Which investment option for my pension?

Wile E. Coyote

Ok I need a little advice I’m joining the company pension scheme and they have a choice of 6 investment options where I can choose just one or I can choose a mix from the 6. I’ve read up on the 6 options but to be perfectly honest other than the fact that there is a greater risk to some of them the funds mean absolutely nothing to me.

The options are as follows:

The ILIM Consensus Fund (Medium to High Risk & Default Option) invests in a balanced portfolio of Equities, Bonds, Property and Cash. The investment strategy adopted is based on the average asset allocation for Managed Funds in Ireland. Having implemented this asset allocation, the fund’s stock selection matches the appropriate benchmark index.
The ILIM Consensus Fund provides you with the opportunity to pursue “real” long term investment returns, in line with the market average for Managed Funds, subject to the volatility inherent with investments in “real assets”. The average asset allocation approach helps to avoid manager selection risk. Please note however that the fund is not guaranteed and values may fall as well as rise.
The fund is suitable for members who are willing to ride out stock market ups and downs, both locally and internationally, in order to potentially get higher long-term returns, but who likes the stabilising effect of some non-equity investments.
The ILIM investment management fee is 0.40% p.a. of your Pension Fund Value. There is no bid offer fee charged by ILIM.

The ILIM Active Global Equity Fund (High Risk Option) invests entirely in International Equities (although a small amount may be held in Cash at any given time for operational reasons). The investment strategy, country allocation and stock selection are decided by ILIM.
This fund permits you to adopt an aggressive investment strategy for your Pension Fund. Whilst it offers you the highest growth potential, it is subject to a larger volatility risk than the Consensus Fund and consequently is not recommended for members close to retirement.
The fund is suitable for members who are willing to ride out stock market ups and downs, both locally and internationally, in order to potentially get higher long-term returns.
The ILIM investment management fee is 0.60% p.a. of your Pension Fund Value. There is no bid offer fee charged by ILIM.

The ILIM Active Long Bond Fund (Low Risk & Pension Protection Option) When a member reaches retirement, they must use the bulk of their fund to provide an annual pension for their lifetime, by purchasing an annuity. The cost of an annuity, and therefore the amount of pension provided, is directly related to long-term interest rates. Fixed Interest Bond values tend to move broadly in line with annuity rates. In other words, if annuity rates are falling Bond values will tend to be increasing and vice versa. Therefore, although the Long Bond Fund does not protect the capital value of the investment, it does protect against changes in annuity rates leading up to retirement.
The fund is suitable for members who are due to retire in the next 5 years or less, who have built-up sufficient funds to provide their benefits, and who now wish to attempt to protect the fund’s pension purchasing power in the years leading to retirement.
It may also be suitable for members who wish to avoid the volatility inherent in Equity markets. The Long Bond Fund does not provide capital security (the value of the investment may fall) but does provide an investment return that is not linked directly to stock-markets.
The ILIM investment management fee is 0.25% p.a. of your Pension Fund Value. There is no bid offer fee charged by ILIM.

The ILIM Cash Fund (Low Risk & Capital Protection Option) aims to provide capital security, while providing returns that reflect interest rates generally available on money markets, by investing in low risk, short term Fixed Interest Securities. The main objective of the fund is to safeguard the value rather than seeking to maximise investment returns.
The fund is suitable for members who are close to retirement and wish to secure the value of their fund. It may also suit members who wish to secure part or all of their fund in a capital guaranteed fund for a period of time, while accepting that the potential returns will be low.
The ILIM investment management fee is 0.25% p.a. of your Pension Fund Value. There is no bid offer fee charged by ILIM.

The Eagle Star 5 * 5 Global Fund (Higher Risk Option) is a Concentrated Equity Fund which invests in a very small number of stocks, but is not as diversified as broader equity funds. For example the manager may invest in only up to 25 stocks from a world market of over 1,800.
The expected returns are higher as the stocks chosen are potential best performers. However the higher expected return comes at a price of significantly higher volatility. This fund would be highest risk option for all the funds on offer in the Scheme but has the potential to deliver the highest returns.
The fund is suitable for members who are willing to ride out stock market ups and downs, both locally and internationally, in order to potentially get higher long-term returns. This is a high risk/high reward choice for investors.
Eagle Star have an investment management fee is 0.55% pa of the Pension Fund. There is no bid offer fee charged by Eagle Star.

The KBC Dividend Plus Global Equity Fund (High Risk Option) is a fund where the manager holds shares in companies that consistently pay above average dividends. Funds that invest in high yield shares typically have a value bias and compared to a broad equity portfolio display reduced risk and increased income.
The fund seeks to achieve their objective by investing in high yielding equities or shares in companies that consistently pay above average dividends. The fund typically has a lower risk level than other equity funds on offer within the Scheme.
The fund is suitable for members who are willing to ride out stock market ups and downs, both locally and internationally, in order to potentially get higher long-term returns.
KBC Asset Management, if the chosen provider, have an annual management fee of 0.61% and there is also a bid offer fee of 1.5%.


Now I don’t mind a bit of risk. Pensions are a long term investment but I’m just wondering what way any of you would split your contribution over the above options.

Sorry if this is a little long but thanks in advance for any help

Atlantic Dawn

Normally the younger you are the higher the risk you should invest in as there's plenty of time to recover loses. I would check each of those funds as to what countries the investments are in.

ixus

My tuppence:

1. If these are Irish equities, steer clear. No upside in the medium term IMHO.

2. International diversification is best in terms of equities. However, I'd seek a sample of where they might or have in the past invested. Currency exposure can also be an issue.

3. Fixed income is possibly the next bubble. I think you would be better off moving into this when interest rates go up significantly. When interest rates are high, bonds are cheap. WHeninterest rates are low, bonds are expensive.We're at lows across most of the globe at the moment.

4. Here, you're relying on an investment manager being able to select the 25 best performing stocks. Will this be the same person over the period of your pension? Unlikely. Can this person perform better than the index? Possible, but if they do, they won't be in that fund for long, they'll be snapped up by a hedge fund.

5. This fund is not a growth fund,the companies selected have already done their growing (probably), will only grow by acquisition. They're relying on income from dividend and general stock market performance. Nothing wrong with that.

Without knowing track records, past performance, your risk tolerance or anything else; I'd select 2 or 5 with a view to putting a percentage in fixed income in a few years time.