[Misc] Retirement

[Weststander]

I’ve got very little in bonds and gilts (my small staff pension fund with my final employer was, performance was awful as you know) as I tend to take a higher risk approach. I’ve got a multitude of funds, not that much purely uk-based and have a very wide global spread. More by luck than judgement I haven’t been hammered by recent market falls…..lost some froth obviously but overall the winners are compensating the losers.

For decades, not just in large company schemes, the advice or actions was always to diversify away from equities gradually 15, 10, 5 years away from retirement.

But I’ve seen the composition of pots for several years now, folk of various degrees of wealth in their 60’s, where at most there’s a token 10% in corporate bonds/gilts/fixed interest/cash. Now, bailed out of all of those altogether. Not on the whim of a risk taking 65 year old, but fully managed very well by the likes of Cazenove.

Interesting that you’ve not got much invested in UK equities. Was that always the case?

 

[Weststander]

Just looked at my SIPP, and I do have a couple of funds that @Weststander might be interested in:

Morgan Stanley Sterling Corporate Bond - down 12.7%
Legal & General Active Global High Yield - down 21.12% (US Corporate bonds)

These funds are on their final warning. Any more of this and I'll invest in frontier markets.

I bailed out of funds such as Schroder Corporate Bond ages ago. The Telegraph experts, HL et all were all recommending these funds for a diversified portfolio. They turned out to be very poor … consistent capital loss on something intended just to temper the risks and returns.

 

[dazzer6666]

For decades, not just in large company schemes, the advice or actions was always to diversify away from equities gradually 15, 10, 5 years away from retirement.

But I’ve seen the composition of pots for several years now, folk of various degrees of wealth in their 60’s, where at most there’s a token 10% in corporate bonds/gilts/fixed interest/cash. Now, bailed out of all of those altogether. Not on the whim of a risk taking 65 year old, but fully managed very well by the likes of Cazenove.

Interesting that you’ve not got much invested in UK equities. Was that always the case?

Yep……..had a global spread for a long time. I’ve steered increasingly away from FI stuff (despite advice to the contrary now I’m not working). Hopefully got plenty of time to benefit from (long term better) equity returns, but obviously have a cash reserve to fund all the holidays and stuff

One of my IFAs was telling me recently that he’s had more (underperformance) issues with ‘low risk’ clients than higher risk recently

 

[Beach Hut]

Use a managed service the one I use once Kama-Kwazi struck was down £10k, already back where it was.

It pays to use experts in the field

 

[Eric the meek]

I bailed out of funds such as Schroder Corporate Bond ages ago. The Telegraph experts, HL et all were all recommending these funds for a diversified portfolio. They turned out to be very poor … consistent capital loss on something intended just to temper the risks and returns.

I know those two funds will be the first to go if/when I review my holdings. I also know that I will be back in them, or similar, some time later on.

 

[Weststander]

Use a managed service the one I use once Kama-Kwazi struck was down £10k, already back where it was.

It pays to use experts in the field

It depends.

I was with a quite well known firm of IFA’s, managing my SIPP. Creaming off 1.75% all told per annum, despite the very modest performance in funds of funds ultimately controlled by their inhouse expert. It’s all a bit of a win-win game.

Whereas some here have got lucky with a genuinely good IFA for decades …. @WATFORD zero.

 

[Eric the meek]

Years ago, William Littlewood coined the phrase 'deworsification', a process of taking diversification too far, so that returns will approximate those from an index fund.

I've just run the HL X-ray heat map thingy, slicing and dicing all my holdings, and I'm in 59 countries, including........Russia and Qatar.

My task for tomorrow - find those investments and get the f*ck out of them.

 

[Shropshire Seagull]

As an IFA we have seen a bounce back in annuity interest this year. Perhaps it’s the improved rates, or certainty in an uncertain economic & political environment. Also many clients who went into drawdown a decade or so ago, wishing to take some risk off the table. The majority of our clients opt for drawdown but certainly annuities are worth considering.

SIPP Vs Annuity is interesting, whilst the SIPP can run dry before you die, the Annuity dies with you [or maybe your spouse].
So for me [at higher risk of early death] the SIPP is preferable as whatever I don't get spend goes into my estate for the missus or kids.

 

[Steve Foster]

SIPP Vs Annuity is interesting, whilst the SIPP can run dry before you die, the Annuity dies with you [or maybe your spouse].
So for me [at higher risk of early death] the SIPP is preferable as whatever I don't get spend goes into my estate for the missus or kids.

 

[Steve Foster]

A decent article on the subject, regarding annuities

Subscribe to read | Financial Times

News, analysis and comment from the Financial Times, the worldʼs leading global business publication

www.ft.com

 

[Weststander]

SIPP Vs Annuity is interesting, whilst the SIPP can run dry before you die, the Annuity dies with you [or maybe your spouse].
So for me [at higher risk of early death] the SIPP is preferable as whatever I don't get spend goes into my estate for the missus or kids.

With annuity rates better at 4% index linked, imho they suit:

1. Folk who wouldn’t have the willpower to income drawdown conservatively for the rest of their lives.

and/or

2. Others who have a higher level of investments at retirement, who want to secure part of that only into a secure income. So like the state pension, guaranteed income to meet the fixed costs of life.

