move away from risky assets.
I think it depends on your overall financial situation.
If your workplace pension is part of a bigger overall picture you may be willing or able to take more risk than someone who is entirely dependent on it to fund their retirement - and if you're that person on average you don't want to be waking up to find you're in the middle of a sustained downturn and your pension pot is worth 30% than it was the last time you looked.
Anyone can make a case on a piece of paper for "you're going to live longer so take on more risk equities will probably be fine in the long run" but it's not that simple for most people.
P40L VX said:
Sorry, I forgot to mention, my pension is currently set to retire at state pension age, so I m surprised they re starting to make this move 17 years ahead of that.?
It seems daft to me; 17 years is more than enough time to recover any losses!craig1912 said:
I don t see the point in derisking as one gets closer to retirement. You are potentially going to live twenty or thirty years post retirement and you are going to want your money to continue working hard for you. My appetite for risk is the same pre and post retirement so derisking doesn t make sense.
Same here. I don't have figures to back it up but am confident that over time - if you want a number maybe five years - lower risk equals lower returns.It may be that de-risking saves them from possible complaints such as 'The markets have just lost 10% why didn't you de-risk my pension?'
IIRC to some extent de-risking is a hangover from when nearly everyone used their pension pot to buy an annuity. If you wanted more certainty about how much bond-backed annuity income your pension pot would buy, then you started moving into bonds.
If your plan through retirement is to continue to hold significant amounts of equities (I recall Derek quoting some research saying you should have 60% equities), then may be it is a less valid approach? If this is the case, then perhaps a more appropriate course of action is to plan a glide path between the amount of equities you hold now and the amount you plan to hold post-retirement?
If your plan through retirement is to continue to hold significant amounts of equities (I recall Derek quoting some research saying you should have 60% equities), then may be it is a less valid approach? If this is the case, then perhaps a more appropriate course of action is to plan a glide path between the amount of equities you hold now and the amount you plan to hold post-retirement?
Edited by trevalvole on Saturday 2nd August 10:53
From a quick google, the fund objective is:
“This fund is designed for customers who are approaching retirement and intend to move into a drawdown arrangement. It targets a volatility level of 8% and seeks to provide growth while limiting the risk to which the value of investors’ savings are exposed. Through a range of passively managed funds, the fund invests mainly in UK and overseas equities (including emerging markets), UK government (including index-linked) and corporate bonds. It may also invest in overseas government and corporate bonds, money market instruments and cash.”
That seems reasonable to me. It’s not heading full tilt into bonds but just intending to reduce the volatility to (hopefully) make drawdown a smoother process.
If it’s not right for you, then you should be able to move to a riskier fund/objective. But bear in mind that most people tend to underestimate the risks they take (and their ability to withstand volatility and their investing ability).
“This fund is designed for customers who are approaching retirement and intend to move into a drawdown arrangement. It targets a volatility level of 8% and seeks to provide growth while limiting the risk to which the value of investors’ savings are exposed. Through a range of passively managed funds, the fund invests mainly in UK and overseas equities (including emerging markets), UK government (including index-linked) and corporate bonds. It may also invest in overseas government and corporate bonds, money market instruments and cash.”
That seems reasonable to me. It’s not heading full tilt into bonds but just intending to reduce the volatility to (hopefully) make drawdown a smoother process.
If it’s not right for you, then you should be able to move to a riskier fund/objective. But bear in mind that most people tend to underestimate the risks they take (and their ability to withstand volatility and their investing ability).
craig1912 said:
I don t see the point in derisking as one gets closer to retirement. You are potentially going to live twenty or thirty years post retirement and you are going to want your money to continue working hard for you. My appetite for risk is the same pre and post retirement so derisking doesn t make sense.
Really, I dropped £35K in three months by being invested in a high risk fund, now switched to much less volatile fundslancslad58 said:
Really, I dropped £35K in three months by being invested in a high risk fund, now switched to much less volatile funds
I guess that proves the point that risk is subjective, everyone is different.In my experience, certainly over the past 20 years, sticking to a pension providers risk model and letting them allocate exposure based on their ‘model’ is risky
In its own right (from an underperformance perspective) various reasons, not least home bias, exposure to Europe and the EM (that have underperformed).Utilising bonds to lower risk doesn’t always work (2022 a good case in point!) for long periods I considered FI as ‘interest free risk’ and not always uncorrelated to equities.
I would advise anyone to get schooled up as early as possible, and with the appropriate knowledge, take control of their own allocation.
With over contribution, and a fair wind, the power of compounding can make a significant difference.
I’m an investment manager in my day job, but I wasn’t born one, so it is possible (particularly with all the free resources available online) to become financially literate.
I will probably retire in around 7 or 8 years (51 at the mo) but I won’t be moving to cash, gilts, corp debt. May move some into alternatives, but will primarily remain in Equities, both inside and outside of the wrapper.
So for anyone reading this and starting their pension. Golden rules: start early, learn about the markets, over contribute, take a degree of control (if appropriate or possible).
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