1 Global Investment Grade Fixed Interest 41.21 2 UK Fixed Interest 21.83 3 US Government Fixed Interest 5.01 4 Money Market 4.91 5 German Fixed Interest 4.15
(because I had to cash in my SIPP in order to change provider) I have to review all the funds I had. Another one which I am viewing balefully is AXA £ Credit Short Duration Bond. Its benchmark index, which it consistently underperforms, is Sterling Corporate Bond. The top 7 funds in that index (over 3 years) are all Long Dated Bond focused. Why do you think long dated bonds (or their funds) would have performed so much better in that time than a short-dated one?
It may be because the interest yield curve was quite significantly upwards. The assumption was that interest rates would rise after two to three years so borrowing money for 10 years was more expensive than for one or two.
As the proposed interest rate rises have consistently failed to materialise with ongoing QE, the interest rate curve has flattened particularly out at longer durations. The expectation is that rates will remain low for much longer now than was originally thought. Therefore bonds with higher yields which have long duration become more expensive.
As short term bonds were already yielding bugger all, the price of these is much less affected.
Thank you for your concern :-). But look, the unintended inference of your post is that I and others on here are as obsessed with money, every minute, as Martyn Lewis is, and that furthermore we are all tight asses.
To which the best I can say is that long ago I realised that i would never be able to put a roof over my family's head in the style of Bruce Springsteen's Jack of All Trades, but we would still be secure if I could earn and save enough money that we can give him a call when we need him. And when it comes to spending it, I might remind you that from our return to the Valley until the Pardew era I was a season ticket holder. This despite living in Prague all that time, and only good for 5-6 games a season. On here that might be lauded as Proper Charlton, but most people (including my wife had she ever found out) would regard it as a sign of clinical insanity. I did it, because overall, I felt good about doing so, for several reasons.
I won't tell you what car I have as you would snort with contempt both at the choice, and my reasons for choosing it. Me, I would definitely have discreetly chosen the comfort of Eurostar rather than be in the back of your vintage Jag, breaking the speed limit and the planet as you roared across Belgium
Well as for the value of this thread to "ordinary" Lifers, if it has given a couple of people the tip that they could get 6% off their bank with a regular savings account, the interest paid will be their kids' Christmas presents sorted. What could be wrong with that?
It may be because the interest yield curve was quite significantly upwards. The assumption was that interest rates would rise after two to three years so borrowing money for 10 years was more expensive than for one or two.
As the proposed interest rate rises have consistently failed to materialise with ongoing QE, the interest rate curve has flattened particularly out at longer durations. The expectation is that rates will remain low for much longer now than was originally thought. Therefore bonds with higher yields which have long duration become more expensive.
As short term bonds were already yielding bugger all, the price of these is much less affected.
Indeed. It is probably no coincidence that National Grid (for the aforementioned bond) made an offer to buy it out early. I politely declined.
It may be because the interest yield curve was quite significantly upwards. The assumption was that interest rates would rise after two to three years so borrowing money for 10 years was more expensive than for one or two.
As the proposed interest rate rises have consistently failed to materialise with ongoing QE, the interest rate curve has flattened particularly out at longer durations. The expectation is that rates will remain low for much longer now than was originally thought. Therefore bonds with higher yields which have long duration become more expensive.
As short term bonds were already yielding bugger all, the price of these is much less affected.
Thanks. So on that basis (and I will put it this way so as not to look as if I am asking you to give financial advice) I would conclude that I should indeed choose to replace that fund focused on short dated with one of the good ones focused on long dated bonds. Is there some error in my thinking?
Then I promise to shut up about bonds, as I can see it is a distinctly minority interest :-)
I'm not sure because it's difficult to see how the yield curve gets flatter than it is right now but then people have been saying that for the last 8 years and then something like Brexit comes along and changes the view on when QE will stop and rates will rise.
If you think the world economy is going to continue to flatline for another 10 years rather than 5 or whatever is currently priced in, long term bond fund may be good.
But if the global economy outperforms market expectations, rates will rise and your long term bonds, bought with quite low yield attached, may tank.
The longer term your fund, the more risk you have in it, and the higher yield as a result.
I guess you'd be pretty unhappy with a bond fund if it went below par (you lost the money you put in). IF you are using bond funds to provide some certainty to returns, better short term and face up to the fact that yields will be shit.
