Defined Contribution Company Pension Scheme

[terminal7]

Just been looking at my son's DC pension scheme (he's 43). The company he works for contributes a max of 10% to a max of 5% by himself.

The scheme is actually run by Fidelity and he and/or an adviser has to decide what funds to invest in. Fidelity restrict the available funds to just 40 - all managed by Fidelity and/or Black Rock. The investment strategy appears based on an underlying fund managed by BlackRock which invests at least 70% in collective investment schemes (funds) managed by BlackRock and Fidelity. Also investments are directly in shares and bonds as well as cash or other assets that can be easily converted to cash.

The management charges for the funds are way below what is charged to a retail customer through the usual platforms. However if the some of the funds are investing the bulk of the investments in

collective investment schemes (funds) managed by BlackRock and Fidelity

surely they are taking another management charge hence reducing returns - which strikes me as duplicitous or am I missing something?.

My son has asked me to advise on future fund allocations having originally placed the lot in one fund 'targeted' at his retirement date. I am in the process of reviewing the available funds. Again the limited number of funds partially limits diversification. Also the dependency of 2 fund managers (albeit giants) is a little daunting (eggs and boats).

Interested to hear the views of other Fools.

T7

[kempiejon]

When one has a defined contribution company pension scheme, if it's affordable, put the personal contributions necessary to maximise what you get from the employer. One wouldn't have to add any more than that as if funds allow you can still invest in your own SIPP and pick your own investments.
I had schemes with Friends Provident and a later with Legal and General - in both cases I found a large cap global fund with low charges and I wasn't interested in any of the lifestyling suggested.
The FP pension I transfered into my SIPP to self mamange not long after I left that employer; the L&G is still there but I was only employed for about a year and I'm leaving it as a small pot.

[Urbandreamer]

The management charges for the funds are way below what is charged to a retail customer through the usual platforms. However if the some of the funds are investing the bulk of the investments in

collective investment schemes (funds) managed by BlackRock and Fidelity

surely they are taking another management charge hence reducing returns - which strikes me as duplicitous or am I missing something?.

My son has asked me to advise on future fund allocations having originally placed the lot in one fund 'targeted' at his retirement date. I am in the process of reviewing the available funds. Again the limited number of funds partially limits diversification. Also the dependency of 2 fund managers (albeit giants) is a little daunting (eggs and boats).

Interested to hear the views of other Fools.

T7

Re costs, you are missing that managing pensions and dealing with the regulators carries an additional cost above and beyond the costs of investmenting. Hence two charges.

I have 2 DC schemes. I'm currently not contributing, but I did use to contribute to both. The regulations allow you to contribute to a personal pension in addition to contributing to a company pension, but 2 sets of contributions are your limit.

The company scheme that I have used Aviva and offered a choice of about 230 funds, rather than 40. However arguably that's more than is needed to provide pension options. I could of course buy any listed company or admissible fund, ETC or IT in my SIPP and used that to "play" the stock market.

Can I support your review of the fund choice. Usually everyone or the vast bulk of those in a company DC scheme are put in a lackluster fund, that is unlikely to suffer obvious falls in value. As I'm sure you realize, this is to avoid complaints when the value falls. I personally would argue that a 43 year old should accept higher risks. Then again I have a high risk tolerance.

I would specifically argue against targeted retirement date funds. To me they attempt the impossible and are bound to fail their intent. I would also argue that even if the future runs on rails, they are designed to produce cash at retirement. I personally intend being retired for 40 years, so depending upon cash for that duration might carry significant inflation risk.

[Alaric]

I would also argue that even if the future runs on rails, they are designed to produce cash at retirement. I personally intend being retired for 40 years, so depending upon cash for that duration might carry significant inflation risk.

The idea was that you would take a quarter as a cash lump sum and use the balance to buy an annuity. Arguably they have been obsolete for many people since drawdown became mainstream.

As regards funds investing in funds, there may be an element of double charging. If the providers have negotiated properly, the investments should be in a class of units reserved for institutional investors with low charges or else they get a rebate on the standard charge.

Disclosure statements on charges are supposed to look through to the underlying investments in this type of setup.

[terminal7]

My overall concern here is that it so easy for an uninitiated investor to completely destroy value in their pension pot - hard enough from those who have a degree of expertise. The balance of low and high risk funds needs careful handling overtime. Gone are the days that this was all in the hands of the company pension fund advisers with some oversight from the trustees.

T7