What does your pension portfolio look like?

[rgfuller]

I'm in my late 40s with approx. 15 years to retirement.

My Current Portfolio (all invested in managed funds):

Global Equities 33%
North American Equity 20%
Emerging Markets Equity 47%

Currently paying 25% salary with company adding 10%. Pension pot is currently 5 times my annual salary. When I get to 50 I'll increase to 30% salary contributions and at 55 I'll go to 35% contributions.
All new contributions are going into the Emerging Markets Equity, so this % will continue to rise.

 

[gnf_ireland]

Thanks for the clarifications @SBarrett

 

[gnf_ireland]

I consider somebody who is investing in equities through a pension vehicle, while simultaneously carrying a mortgage, to have leveraged exposure to both property and equities. That's an exposure in excess of 100% to those risk assets. I think that's entirely appropriate for a young investor with a long investment horizon but may not so appropriate for an older investor that is nearing retirement.

This makes perfect sense as someone approaches retirement, and is back to the concept of whether the pension also needs to fund rent/mortgage payments.
I am assuming the vast majority of younger investors (and in most cases below ~50) will have a mortgage in parallel with a pension fund

t's really not at all uncommon for folks that are advanced in their working lives to own a mortgage-free house

Its likely this age is rising for the population in general. 25/30 (and beyond) year mortgages are more common now than 20 years ago, and people are staying work later based on longer educational windows. Add to this the higher house prices and deposit requirements, and its likely most first time buyers are now in their 30's, looking at 25-30 year mortgages. I am not sure if there are stats available on this, but it would be interesting to see

to have substantial cash savings (perhaps as a result of an inheritance) sitting on deposit outside their pensions.

Maybe - and its likely it would be as a result of an inheritance. I am not sure how many of the pope's children [those born between say 1975-1985] would be in that boat. I guess time will tell in 10-15 years time !
I think it is difficult to compare those retiring now with those who retired 20 years ago (late 1990's) and those planning to retire in 20 years time (late 2030's). Lots of things have changed in this window, and in most cases will continue to change.

Again, it's an investor's overall financial position that matters and I'm very wary of any catch-all "rule" based on age or account type.

I accept this, where they are material assets outside the pension fund. Where there are not, or its likely the assets outside the pension fund will be spent before retirement, then they are of a lessor importance

 

[gnf_ireland]

All new contributions are going into the Emerging Markets Equity, so this % will continue to rise.

Any particular reason you are so heavily invested in Emerging Markets? What triggered this alignment ?
I am curious as to what people use to trigger changes in pension investment strategies...

Currently paying 25% salary with company adding 10%. Pension pot is currently 5 times my annual salary. When I get to 50 I'll increase to 30% salary contributions and at 55 I'll go to 35% contributions.

This is a serious pension contribution, so well done for being in that position to do so!
What % of your salary are you hoping to have in retirement?
If for example you were to retire at 60, you effectively take 65% of your current salary as wages when working (100% less 35% contribution)
Are you aiming to maintain around this level in retirement, given the high contributions? Or is it just a case of building as big a pension pot as you can afford?

 

[Sarenco]

@gnf_ireland

I don’t think it’s wise to make assumptions regarding any individual’s overall financial position and to determine allocations accordingly.

That’s really my main point - it’s called personal finance for a reason.

 

[gnf_ireland]

I don’t think it’s wise to make assumptions regarding any individual’s overall financial position and to determine allocations accordingly.
That’s really my main point - it’s called personal finance for a reason.

I fully accept everyone's individual financial situation is different.
This is no different to say mortgage applications or other big financial decisions.

However, I was hoping that there would be some level of benchmarks/guidelines around this to allow people gauge where they are against others. Similar to the guidelines that borrowing > 3.5 times salary is not good or borrowing above 80% loan to value is poor !

The concept of 'put into a pension what you can afford' is very difficult for most people to work with !

 

[Gordon Gekko]

A 40-year old with, say, €350k in a pension vehicle and a mortgage-free house has a completely different risk profile to somebody of the same age with a similar sized pension pot that is carrying a €750k mortgage

Sarenco,

That is not what you said. Now you are moving the goalposts and talking about how unwise it can be to be contributing to a pension whilst carrying high levels of debt. That is a red herring; it was never mentioned and it is not the point you made or the point I highlighted.

Both you and I were talking about a scenario where the €350k is already in a pension structure. In terms of the asset allocation for that €350k, and assuming a >20 year time horizon, the person’s debt profile is not relevant.

 

[rgfuller]

Any particular reason you are so heavily invested in Emerging Markets? What triggered this alignment ?
I am curious as to what people use to trigger changes in pension investment strategies...

I've felt Emerging markets have presented some of the best overall growth over longer periods, so I prefer this while it is still a long while before retirement.
Once I get to a potential 5 years before the earliest date I could retire I'll review the 'global' situation and potentially move it into less risky and lower cost funds.