I invested in a company called Charlton Athletic Football Club had 800 shares at 80p a pop --- Chairman was a wrong-un we got naff all when he wound it up.
1 Global Investment Grade Fixed Interest 41.21 2 UK Fixed Interest 21.83 3 US Government Fixed Interest 5.01 4 Money Market 4.91 5 German Fixed Interest 4.15
(because I had to cash in my SIPP in order to change provider) I have to review all the funds I had. Another one which I am viewing balefully is AXA £ Credit Short Duration Bond. Its benchmark index, which it consistently underperforms, is Sterling Corporate Bond. The top 7 funds in that index (over 3 years) are all Long Dated Bond focused. Why do you think long dated bonds (or their funds) would have performed so much better in that time than a short-dated one?
That's a bit odd. Setting aside general market sentiment, that fund (assuming it's priced in GBPs) should have performed well in the last few months merely because items 1, 3 and 5 would be priced in $ or whatever and you'd have benefitted from the exchange rate movement wouldn't you? Is it an accumulation or income fund?
It may be because the interest yield curve was quite significantly upwards. The assumption was that interest rates would rise after two to three years so borrowing money for 10 years was more expensive than for one or two.
As the proposed interest rate rises have consistently failed to materialise with ongoing QE, the interest rate curve has flattened particularly out at longer durations. The expectation is that rates will remain low for much longer now than was originally thought. Therefore bonds with higher yields which have long duration become more expensive.
As short term bonds were already yielding bugger all, the price of these is much less affected.
Thanks. So on that basis (and I will put it this way so as not to look as if I am asking you to give financial advice) I would conclude that I should indeed choose to replace that fund focused on short dated with one of the good ones focused on long dated bonds. Is there some error in my thinking?
Then I promise to shut up about bonds, as I can see it is a distinctly minority interest :-)
Ummm, good question. If the market has re-positioned long-term bonds because interest rates are now perceived to be being held at a low rate for longer, will you not have already missed the boat on that one? One thing seems likely. As interest rates really have only one way to go (you'd think!) in due course you'd expect the value of bonds to diminish as other investments begin to provide a better yield wouldn't you?
Just to give you a comparison (I don't presently know the make-up of the funds) I hold two bond funds. One Royal London Corp Bond has been plus +45% over 5 years and +9% in the last year. Whereas the other Invesco Perpetual Corp Bond has been +30% over 5 years and +5% in the last year. Why the difference? Is it just the competence of one set of managers versus another? If I could ever get my brain in gear, I'd be thinking about whether to switch out of bonds altogether but what's the alternative without upsetting a portfolio mix?
BTW there are some bonds which are index-linked but not sure whether there are any funds that specialise in them.
.......if it has given a couple of people the tip that they could get 6% off their bank with a regular savings account, the interest paid will be their kids' Christmas presents sorted. What could be wrong with that?
See, there's my problem.
If you have £50k squirelled away and you're only spending £3k on your kids Christmas presents, then you are a tight arse.
Anyway, my Jag had four people on board. I suspect it is now probably carbon neutral - apart from those nasty diesel particles which I generously donated mostly to the French and Belgiums, it was probably a fairly 'green' way to go to protest.
I believe the beer we were drinking was vegan as well
I tease. I actually applaud this thread as if it encourages people to save intelligently for later rather than borrow idiotically for now, it can only be beneficial.
On the Premium Bond front, my meagre few have actually giving me four prizes in the past 12 months, including a £200 win - all tax free.
The Artemis fund has both Acc and Inc variants but there doesnt seem to be any difference in performance. It has indeed put on over 2% since Brexit, but so has its index.
I guess the sensible thing to do is to hedge bets as usual and have funds covering both short and long dated bonds. At least now thanks to this thread I have a better idea how to evaluate them in the months and years ahead. Looks like I too have that Invesco fund.
Just moved my pension into a SIPP arrangement with Suffolk Life, with my portfolio being managed by Investec. Hope I've done the right thing, Golfie seemed to think I have. For me it was a no brainer because of the greater flex ability over when to take the pension, how much to take and when, the fact my missus can inherit the remainder of the fund, tax free, as a lump sum or continue taking a pension. None of this was available under my final salary scheme. Just hope the guy at Investec knows his stuff.
