Pension De-risking Mid-Crisis

I'm at a bit of a cross-road. We've met with a guy who is 63, self-employed with no real ambition to retire anytime before his body giving up on him. His pension fund has not been reviewed for almost 10 years and he is in a global equity fund coming out as Defaqto risk 8 (he is an experienced investor and has been running his own equity portfolio for numerous years). We discussed de-risking his pension to something like a risk profile 4 to lower the investment volatility. We agreed to establish a decumulation strategy later down the line when he has more solid goals on retirement, as he doesn't need the money beforehand.

However, given that the markets have tumbled and his fund is down circa 35% from early 2020, is now the right time to be switching funds or should we consider waiting for markets to pick back up. I don't want to crystallise any losses for him where it's not necessary but de-risking his pension is definitely the right thing to do over the longer term. It's just a shame he didn't contact me before this market fall but such is life.

I know it's impossible to time markets but I'd be interested to hear your thoughts on derisking pensions mid-downturn.


  • Good question.

    I think, on balance, the preference should be given to his current risk profile (more than the current market decline).

    If it's determined that RP4 is appropriate, when assessing: His ATR, Capacity, Need and Time Horizon; then that's what he should be in.

    It's not really crystallising a loss, it's just that the recovery won't be as steep as the decline was, since he'll be in a less equity-based investment going forward. Crystallising the loss is when the money is withdrawn from the pot altogether (in my view).

  • Hi there,

    I agree with arongunningham. He is not taking the benefits at this stage, and putting in place a new investment should be based on the risk profile rather than being led by the markets.

    Also, he will be reinvesting at a time when it is probably more competitive to do so, such as with a bear market or during recession, and so if investments are held for another, say 5 years this may give the opportunity for some degree of recovery. (My personal opinion at this point is that diversification between companies geographically will have a big impact in the coming months as we see all these economies move and react to the crisis as there has been a huge shift in fiscal policy in the UK, but this is just something to bear in mind imo).

    I agree it would be more concerning if he were now in drawdown or about to retire at this point...

    Hope this helps.

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