drawdown advice

david1944

I'll be 65 in November 2009 and will retire. I have a state retirement forecast indicating I shall receive £205:00 per week. I also have a money purchase company pension with Scottish Equitable with a pot of about £130k. I intend taking about £30k as a tax free lump sum (to clear outstanding mortgage), leaving about £100k. Having read loads and loads of financial guff i feel that drawdown is the way to go (my wife is 16 years younger than me and i would like any residue of this £100k to go to her on my demise). Should i stay with Scottish Equitable and change to their drawdown or change to someone like Hargreaves and Lansdown for drawdown. What sort of fees am i likely to be required to pay with both and should i wait untill 65 or do something now. Any advice would be appreciated as my head is spining

EdInvestor

Scottish Equitable is likely to be noticeably more expensive than H-L. You can check H-L's fees on its website they are low when larger sums are involved.

You will have to use an IFA to go through ScotEq, and he will likely want 3% just to do the transfer, which is very easy to do yourself for virtually nothing.

If you're not confident about the investment strategy you want to pursue, a cheaper way of moving forward would be to transfer the pension to H-L yourself and then find an IFA who is an investment specialist and pay him a fee to devise an investment stragey for you.

If you feel you want to learn how to do the investing yourself, and especially given the current climate, you could leave the funds in the drawdown SIPP parked in cash earning interest while you learn the investment basics.

Check with ScotEq if there are any penalties involved in transferring now rather than waiting till 65.I assume there are no guaranteed annuity rates attached to the pension or that, if there are, you have decided that drawdown is still a better deal for your circs.

Will you be wanting to take the maximum income from the drawdown fund?

[BTW this assumes you plan to invest the money in unit trusts.If you want mainly shares,gilts,investment trusts or ETFs there are cheaper providers than HL. ]

dunstonh

Scottish Equitable is likely to be noticeably more expensive than H-L.

Evidence please?

You will have to use an IFA to go through ScotEq, and he will likely want 3% just to do the transfer, which is very easy to do yourself for virtually nothing.

Evidence please?

Personally, i prefer unit trusts to pension funds. However, just this week I have done a drawdown with an insurance company with a reduction in yield of under 1%. That is 50% cheaper than hargreaves lansdown using the typical unit trust.

Ed has no factual data on your scottish equitable options but tells you it will be more expensive. Ed has no knowledge of your ability to invest and what investments you want to use. Ed has no knowledge of what IFAs will charge but tells you it will be the typical maximum (3% is the typical maximum you would expect on collectives. FSA record commissions taken every 6 months and collectives average is 1.8%. That means some take more than that and some take less. Saying the IFA will want 3% is not fair). Ed is making assumptions which could be correct but could be very wrong. I think you should work with facts. After all, this is a major purchase/transaction so isnt it the best thing to do it right?

david1944

Thanks all. Will i have to pay the company IFA who administers our ScotEq money purchase scheme to change to ScotEq drawdown. Where can i find information about diy investment strategy. I will want to take, pretty well, the max annual income as per the GAD tables( can you tell me what that is for £100k). I know very little about investing so is it sensible to do it myself?

dunstonh

Will i have to pay the company IFA who administers our ScotEq money purchase scheme to change to ScotEq drawdown.

Maybe. Maybe not. It depends on the IFA and their business model and charges. Personally I dont as I see it as a continuation of fund under management and the 0.5% trail is more important. However, you do get greedy advisers out there who look for any excuse to charge. You will need to discuss that with the IFA. To be honest, an internal transfer to drawdown is a doddle. Usually it isnt even treated as "new business" but activation of options on the existing pension so unless you are asking for a full written report on what should be done then the justification to charge is weak.

Where can i find information about diy investment strategy.

There are various strategies. Sector allocation, asset allocation, high yield portfolio and hit and hope are just a few. if you are going to DIY and starting from a point of no knowledge then you are in for a lot of reading and a lot learning. A couple of hundred hours at least to get the basic understanding. The key things are matching risk and reward and realising that all the funds in the same sector have different risk levels and will perform more or less in line with the assets within the funds. So, you need to understand not only the funds but also the investments within them as well and why a fund does well or why it does badly.