I don't have a lot of spare money to invest in anything.
The general direction of travel at work seems to be that active funds with high charges are mostly a waste of money as they don't over time beat passive funds with much much lower charges.
You have to be really lucky to be in an active fund that delivers alpha returns year on year that pay for the extra charges.
Particularly this on bond funds where expected returns are low, picking a low charge option seems very important.
SIPPs are very flexible. Also the wrap charges are quite high so you need to have a decent amount of money to make it worthwhile. I reckon pension pots above £250k is the main market, maybe higher.
I also hope the investec guy knows what he is doing. You can't get any pensions flexibility in a defined benefit scheme but can get some decent guaranteed amounts which if your ssip assets do badly, you may lose.
Basically if you die earlier than expected or your ssip does better than expected, being in a ssip is a good idea. If you live longer than the actuaries expect, or you ssip does worse, the DB scheme could be better.
but therein is the problem. Stay in the defined benefits scheme whereby if I retire at say 56 the pension is fixed and if I die two years later my wife will only get half of that pension or transfer to a SIPP where at say 56 I can choose how much I want to take, amend it the next year and basically use the fund up as quickly or as slowly as I want, not forgetting the 25% I can take tax free. If I die two years later my wife still has access to the whole pot, can take it tax free or as a pension per annum and, if we had kids, can leave what's left to them on her death, or in our case, Dogs Trust, Demelza etc. Yes it's a worry that the investments have to perform, have to perform to at least cover the charges as far as I am concerned, but that is the risk. I have a decent amount invested and am not looking to massively increase that, I am not greedy, so as long as the annual charges are covered by the increase I am happy and my retirement plan can continue merrily along.
Most people prefer the idea of having more control over the pot and the idea that if they die they can pass the pot on. Sounds good.
Works if you get a decent buy out prove from the existing scheme, invest well in relatively low charge ssip and have enough in it. I'm not a financial adviser but work for an insurance company that does pensions so have to look at the market.
I'd probably rate a flexible pension drawdown scheme right now as you can get <1% charges and access a a lot of funds, get the 25% tax free and draw off the principle of you want or need as well as pass it on if you die before you've spent it all.
Very new market though and for people with bigger pots I understand ssips give broader investment freedom (the low cost flex pension wrappers only give limited number of tracker funds), so for the more involved investor, sipps are better.
Did you buy them sprouting? In which case I'd recommend burying them under a ton of earth.
If you are too late for that opportunity this year I would recommend Aussie and mash or I can give you timings for perfect roast potatoes, life enhancing.
There are many factors to take into account when considering transferring from a final salary defined benefit scheme to a Sipp or dc arrangement. Deferred pensions are rarely fixed or frozen. Some have elements that may increase substantially and ahead of salary inflation or investment returns net of charges. Also the transfer value in lieu of the final salary benefits calculated by the scheme actuary can and have risen dramatically as life expectancy increases and long term interest rates remain low. As such the timing of a transfer can be crucial and can be left to much nearer retirement date when the comparison can be re assessed.
There is however generally a problem with death in deferment benefits as they quite often provide lower value benefits particularly if you are single. However actuarially speaking death in deferment is a rare event.
After 35 years in the pensions industry I can say there there were many arguments / heated discussions amongst colleagues over the rights and wrongs of a transfer but the new freedoms do certainly have some attractions to re balance the old adage not to transfer from a "good" final salary scheme.
I switched out one of my final salary schemes in March as they were paying over 30x. Glad I did as what I moved into my SIPP has now gone up over 20%. Much more flexible but also not without risk.......time will tell.
Agree with all of this, staying in a final salary scheme is not always the best thing to do, but to advise to leave is, 'a braver decision minister'
Surely a lot of it is down to the individuals circumstances? I don't mind admitting that I aim to start taken a pension from my SIPP at age 56 so enabling my wife to quit work. At the same time I plan to quit work in the City and work locally, at a reduced salary of course, part of which will be compensated by the pension I am taking. Around 60/62 that's me done at which point we'll take more from the SIPP. At 66 our old age pension will kick in. Once the SIPP is exhausted we will downsize and live off the funds we have raised. I wouldn't have had the flexibility under the final salary scheme for the first part of our 'plan' to work and that is without considering the enhanced benefits available to my wife if I were to die first. Yes there is some risk involved, although I have plumped for low growth investment and have discussed this at length with my investment manager, so hopefully I will see low growth but peace of mind.
