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  • FIRST POST
    • Chris_l42
    • By Chris_l42 2nd Jan 18, 11:01 AM
    • 7Posts
    • 1Thanks
    Chris_l42
    Ideas needed for safe drawdown of pension
    • #1
    • 2nd Jan 18, 11:01 AM
    Ideas needed for safe drawdown of pension 2nd Jan 18 at 11:01 AM
    I am retired and have an as yet untouched DC pension with L&G, current value is approx £180k.
    I am currently living off a small separate DB pension and savings but would like to now start taking some income from the L&G pension.
    I am thinking I would take the 25% tax free lump and put it into savings and put the rest into a drawdown arrangement taking approx £3k per year out of it - this will keep me below the income tax personal allowance.
    I have been going round in circles trying to pick a provider/plan that:
    - is low cost
    - is fairly low risk - it would be great if there was some growth but I am more concerned about protection from a large drop in the stock market - should I consider a cash fund?
    - provides flexibility in terms of changing the amount I draw and/or move to a different provider in the future
    - allows me to continue paying in £2800 or so for the additional £720 tax relief

    Any suggestions as to provider/investment funds that meet the above criteria would be gratefully received.
Page 1
    • Linton
    • By Linton 2nd Jan 18, 11:35 AM
    • 8,869 Posts
    • 8,910 Thanks
    Linton
    • #2
    • 2nd Jan 18, 11:35 AM
    • #2
    • 2nd Jan 18, 11:35 AM
    There are two separate issues - where is the pension to be held (the "platform") and what funds are you going to use.

    Platform - the most flexible is a SIPP which should allow you to do everything you want. A SIPP will provide online access to thousands of funds. There are several SIPP providers each of which will have different charges and facilities. For example H-L, Interactive Investors, Bestinvest, AJ Bell and quite a few others.

    Funds - Firstly cash is a seriously bad idea. It is almost certain that that your pension will lose real value each year from inflation. There are three other options you could take:
    a) Buy a set of funds that together achieve your objectives. I assume that you dont have the experience to do this.
    b) Pay an IFA to put together the set of funds. This could cost you perhaps £1K with possible ongoing management costs.
    c) buy a very broad single fund that holds a wide range of more focussed funds that are managed with the objective of controlling the overall risk. Such a fund is called "multi-asset" and is typically classified according to degree of risk. There are a number of multi-asset funds available. You could look on www.trustnet.co.uk under the "mixed investment" sectors. The higher the % equity (shares) the higher the severity of major falls but the higher the average returns. Major providers include L&G, HSBC, Blackrock, Vanguard
    • Chris_l42
    • By Chris_l42 2nd Jan 18, 12:02 PM
    • 7 Posts
    • 1 Thanks
    Chris_l42
    • #3
    • 2nd Jan 18, 12:02 PM
    • #3
    • 2nd Jan 18, 12:02 PM
    Thanks Linton, I can see a SIPP is the right way to go and that a cash fund going to lose out to inflation.
    As a benchmark, how much % charge should I expect to pay and what % return would be a reasonable expectation on a low risk multi asset fund?
    I may end up going to an IFA but do balk at the costs they charge.
    I just want something simple to manage, preferably by myself.

    L&G do offer a fixed term drawdown product that according to their calculator would (with £135k put into it) allow me to take £3k per year for 3 years and a guaranteed residual pot of approx £131k. Not a huge return but it is guaranteed. Do you have any views on this?

    Thanks
    • dunstonh
    • By dunstonh 2nd Jan 18, 12:06 PM
    • 90,437 Posts
    • 57,224 Thanks
    dunstonh
    • #4
    • 2nd Jan 18, 12:06 PM
    • #4
    • 2nd Jan 18, 12:06 PM
    I am thinking I would take the 25% tax free lump and put it into savings and put the rest into a drawdown arrangement taking approx £3k per year out of it - this will keep me below the income tax personal allowance.
    That is probably not a good idea. Generally rule of thumb is that you dont take the lump sum unless you have a reason for doing so. Sticking it in a savings account is not a reason. It is likely that phased flexi-access drawdown would be better for you.

    is fairly low risk - it would be great if there was some growth but I am more concerned about protection from a large drop in the stock market - should I consider a cash fund?
    A cash fund is likely to be higher risk, when all risks are considered. You are guaranteeing inflation risk with the potential of shortfall risk. Whereas investing it only may suffer those things.
    Any suggestions as to provider/investment funds that meet the above criteria would be gratefully received.
    none of them. Your objectives and requirements are messy and based on poor information and understanding. Not uncommon but you are not talking about a £10k ISA. You are talking about £180k in a pension that if going to be important to you for the rest of your life.

    You need to work on your knowledge and understanding before making any decision.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Chris_l42
    • By Chris_l42 2nd Jan 18, 1:54 PM
    • 7 Posts
    • 1 Thanks
    Chris_l42
    • #5
    • 2nd Jan 18, 1:54 PM
    • #5
    • 2nd Jan 18, 1:54 PM
    Agree that taking the money for no reason other than putting it into a savings account may not be the best investment decision but there are other factors that mean I would like to have it more easily available and hey interest rates may go up at some point.