** Note that annuities are immediately taxed at someone’s marginal rate of tax. Whereas income drawdown, although taxed under the same rules, gives freedom to manipulate between tax years …. something of benefit in pre-state pension years.

 

[HalfaSeatOn]

Equity release is definitely a consideration in my retirement thinking. The devils in the detail, of course, and tbh I haven’t looked in to it in detail. It appeals in principle. I‘d want an annual top up to my core pension rather than a lump sum. There is a draw down option but not sure on minimum draw down amounts and how much it costs (admin/legal fees). On my list as things to find out.

 

[Steve Foster]

Equity release is definitely a consideration in my retirement thinking. The devils in the detail, of course, and tbh I haven’t looked in to it in detail. It appeals in principle. I‘d want an annual top up to my core pension rather than a lump sum. There is a draw down option but not sure on minimum draw down amounts and how much it costs (admin/legal fees). On my list as things to find out.

Equity release market peaked last year with interest rates fixed below 4%. Very attractive when you consider property prices have historically risen higher Pa in most of the UK. Different position now. Typically 6%+ and a number of lenders have pulled back from the market.
The minimum drawdown is £2,000 in any one transaction. We have many clients that pay for their holiday each year in this way.
We would generally recommend ER as a last resort, but for many it works well.
As always, I would recommend contacting an IFA for advice & you will invariably obtain better terms than going direct.

 

[sparkie]

Equity release is definitely a consideration in my retirement thinking. The devils in the detail, of course, and tbh I haven’t looked in to it in detail. It appeals in principle. I‘d want an annual top up to my core pension rather than a lump sum. There is a draw down option but not sure on minimum draw down amounts and how much it costs (admin/legal fees). On my list as things to find out.

The trouble with the monthly drawdown ( on a direct contribution pension ) is that it triggers MPAA which you'll be stuck with for the rest of your life. It doesn't get turned off.

Only an issue if you are still paying into a pension ( or will do at some point ) though - it's a £4000 annual limit on contributions into your pension ( including employer contributions ) before you get taxed on them. Also rules and fines if you don't tell any other pension schemes. HMRC will then come after you for the tax when they eventually get their act together.

Basically HMRC don't want you "recycling" monthly pension drawdown back into another pension.

 

[sparkie]

Also worth posting a warning about companies which claim they can get you your pension before 55.

Unlikely to be deemed within the rules and you'll be the one with the eventual hefty tax bill, or worse if it's one of the really dodgy scams.

 

[Nobby Nomates]

Also beware companies contacting you to offer a' review' of your pension as you approach 55. I've seen many cases where the main beneficiary of the advice is the adviser....

 

[Steve Foster]

The trouble with the monthly drawdown ( on a direct contribution pension ) is that it triggers MPAA which you'll be stuck with for the rest of your life. It doesn't get turned off.

Only an issue if you are still paying into a pension ( or will do at some point ) though - it's a £4000 annual limit on contributions into your pension ( including employer contributions ) before you get taxed on them. Also rules and fines if you don't tell any other pension schemes. HMRC will then come after you for the tax when they eventually get their act together.

Basically HMRC don't want you "recycling" monthly pension drawdown back into another pension.

Yup, as soon as you take out &1+ of taxable income you are restricted to only contributing a max of &4,000 Pa into a pension plan.
If earning & you want to reduce tax, VCTs are an option. Receive 30% tax relief but they are higher risk investments

 

[HalfaSeatOn]

The trouble with the monthly drawdown ( on a direct contribution pension ) is that it triggers MPAA which you'll be stuck with for the rest of your life. It doesn't get turned off.

Only an issue if you are still paying into a pension ( or will do at some point ) though - it's a £4000 annual limit on contributions into your pension ( including employer contributions ) before you get taxed on them. Also rules and fines if you don't tell any other pension schemes. HMRC will then come after you for the tax when they eventually get their act together.

Basically HMRC don't want you "recycling" monthly pension drawdown back into another pension.

Thanks and shows importance of good advice. In my scenario, it wouldn’t involve paying equity released income in to a pension. It would purely complement the pension I’d already been receiving (and, at that point, would not paying in to a pension)

 

[Beach Hut]

Also beware companies contacting you to offer a' review' of your pension as you approach 55. I've seen many cases where the main beneficiary of the advice is the adviser....

Good advice, those people were all over me when I downed tools at 54, never been so popular but ignored them as final salary pension

 

[Carlos BC]

The trouble with the monthly drawdown ( on a direct contribution pension ) is that it triggers MPAA which you'll be stuck with for the rest of your life. It doesn't get turned off.

Only an issue if you are still paying into a pension ( or will do at some point ) though - it's a £4000 annual limit on contributions into your pension ( including employer contributions ) before you get taxed on them. Also rules and fines if you don't tell any other pension schemes. HMRC will then come after you for the tax when they eventually get their act together.

Basically HMRC don't want you "recycling" monthly pension drawdown back into another pension.

This depends how you take it. As soon as you take an income then MPAA is triggered. But you can take your tax free cash in a way that makes it feel like an income, in smaller monthly amounts until the tax free cash is used. A number of my clients do this, deferring paying tax until they need to.