I do however consider myself extremely fortunate. I have never paid into a private pension and worked for the same financial institution for 25 years and they had a very generous pension plan. Looking back I shudder to think what position I might be in otherwise.
I think it's worth noting that a transfer value can be requested free of charge once a year (up to 1 year prior to normal retirement date). Not generally popular with trustees or administrators as it is a cost burden on the scheme. Possibly equivalent to £500 of costs per calculation depending on the complexity of each case.
Also my point is that although the deferred pension may be revaluing (increasing before retirement) in line with cpi or another variable the transfer value will increase (or decrease) due to a number of factors determined by the scheme actuaries. With further qe being proposed this could again reduce gilt rates and once again increase transfer values. Coupled with increased longevity this could escalate transfer values at a rate faster than average investment performance.
all true but isn't there also the danger of the scheme collapsing or scaling back because of lack of sufficient investment to cover pension payments required from the scheme?
Just moved my pension into a SIPP arrangement with Suffolk Life, with my portfolio being managed by Investec. Hope I've done the right thing, Golfie seemed to think I have. For me it was a no brainer because of the greater flex ability over when to take the pension, how much to take and when, the fact my missus can inherit the remainder of the fund, tax free, as a lump sum or continue taking a pension. None of this was available under my final salary scheme. Just hope the guy at Investec knows his stuff.
I did the same a few years back only I am with AEGON. The growth has been very generous over the time period and I wish I had had both the advice and done this a lot sooner. The IFA I use is very good plus I can log on any time and check to see how its doing. I moved my ISA over to AEGON as well as it has also done very well.
all true but isn't there also the danger of the scheme collapsing or scaling back because of lack of sufficient investment to cover pension payments required from the scheme?
This was part of my thinking in transferring. I either had a little under £4K per annum currently (to be drawn 2032, a lot can happen in 16 years) or £128k now into my SIPP. As it transpires that was a master stroke as now worth over £150k.
Comments
This is the main split of the Artemis fund
1 Global Investment Grade Fixed Interest 41.21
2 UK Fixed Interest 21.83
3 US Government Fixed Interest 5.01
4 Money Market 4.91
5 German Fixed Interest 4.15
(because I had to cash in my SIPP in order to change provider) I have to review all the funds I had. Another one which I am viewing balefully is AXA £ Credit Short Duration Bond. Its benchmark index, which it consistently underperforms, is Sterling Corporate Bond. The top 7 funds in that index (over 3 years) are all Long Dated Bond focused. Why do you think long dated bonds (or their funds) would have performed so much better in that time than a short-dated one?
As the proposed interest rate rises have consistently failed to materialise with ongoing QE, the interest rate curve has flattened particularly out at longer durations. The expectation is that rates will remain low for much longer now than was originally thought. Therefore bonds with higher yields which have long duration become more expensive.
As short term bonds were already yielding bugger all, the price of these is much less affected.
Thank you for your concern :-). But look, the unintended inference of your post is that I and others on here are as obsessed with money, every minute, as Martyn Lewis is, and that furthermore we are all tight asses.
To which the best I can say is that long ago I realised that i would never be able to put a roof over my family's head in the style of Bruce Springsteen's
I won't tell you what car I have as you would snort with contempt both at the choice, and my reasons for choosing it. Me, I would definitely have discreetly chosen the comfort of Eurostar rather than be in the back of your vintage Jag, breaking the speed limit and the planet as you roared across Belgium
Well as for the value of this thread to "ordinary" Lifers, if it has given a couple of people the tip that they could get 6% off their bank with a regular savings account, the interest paid will be their kids' Christmas presents sorted. What could be wrong with that?
Then I promise to shut up about bonds, as I can see it is a distinctly minority interest :-)
If you think the world economy is going to continue to flatline for another 10 years rather than 5 or whatever is currently priced in, long term bond fund may be good.
But if the global economy outperforms market expectations, rates will rise and your long term bonds, bought with quite low yield attached, may tank.