    The cash fund was just a suggestion looking for reasoned argument. We seem to be in a bit of bubble at the moment and I was thinking short term for 2 years or so and then see how it goes in terms of moving it back into a stock market investment.


    So no platform/ investment fund offers the things I listed?
    I am not sure what is messy or based on poor information. I was looking for suggestions on where to look for a way of starting to utilise this pension. My goal is clear, to draw a modest income of around £3k which I believe should be sustainable, keeping the management costs and risk low and retaining as much flexibility as possible for future changes.

    I accept that my knowledge is not at expert level but I am reasonably intelligent and came here to get some helpful pointers.
    • Fermion
    • By Fermion 2nd Jan 18, 2:38 PM
    • 75 Posts
    • 29 Thanks
    Fermion
    • #6
    • 2nd Jan 18, 2:38 PM
    • #6
    • 2nd Jan 18, 2:38 PM
    If it's any help, my wife has a SIPP with HL of projected value £189K which she will be moving into drawdown later this year, leaving a residual drawdown pot of about £141K. (I should add that this is supplemental to a good Teachers DB pension so she is happy to accept the risk of a solely equity income based pot)
    After drawdown she intends to be left with the following funds:-
    FUND, PERCENTAGE OF POT, FUND CURRENT YIELD%
    CF Woodward Equity Income 20% 3.3%
    CF Woodward Income Focus 7.1% 5.0%
    Marlborough Multi Cap Income 17% 4.39%
    Newton Asian Income - 17% 4.09%
    Newton Global High Income 19.9% 2.75%
    Troy Trojan Income (Income) 17.7% 3.65%
    Cash 1.3%

    She intends to take about £4600/annum from this pot which should be less than the Natural Yield. Obviously, if the stock market crashes prior to drawdown then she will review the timing and annual drawdown amounts. I should add that she already has reasonably significant S&S ISA and Normal S&S accounts with HL so the charges for Drawdown account will be taken from the latter.
    Last edited by Fermion; 02-01-2018 at 2:44 PM. Reason: format
    • dunstonh
    • By dunstonh 2nd Jan 18, 2:51 PM
    • 90,437 Posts
    • 57,224 Thanks
    dunstonh
    • #7
    • 2nd Jan 18, 2:51 PM
    • #7
    • 2nd Jan 18, 2:51 PM
    Agree that taking the money for no reason other than putting it into a savings account may not be the best investment decision but there are other factors that mean I would like to have it more easily available and hey interest rates may go up at some point.
    Modern drawdown plans can have your money in the bank within days.
    If interest rates go up in future, then deal with it then. Not now.

    We seem to be in a bit of bubble at the moment and I was thinking short term for 2 years or so and then see how it goes in terms of moving it back into a stock market investment.
    What bubble?
    When is the next crash going to be?
    The last one was 2 years ago. It recovered within 3 months (as the majority of crashes do - it is only the generational ones that tend to take 12-24 months).

    Would you be on the ball enough to know when a crash occurred, when the bottom was and when it was going to go back again? Most inexperienced investors didnt even see the last crash as it happened after the Autumn statements and recovered before the Spring statements. Most dont even know we had a crash. Did you? (chanxes are you invested through it - if so, what action did you take?)

    I am not sure what is messy or based on poor information. I was looking for suggestions on where to look for a way of starting to utilise this pension. My goal is clear, to draw a modest income of around £3k which I believe should be sustainable, keeping the management costs and risk low and retaining as much flexibility as possible for future changes.
    Fully crystallising your pension when you dont need to is one thing. Putting it at high risk of inflation and future shortfall risks whilst worrying about investment risks indicating that you dont have a handle on the risks that will apply. Plus, you seem to be looking at this as cash or stockmarket. On a 1-10 risk scale in terms of investment risk, that is 1 and 10. People dont generally go to either extreme. They sit very comfortably in the middle with a combination of asset classes.

    Every option has risk. There is no risk free option. And cash can actually have an increased risk because of inflation and the fact you are likely to be looking at a 25-35 year period where you are drawing against the money.

    Sure, there can be a solution for you. Stick the whole lot on a platform in a cash account and earn interest and watch the money go down every year. Then as you increase your draw to cover inflation, you can watch the fall in value increase. It has no investment risk but you will almost certainly run out of money quicker than if you had used a sensible spread of investments. Or spend a bit of time understanding the risks and recognise your lack of knowledge could lead you to make bad decisions. We see some very intelligent people post on here (based on occupation) but when it comes to planning and investing, they seem to throw their intelligence out of the window.
    Last edited by dunstonh; 02-01-2018 at 3:22 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • westv
    • By westv 2nd Jan 18, 3:01 PM
    • 4,423 Posts
    • 2,045 Thanks
    westv
    • #8
    • 2nd Jan 18, 3:01 PM
    • #8
    • 2nd Jan 18, 3:01 PM