EdInvestor

It's likely ScotEq will require you to pay someone as they don't want to be liable for the risk of misselling. HL , Sippdeal and Alliance Trust will not require this.

Here's a calculator to work out your income:

http://www.invidion.co.uk/pension_fund_withdrawal_calculator.php

As a basic rule of thumb it's probably sensible to look at "income funds" which generate interest and dividends (eg equity income funds, commerical property funds and corporate bond funds) plus cash as the basis for a drawdown strategy. This is so that you are getting a fairly big chunk of your income automatically without having to sell holdings to pay yourself. This is less risky in times of market trouble like now.

How is your pension invested now?That would give an idea as to how your attitude to risk has been judged.

david1944

this is how my fund is distributed. many thanks



Fund name
Transfer Payments
(%)CASH10.0DISTRIBUTION FUND10.0EQUITY10.0ETHICAL B FUND10.0INDEX LINKED10.0PROPERTY10.0EX BAL COLLECTION20.0SE SG STK MAN10.0SE SCHROD UK MID 25010.0Total100.0

Fountaine

Hi David, there is some debate re drawdown on my thread re Open Market or stay where I am, which may be of use to you ? Bonne chance

david1944

Hi Fountaine Thanks for the response, Hope you get sorted. Complicated this financial stuff isn't it? Almost do nothing for fear of doing the wrong thing.As far as finding a truly Independant IFA you don't know you have a bad one until it is too late. If you ask for recommendations from friends etc. they all think their IFA is good.

dunstonh

If you ask for recommendations from friends etc. they all think their IFA is good.

Statistically, that is probably the case. IFAs transact over half the business out there but only account for 4% of complaints at the FOS (and even then only around 1/3rd are upheld).

A lot of the issues that have given a bad perception come from salesforces and legacy areas of business when there was lower standards. It seems the FSA has realised this as they appear to have moved from a position that was percieved anti-IFA and pro-bank (too many small IFA firms, makes their job harder than dealing with a salesforce of 1000 or so sellers). The retail distribution review proposals are very much pro IFA and anti sales.

The only thing you need to be wary of when asking friends is that most of the public have never dealt with an IFA and research has shown that over half those that see tied agents (and purchased a product) think they are seeing an IFA.

this is how my fund is distributed. many thanks



Fund name
Transfer Payments
(%)CASH10.0DISTRIBUTION FUND10.0EQUITY10.0ETHICAL B FUND10.0INDEX LINKED10.0PROPERTY10.0EX BAL COLLECTION20.0SE SG STK MAN10.0SE SCHROD UK MID 25010.0Total100.0

That would be the hit and hope strategy then

EdInvestor

david1944 wrote: »

If you ask for recommendations from friends etc. they all think their IFA is good.

And of course, since they know nothing about investment, the problem is how would they be able to judge? :rolleyes:.

As far as investing drawdowns is concerned it is IMHo helpful to look at strategies where the investment pays an income.Like cash, which pays interest.

Ideally you want to invest the capital so that most of your income comes from dividends or interest and you don't have to cash in capital to pay income, which in the long (and sometimes short) term will deplete your fund.

So look at

-higher yielding shares which pay good dividends
-gilts
-cash
-corporate bund funds
-property funds
-equity income funds

It may be helpful iitially to decide to keep half your fund in cash and then concentrate on investing the rest. A split of 30% equities, 10% bonds and gilts and 10% property funds might be a low key way to start.

Most people are invested in funds such as unit trusts and OEICS.But there is another type of fund called an "investment trust" which IMHO is more suited to drawdown. The ITs have lower charges, and tend to pay higher dividends.If using unti trusts/OICS always go for the "income" version of the fund, not the "accumulation" version.

It is IMHO easier for people to understand how their drawdown is working if they can see their income coming in separately from their capital - rather like a bank account. Income from bonds property and shares is usually not affected by market fluctuations much, so is actually more stable than bank interest.