What % of your salary are you hoping to have in retirement?
If for example you were to retire at 60, you effectively take 65% of your current salary as wages when working (100% less 35% contribution)
Are you aiming to maintain around this level in retirement, given the high contributions? Or is it just a case of building as big a pension pot as you can afford?

My main aim is to build as big a pot as possible taking the maximum tax advantage available now, given I can afford the maximum contributions.
Building as large a pot as possible, opens up the possibility to retire before the mandatory age without it having an impact on lifestyle.

 

[Sarenco]

That is not what you said

Sorry, I'm confused - are you saying the quoted text is not what I wrote? Or are you arguing that a leveraged investor has the same risk profile as an unleveraged investor?

talking about how unwise it can be to be contributing to a pension whilst carrying high levels of debt

Except that I didn't make that argument. On the contrary, I explicitly said that I was not arguing that it was inappropriate to contribute to a pension while carrying a mortgage.

Wiith respect, you seem to be very anxious to vigorously attack points that I never made.

 

[ivannomonet]

I'm 53 with 11 years to go before I'd have to leave my current company. Currently contributing 6% while employer contributes 8%.
Current pot value is 3 times annual salary. 100% international equities for the moment.

 

[gnf_ireland]

My main aim is to build as big a pot as possible taking the maximum tax advantage available now, given I can afford the maximum contributions.

Building as large a pot as possible, opens up the possibility to retire before the mandatory age without it having an impact on lifestyle.

Thanks @rgfuller for your explanation and the science (or lack thereof) in your funding decisions. It makes perfect sense to maximise your contributions while you can afford to, and especially if it does not impact your current lifestyle.
I guess the challenge for most, including myself, is how to balance the decision on what level to contribute given finite resources. Financial decisions always have to be made, and if someone is to increase their pension contribution, its likely something else will take a direct hit. The challenge is working this trade off between current sacrifice and future benefits !

 

[Gordon Gekko]

gnf ireland,

I’ve always felt that the “use it or lose it” nature of tax relief is huge.

If I have the choice to put €10k into my pension now or pay €10k off my mortgage, I have to look at it in the context that I have one shot at that €10k and could be forgoing €40k in my pension at retirement (based on a 7% return over 20 years). And the thing with mortgages is that they tend to get paid off anyway. What is the point of being mortgage free 8 years early when the tax rules mean that you can’t backfund your pension with the excess cashflow at that point?

Gordon

 

[Gordon Gekko]

@Sarenco,

You suggested that someone’s approach in respect of a €350k pension fund with a 20 year time horizon should depend on his/her debt profile.

His/her debt profile is not relevant; subject to the behavioural piece, he/she should be 100% in equities. The debt is irrelevant as the money’s already locked away.

 

[Sarenco]

You suggested that someone’s approach in respect of a €350k pension fund with a 20 year time horizon should depend on his/her debt profile.

No Gordon, I didn't. You may well have mistakenly read that into my comment but it was neither stated nor implied.

 

[Gordon Gekko]

No Gordon, I didn't. You may well have mistakenly read that into my comment but it was neither stated nor implied.

No Sarenco, you’re doing your usual. Posting something and then moving the goalposts. A well trodden path. I’m well aware of what you posted.

 

[Sarenco]

Well Gordon this is pretty easy to resolve - if I ever said what you are suggesting (or used words to that effect) you should have no problem producing an appropriate quote.

 

[Gordon Gekko]

Well Gordon this is pretty easy to resolve - if I ever said what you are suggesting (or used words to that effect) you should have no problem producing an appropriate quote.

I’ve already provided it, but you know that, hence your attempts at deflection.

 

[Sarenco]

No attempt at deflection Gordon.

You quoted me saying that two investors that were otherwise in an identical financial position, save that one was carrying material debt, had very different risk profiles. I wouldn’t have thought that was a controversial statement.

However, you appear to think that I said that a long-term investor’s asset allocation within their pension was dependent on their debt profile.

That’s not what I said and that was not the obvious inference to be drawn from the words that I used. I actually went out of my way to explicitly say that it may well be appropriate for a young investor to have a leveraged position in risk assets.

I’m sorry if you misinterpreted my post but it’s mildly irritating to be attacked for something I never actually said or implied.

 

[RichInSpirit]

I understand your point of view Sarenco, I think. I looked at paying into a pension lately, but I also have some debt at 7% as well as mortgage debt at a much lower percentage but much larger amount.
Paying off the debt as quickly as possible makes more sense in my situation. Paying into a pension would reduce my debt servicing ability. As you say paying into the pension would make me more leveraged even though a pension is a worthwhile endeavour. I do have a miniscule pension from years ago that i'm not paying into, but is still working away on it's own.

 

[Sarenco]

Well I think you should prioritise paying off expensive personal debt ahead of making further pension contributions but that’s a slightly different issue.