    What bubble?
    When is the next crash going to be?
    The last one was 2 years ago. It recovered within 3 months (as the majority of crashes do - it is only the generational ones that tend to take 12-24 months).
    Originally posted by dunstonh
    If 2015 was a crash then I'd expect the next one in 2022.
    • Malthusian
    • By Malthusian 2nd Jan 18, 3:17 PM
    • 3,578 Posts
    • 5,511 Thanks
    Malthusian
    • #9
    • 2nd Jan 18, 3:17 PM
    • #9
    • 2nd Jan 18, 3:17 PM
    The cash fund was just a suggestion looking for reasoned argument. We seem to be in a bit of bubble at the moment and I was thinking short term for 2 years or so and then see how it goes in terms of moving it back into a stock market investment.
    Originally posted by Chris_l42
    The current bull market has run for 8 years. The 1987 bull run lasted 13 years. So it is quite possible that in 2 years' time you might have missed out on say 15-20% growth and the market will still be at its peak. What would you do then?
    • Chris_l42
    • By Chris_l42 2nd Jan 18, 3:42 PM
    • 7 Posts
    • 1 Thanks
    Chris_l42
    Thankyou for that, what are the annual charges are for that collection of funds and the HL charge? Just after an idea of the rough total.
    • Fermion
    • By Fermion 2nd Jan 18, 4:40 PM
    • 75 Posts
    • 29 Thanks
    Fermion
    Thankyou for that, what are the annual charges are for that collection of funds and the HL charge? Just after an idea of the rough total.
    The HL Management charge is tiered but for a pot value between £0-£250,000 is 0.45% per annum. So for a pot of about £141K the HL Mgt fee is about £635/annum. There are no charges for withdrawals, buying or selling etc but for each of the funds mentioned the fund managers levy indirect charges of between 0.55% to 0.77% per annum reflected in the fund prices. For the funds stated these indirect charges work out at about an average of about 0.63% per annum. There are no initial fund manager charges on purchases. The only other HL is a GAD calculation charge of £75 when you first go into drawdown.
    • k6chris
    • By k6chris 2nd Jan 18, 4:42 PM
    • 194 Posts
    • 335 Thanks
    k6chris
    When is the next crash going to be?
    The last one was 2 years ago. It recovered within 3 months (as the majority of crashes do - it is only the generational ones that tend to take 12-24 months).
    Originally posted by dunstonh
    The last 'crash' as in "significant pull back" visible on the major indicies (FTSE 100, S&P 500) occurred (approx) March 2015, not recovering those original levels for 15-18 months. FTSE 100 pulled back around 25%, S&P 500 around 15%. The reality is that even if you had a feeling then that a pull back was overdue, you are very unlikley to have timed either the top or bottom perfectly. You would have also missed out on dividend payments.
    EatingSoup
    • Alan5
    • By Alan5 2nd Jan 18, 5:09 PM
    • 15 Posts
    • 2 Thanks
    Alan5
    Hi Chris-142,
    I totally empathise with your position! My Wife and I are currently juggling lump sums, savings and thinking about her pension, current value around 110000.
    Wow! What a load of variables and the need to consider chance and probability! Thus far for savings (130k) we have used a multi asset (isa) portfolios with Bestinvest and Hargreaves Lansdown. Our money has kept just ahead of inflation with little volatility. We are now planning for the second half of our pension life (hope we see it) and increasing the risk / volatility of around 40% of our money.
    We plan to put my Wife's pension in drawdown also in multi asset funds. We need to determine the risk/return balance. I know these are an expensive approach but we are scared to lose out based on an ignorant choice of funds via another route! Doubt this helps, but you might recognise the thinking!
    Alan5
    • peterg1965
    • By peterg1965 2nd Jan 18, 5:26 PM
    • 2,007 Posts
    • 1,707 Thanks
    peterg1965
    The only other HL is a GAD calculation charge of £75 when you first go into drawdown.
    Originally posted by Fermion
    Surely there isnít no such thing as a GAD calculation, post the 2015 pension rule changes. GAD was when you were restricted in how much you could drawdown.
    • Chris_l42
    • By Chris_l42 3rd Jan 18, 10:17 AM
    • 7 Posts
    • 1 Thanks
    Chris_l42
    Thank you, I have been considering using HL given their ease of access and the flexibility of their SIPP. The charges do seem a bit on the high side. Do you agree or am I being a bit optimistic? For example Vanguard seem to have some good offerings and I wonder if I should wait and see what they charge - they are apparently going to be offering a SIPP this year.
    • MallyGirl
    • By MallyGirl 3rd Jan 18, 10:20 AM
    • 2,305 Posts
    • 7,317 Thanks
    MallyGirl
    going directly with Vanguard will be cheap if you are sure that you will never want to use anything other than Vanguard funds in your investments. I value the ability to choose from a wider selection - but that is a personal choice.
    • NorthernGeezer
    • By NorthernGeezer 7th Jan 18, 11:07 PM
    • 40 Posts
    • 5 Thanks
    NorthernGeezer
    Another Option
    Given he already has investments with L&G, isn't the simplest option to crystalise funds out of his multi asset portfolio?
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