The longer term your fund, the more risk you have in it, and the higher yield as a result.
I guess you'd be pretty unhappy with a bond fund if it went below par (you lost the money you put in). IF you are using bond funds to provide some certainty to returns, better short term and face up to the fact that yields will be shit.
Just to give you a comparison (I don't presently know the make-up of the funds) I hold two bond funds. One Royal London Corp Bond has been plus +45% over 5 years and +9% in the last year. Whereas the other Invesco Perpetual Corp Bond has been +30% over 5 years and +5% in the last year. Why the difference? Is it just the competence of one set of managers versus another? If I could ever get my brain in gear, I'd be thinking about whether to switch out of bonds altogether but what's the alternative without upsetting a portfolio mix?
BTW there are some bonds which are index-linked but not sure whether there are any funds that specialise in them.
If you have £50k squirelled away and you're only spending £3k on your kids Christmas presents, then you are a tight arse.
Anyway, my Jag had four people on board. I suspect it is now probably carbon neutral - apart from those nasty diesel particles which I generously donated mostly to the French and Belgiums, it was probably a fairly 'green' way to go to protest.
I believe the beer we were drinking was vegan as well
I tease. I actually applaud this thread as if it encourages people to save intelligently for later rather than borrow idiotically for now, it can only be beneficial.
On the Premium Bond front, my meagre few have actually giving me four prizes in the past 12 months, including a £200 win - all tax free.
Now where's my chilled Bolli?
The Artemis fund has both Acc and Inc variants but there doesnt seem to be any difference in performance. It has indeed put on over 2% since Brexit, but so has its index.
I guess the sensible thing to do is to hedge bets as usual and have funds covering both short and long dated bonds. At least now thanks to this thread I have a better idea how to evaluate them in the months and years ahead. Looks like I too have that Invesco fund.
The general direction of travel at work seems to be that active funds with high charges are mostly a waste of money as they don't over time beat passive funds with much much lower charges.
You have to be really lucky to be in an active fund that delivers alpha returns year on year that pay for the extra charges.
Particularly this on bond funds where expected returns are low, picking a low charge option seems very important.
SIPPs are very flexible. Also the wrap charges are quite high so you need to have a decent amount of money to make it worthwhile. I reckon pension pots above £250k is the main market, maybe higher.
I also hope the investec guy knows what he is doing. You can't get any pensions flexibility in a defined benefit scheme but can get some decent guaranteed amounts which if your ssip assets do badly, you may lose.
Basically if you die earlier than expected or your ssip does better than expected, being in a ssip is a good idea. If you live longer than the actuaries expect, or you ssip does worse, the DB scheme could be better.
Works if you get a decent buy out prove from the existing scheme, invest well in relatively low charge ssip and have enough in it. I'm not a financial adviser but work for an insurance company that does pensions so have to look at the market.
I'd probably rate a flexible pension drawdown scheme right now as you can get <1% charges and access a a lot of funds, get the 25% tax free and draw off the principle of you want or need as well as pass it on if you die before you've spent it all.
Very new market though and for people with bigger pots I understand ssips give broader investment freedom (the low cost flex pension wrappers only give limited number of tracker funds), so for the more involved investor, sipps are better.
Very good call on the charges, had forgotten to take that into account.
If you are too late for that opportunity this year I would recommend Aussie and mash or I can give you timings for perfect roast potatoes, life enhancing.
There is however generally a problem with death in deferment benefits as they quite often provide lower value benefits particularly if you are single. However actuarially speaking death in deferment is a rare event.
After 35 years in the pensions industry I can say there there were many arguments / heated discussions amongst colleagues over the rights and wrongs of a transfer but the new freedoms do certainly have some attractions to re balance the old adage not to transfer from a "good" final salary scheme.
I do however consider myself extremely fortunate. I have never paid into a private pension and worked for the same financial institution for 25 years and they had a very generous pension plan. Looking back I shudder to think what position I might be in otherwise.
Also my point is that although the deferred pension may be revaluing (increasing before retirement) in line with cpi or another variable the transfer value will increase (or decrease) due to a number of factors determined by the scheme actuaries. With further qe being proposed this could again reduce gilt rates and once again increase transfer values. Coupled with increased longevity this could escalate transfer values at a rate faster than average investment performance.