How will my Pension Fund be Invested?
One of the most important aspects of the Managed Retirement Account is the robustness of the investment strategy, in particular how well it will cope with variations in economic and investment conditions throughout your retirement. Having managed hundreds of income drawdown portfolios since well before the turn of the century we can justifiably claim that our underlying strategy has stood up exceptionally well to the fall in world stock markets during this period.
Your plan will be set up in the form of a private pension fund known as a 'SIPP' which allows access to a wide range of investments including, where appropriate, property. Two versions are available, the full Managed Retirement Account and our popular 'low cost' option known as the Select Managed Retirement Account. This provides links to the funds of a range of leading investment management companies at advantageous rates with typically no 'bid/offer' spread on units and unlimited free switching. Unless you require full SIPP services your plan will initially be set up on the 'Select' basis.
Depending on the anticipated profile of your withdrawals a certain amount will be retained on deposit and held in short term low risk funds to cover the first few years. This is derived from the analysis we carry out before your plan is set up. The balance will be invested on a 'risk graded' structure, split between a range of funds selected on a ‘best of breed’ basis covering each of the key markets sectors, from UK Corporate Bonds and Commercial Property Funds at the lower end to Overseas Equity Funds and occasionally Emerging Markets at the higher end of the risk spectrum.
The split between low, medium and higher risk holdings is matched to your own personal 'risk profile' based on your age, financial priorities, attitude to risk and the extent to which you are dependent on the future income and adjusted as you progress through retirement. Within each risk category a combination of funds is used with the emphasis on investment diversification and negative correlation of returns. The combined effect is to lower the effective risk and increase 'capture opportunities'.
All holdings are monitored on a quarterly basis to enable investment gains to be systematically 'harvested' throughout retirement to meet your benefits. During periods when stock markets are growing strongly the highest gains will come from the equity funds and when stock markets are in decline other asset classes such as property will usually provide the best source to pay your benefits while also buying time for equity funds to recover. Furthermore, we also exploit the variations in returns between different funds within each category to optimise the gains captured.
The proceeds of each partial surrender are held in your high interest SIPP bank account pending payment to your own bank. Since the resulting return on your income is achieved by crystallising the maximum profit on units sold throughout retirement this gives an effective performance better than any individual fund could produce on its own. This systematic investment process has proved highly effective over many years and is what we call the 'virtual fund' approach.