SIPP, Hargreaves Lansdown and Funds

dunstonh

Apparntly I can request a review on its next anniversary (in fact its 1st) rather than wait for five years, the next review would be five years later, and then tri yearly thereafter, whats thebenefit of this if you intend to defer drawdown for at least ten years?

If you dont exceed 100% of GAD then there is no real change for you to be concerned about apart from the tax on lump sum going from 35% to 55%. Its unchanged if it continues as income.

sabelu

would you get the review now and to delay the next one or not?

jamesd

You already were in capped drawdown, it's just a change of name to distinguish it from those who can take out much more.

The big change that affects you is the 17% reduction in how much income you can take out. It's likely to be better to take out as much income as possible and put any money you don't need into a stocks and shares ISA ISA so that over time it becomes available as a lump sum or tax free income. Or you could contribute it to another pension and get a second chunk of tax relief.

Getting a new review before the new limit will give you more time at the higher income rate and may well be worth doing. Depends on the cost of the review and how much the extra income is.

I'd jump at the chance of getting the review and being able to take out more money for longer.

Note that I'm just writing about how much money you're allowed to take out. That doesn't mean that your investments will let you do it without a reduction in capital value. I'm assuming that regardless of how much you take out, you're only spending at a sustainable level.

sabelu

I'm not currently drawing down if I did I'd also pay tax so starting a new pension wouldn't really benefit me I'll ask about the review tho

jamesd

If paying tax the benefit of taking it and making more pension contributions comes getting another 25% tax free lump sum. So you benefit from tax relief on that part a second time even though you don't for the other 75%. It's an easy way to make a little more money from the tax system.

Bigger gains are possible if you have a work pension that uses salary sacrifice. Then you could save on the NI on some of your pay as well.

honved

I'm aiming to retire in 8 years time, at 55.

I am a relatively high earner at present, and I want to continue to maximise the tax advantages of using a PP/SIPP.

I have both a very competetive workplace-provided SIPP, with a good range of cheap funds (cheap except for Jupiter's range for some reason). The SIPP will continue even after I leave the company, with the same fee structure (yes, it's a great company!)

I also have an HL SIPP with a modest sum, which I have used for both fund investing and share dealing. Given the slightly higher costs in the HL SIPP wrapper, I've recently concentrated my fund investments into the cheaper workplace SIPP.

Now, my attitude to risk (and my age) is such that I want to start switching my existing pension pots away from equities and into a relatively safe income-producing portfolio.

The problem is: what type of "safe" income producing investment can I access inside a SIPP/PP? By "safe" I mean something close to a bank/building society account, but I would consider putting at least some money into alternatives.

Given that I've already gained a 40% uplift on my contributions courtesy of HMRC, I'd be more than happy to accept a steady income of 4-5% pa for the next 8 years (keeping a close eye on inflation of course), but I really don't want to pay too much in fees for the privilege of an investment that would be fees-free outside a PP/SIPP. Is there anything suitable out there?

ETA: there doesn't seem to be anything suitable in either of my SIPPs, unless I've overlooked it.

jamesd

Eight years is a long time. Investments with moderate levels of volatility include commercial property funds and some of the corporate bond funds, though high yield/volatility bond funds in the strategic bonds sector currently look like a better choice than investment grade.

Some SIPPs do offer cash accounts that offer cash interest rates. It's usually a poor deal for long periods of time like eight years but can be good if markets drop. HL doesn't offer one.

The sort of funds that might be used for income and their yields include:

9.6% Marlborough High Yield Fixed Interest
7.9% Newton Global High Yield Bond
7.2% Newton Higher Income
6.6% Invesco Perpetual Monthly Income Plus (pays monthly)
6.2% Invesco Perpetual Distribution (pays monthly)
3.9% Invesco Perpetual Income

Those yields are historic and not guaranteed. The capital value varies, by as much as 40% in some of them. You'd use many different funds, not just one.

For less risk and minimal return there are some money market funds available. Paying something around Bank Rate.

You can hold gilts directly in a SIPP, though HL would charge you 0.5% for doing it.

You can hold individual corporate bonds and building society preference shares in a SIPP.

honved

Thanks for the suggestions. It's frustrating that there doesn't seem to be a SIPP that offers a good old building society cash account, though of course I realise that there's nothing in it for the provider, profit-wise. Anyway, I'll take a look at your list.

GoGas

We are interested in the issue of the HL SIPP 0.5% trail commission that has been debated here and comparison to IFA. We two HL SIPPs (value of £250k and £200k, reasonably balanced with a specific assess model) which we actively manage ourselves and large 6 figure portfolio of ISAs/PEP/Funds (Cofunds and Fidelty) with BestInvest. I understand that the fee for advice to the IFA is one off and then they may remit the annual trail. Questions:

1. If you require an annual review and balancing for a large portfolio then is the HL 0.5% fee a better or a reasonable deal given the online dealing facilities, switching etc.
2. If we lumped them all together with a “wealth manager” for a discretionary portfolio could this 0.5 % trail be rebated and replaced with an annual fee based system. Many (e.g. BestInvest) seem to charge about 1%+VAT per annum but then do rebate the 0.5% so would work out at about 0.7% per year – or £7k per £1m which sounds quite a lot compared to a fee based system.
3. Would discretionary managers access the wholesale version for the funds which may offer better value (to offset against the 0.7%. IS this a valid assumption?

The world of discretionary management has lots of flashy web sites but very difficult to judge comparative performance and value for money between each other or between IFAs who seem to access wholesale discretionary managers who only deal with IFAs.

thanks

Steve

jamesd

The HL fee provides none of the rebalancing aspect so for that it's not a good deal.

Yes, paying a fee could produce a reduced annual management charge. Rather than a rebate either you wouldn't be charged it in the first place or in some places you might get some extra units added each month.

Discretionary managers might offer the institutional version. HL offers institutional versions of some HSBC trackers, like a FTSE All Share Index tracker, and at least one other place offers some inexpensive Blackrock institutional trackers.

Given the fund values you should probably discus your needs with an IFA. It should be easy to get a cheaper deal than the one from HL and if you want it, to get rebalancing and fund advice at less than 0.5% ongoiong cost.