Three long-term ideas for your pension

Darius McDermott, managing director of Chelsea Financial Services, considers how to prevent government tweaking affecting your pension pot.

Three long-term ideas for your pension

The state pension ‘triple lock’, which was on the Conservative party chopping block, survived the General Election after Theresa May was forced to abandon her plans in order to form a minority government with the DUP. The ‘triple lock’ effectively guarantees an annual increase in the state pension by the higher of inflation, average earnings or 2.5%.

While the government’s decision is good news for current recipients, it highlights the changeability of pension policy (seen today by the decision to bring forward the rise in state pension age to age 68, seven years earlier than previously planned). Many economists assert the triple lock is unsustainable. Funding the state pension seems to necessitate constant budget tweaking and I think the only certainty we do have is that politicians will continue to tinker.

At the end of the day, the best way to equip yourself for a comfortable retirement is to do your own saving. If you’re like many people I talk to, you may already be investing through your ISA, but haven’t got around to sorting out your pension. Consider setting up a self-invested personal pension (SIPP), so you can keep your nest egg separate. You’ll also get the benefit of tax relief on your pension contributions (up to 100% of your annual earnings), which isn’t available with ISA investing.

Once you’ve got a SIPP, you’ll need to choose a few funds that really suit your longer-term goals. To get you started, I’ve looked at three options below that are a bit different to the standard UK equity favourites, and offer exposure to a variety of markets, assets and investing styles.

Jupiter Merlin Growth

For a core retirement investment, Jupiter Merlin Growth is an excellent candidate that offers diverse global assets in a single portfolio. The fund’s positioning gives you access to key developed markets like the US and the UK, but also spices things up a bit with a few Asia Pacific and Japan holdings.

There’s also a bit of gold, which is prudent to cover political and macroeconomic ups and downs over the long term. Because the fund actually invests in other funds (as opposed to individual equities), its ongoing charges are bit higher than what you might see on an average UK equity fund, for example, at around 1.73%. But it’s important, as always, to focus on total returns after fees, rather than fees themselves. And for an investment in your future, I truly believe this fund is worth paying for.

Marlborough Special Situations

The outlook for UK companies, and especially small and mid caps, is mixed in the short term as Brexit negotiations begin and investors worry about the impact on the domestic economy – to which smaller businesses fortunes are typically more closely tied. Over a period of nearly two decades since this fund launched, however, its specialist management team have weathered all sorts of ups and downs to deliver total returns far in excess of the market. Whatever hiccups Brexit does throw our way, your retirement saving timeframe will probably outlive them and an allocation to small caps in a long-term portfolio has historically been a smart choice.

Standard Life Investments Emerging Market Debt

Emerging markets are often heralded as a smart pension holding due to their higher risk/higher potential return profile, which can be suited to a longer-term timeframe. However, many investors then typically think ‘equities’. This doesn’t have to be the case and this Standard Life Investments fund buys bonds from countries in Latin America, Africa, the Middle East and Asia. The high yield offered on these types of bonds helps the fund deliver an attractive income—currently just above 3.5%—which, if reinvested back into a pension should make a meaningful contribution to returns over the years. I particularly like that manager Richard House attends annual International Monetary Fund meetings and visits many of the places in which he invests, keeping himself abreast of geopolitical developments – a must for emerging market investing.


Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. Past performance is not a reliable guide to future returns and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.

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