I'm retiring soon and I don't know how to invest my DC pension.

25 March 2021

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Question by Janet

I am retiring quite soon and will be receiving income from a final salary scheme and State pension. I also have a DCS from my employer which is worth c.£250,000 and has been invested for the last few years in a low risk lifestyle fund as the idea was to take out an annuity to supplement the other two pensions. I now find myself in the fortunate position of only needing the income from the DBS and state pension for the foreseeable future. I will not need an annuity and indeed with the abysmal annuity rates at present I would prefer an income drawdown vehicle once for when I require the income - hopefully not for at least five years. I am in a quandary how to invest the DCS - in order to get some growth I will have to change the investment. I'm not comfortable taking full control of the pension plan - would a move into a more higher risk but balanced 'managed' fund be advisable? Thanks and regards.


Answered by Daniel Wiltshire

Dear JM

It sounds as though you’re in a good financial position going into retirement. However – as you’ve discovered – annuity rates are currently very low by historical standards due to increasing longevity and falling interest rates and have therefore declined in popularity since “pension freedoms” were introduced in 2015.

Five years is a reasonable investment time horizon, but before changing investments I would consider carefully how much risk you are comfortable with and the extent to which you are prepared to ride out market fluctuations.

In the UK fund providers must provide investors with a ‘Key Investor Information Document’ (KIID) which includes a ‘Risk and Reward Profile’ designed to provide a consistent calculation and presentation of risk using a numerical scale between 1 and 7; with 1 meaning low risk/reward and 7 a higher level of risk but with the potential for a higher level of return. This is a good starting point for understanding how the funds might be expected to perform.

There are a huge range of fund options, with various names describing the different underlying investment strategies (which understandably causes confusion!). For example, a ‘Balanced’ fund typically refers to funds that hold both equities and bonds, a ‘Managed’ fund is a general term describe pooled investments managed and controlled by a professional investment manager.

These types of fund may (or may not!) be suitable, but if you’re new to investing, I would suggest that the most important factor is not the investment strategy (or description) of a particular fund, but the risk profile/score associated with it.

I hope this helps. I’m afraid I can’t be more specific without a better understanding of your personal circumstances and objectives. Based on the information you’ve provided; I think it would definitely worth speaking to a financial planner to help you understand how best to invest you pension.

Kind regards

Daniel

Answered by

Daniel Wiltshire

Independent Financial Adviser

I’ve worked in finance for 15 years, initially training and qualifying as an actuary before becoming a financial adviser. I set up my own independent practice, Wiltshire Wealth shortly after moving from London to Bradford on Avon with my young family in 2017.