winginit

New member
Hi,

25 y/o hoping to get some advice regarding the pension funds available to me through my company pension plan. I've recently started contributing 10% AVCs in addition to the 2% I was already contributing to get the employer contribution of 8%, so 20% total.

I've read a lot about the various pros and cons of different investment options, and listened to podcasts such as Informed Decisions so am aware of the dangers of leaving my money in a supposed "safe" fund with a high allocation towards bonds in addition to historical under-performance of active vs passive funds in most cases. Ideally I would just put the money into a globally diversified ETF such as VWCE. However, there are only four options available under the pension plan which include equities.

The provider is Mercer and there's two 'Do it for me' funds, which gradually move into more caution funds as you approach retirement age and then there's an option for do it yourself with other funds. This is the details of each of the funds:

Do it for me funds:
  • (Default) Aspire Moderate Growth Portfolio: Active and passive mix; Split: 45% equities, 35% bonds, 13% listed real assets and the rest commodities and alternatives. Aim for fund is 4% return P.A. however it only started in 2021 so there's no historical performance. AMC is 0.23%.
  • Aspire High Growth Portfolio: Also active & passive mix. Split: 72% equity; 13% bonds; 9.5% listed assets and the rest cash and alternatives. Running since 2012 with target of 5% returns P.A. Historical returns have been 5.1% past 5 years and 7.4% past 7 years. AMC 0.23%
Do it yourself:
  • Passive global equity partial hedge: Allocation is 55% passive global equity unhedged, 35% passive global equity hedged and 9.5% passive emerging markets. Globally diversified with 67% North America, 10% Asia, 12% Europe, 5.5% Japan and the rest other. Has approx 1600 holdings with top 5 being apple, microsoft, google, amazon and tesla. Historical returns are 7% P.A. past 5 years and 8.4% P.A. past 8 but it is down the most this year at 17% (compared to 12 for moderate growth portfolio and 14.5 for high growth). AMC 0.08%.
  • Passive sustainable equity fund: Likely won't go with this, down the most this year (20%), worse performance than the above fund over past two years at 6% PA and only started in 2020. Higher allocation to tech than the above also with 30% in tech vs 20% with the above passive fund.
My inclination is to put all my money into the do it yourself and the passive global equity partial hedge as I have time on my side and then maybe move it into the do it for me funds as I approach 5-10 years from retirement but my only concerns are; could we be in for a lost decade in which case 100% allocation to equity might not be so smart or is it stupid to try and speculate over these things and just trust the market will generally rise over time and that my returns will be much greater with this fund than the default moderate growth fund?

Appreciate any advice!!
 
@winginit
my only concerns are; could we be in for a lost decade in which case 100% allocation to equity might not be so smart

This would actually be great for your pension. You're in the accumulation phase, so if you could pick up cheap units for the next 10 years you'd be in a very good position.
 
@gardenlady That’s true, didn’t think of it that way thanks! What would be your advice regarding those funds? Don’t know too much about hedging but does that fund seem to be the best way to go?
 
@winginit Yeah I'd go for the global equity one myself.

I really don't understand why providers don't just offer a normal passive Global Equity fund instead of offering these overly complex combinations. At least AMC is low.

Anyway you're probably going to move jobs again over the next few years so you can bring your pension with you if you find a better option along the way. The main thing for now is to pick the best option you can and put as much into it as you can afford.
 
@winginit
My inclination is to put all my money into the do it yourself and the passive global equity partial hedge as I have time on my side

This is 100% what you should go with.

and then maybe move it into the do it for me funds as I approach 5-10 years from retirement

That’s a long way down the road, but FWIW you would not be doing that if you were 5-10 years from retirement today. These days nobody really buys annuities, instead you convert your pension into an ARF which is basically exactly the same with access to the same funds. Imagine you’re 60 and you have a 20-25 year investment horizon, that’s ideal for equities. So it would make no sense to go into bonds a as you approach retirement, then as you hit sixty go back to equities. Better to just leave your pension fully in equities and likely your ARF the same way. Risk appetite dependent of course.
 
@winginit 20% at 25 is a great amount and age to start. Set and forget. Find your risk profile and start filling it up. Until it’s grown for a few years it doesn’t really matter. Just diversify and spread across the global market.

As the other commenter said, bear markets are a great time to start in as the stock market is on sale.
 
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