SINCE having a family, I have been working part-time in local government for the past 10 years and have decided to pay additional voluntary contributions (AVCs) in to my pension fund. I will be entering the scheme operated by the in-house AVC provider (Standard Life) and have been asked to consider splitting my contributions between a number of investment options/fund names.
The options are 'Pension With Profit Fund', Pension Managed Fund', 'Balanced Pension Fund Investment Strategy', 'Pension Ethical Fund' and 'Pension Sterling Fund'. Do you have any advice on the most appropriate fund and what percentage of my contrib
utions I should allocate to each one?
KBTom McPhail, head of pensions at Hargreaves Landsdown, writes:THE options are pretty limited, and if you wanted to make more of your investments you could do so, for example by using a Self-Invested Pension Plan (such as the one offered by Standard Life), which gives you more options. But you need advice before switching, as there may be other considerations such as charges.
The key questions in determining your investment strategy should be how long you have to go until retirement and how comfortable you are with investment risk.
As a starting point, if you have 10 or more years to go until retirement, the bulk of your pension fund should be invested in shares.
The closer you get to retirement, the less investment risk you should take and the less money you should have in shares.
The Managed and the Ethical funds are both largely equity-based, so will go down in the bad times, but over the longer term they should deliver good returns. Ethical funds have tended to underperform those that are free to invest across the market, but there are sound reasons why they may do better in the future.
The Pension Sterling fund is very cautious – only slightly riskier than holding cash – so it is very safe and therefore not a good place to put a long-term investment. The Standard Life With Profits fund has around 60% invested in a mixture of shares and property, which might be OK, but we aren't big fans of with-profits funds at the moment.
The Balanced Pension Fund Investment Strategy seems to be the best option. It moves from the Managed fund through the last 10 years before retirement, into the Cautious Managed fund, and then into the Protection fund – which should insulate you against movements in annuity rates.
I'm sorry I can't offer you more specific advice. You will have to take your own view on how much investment risk you are comfortable with.
Ultimately, the best thing you can do is to start finding out about your investments and monitoring them regularly. You can get fact sheets on the funds from Standard Life, which may help get you started.
The full article contains 482 words and appears in Scotland On Sunday newspaper.
