Drawdown logistics

dxt_2

I approach retirement and have a pension pot of over £500k to transfer to drawdown. I have no financial adviser and have managed the pot since inception as I do my ISAs. The pension will form only part of my retirement income. I am happy to continue to manage the pot when in drawdown and fully understand the risks involved.

I want to invest cautiously and if I target a modest growth rate of say 4-5% have no desire to pay fund selection or management fees, since the resulting TER would be very bad value.

So in setting up the drawdown my ideal would be a self-administered wrapper able to invest in ETFs, though I would in fact use a low cost fund of ETFs to select and rebalance the underlying funds according to my risk appetite. The wrapper swith fees and the small ETF manager fees should enable me to keep my total expense ratio as low as possible.

I have been quoted various fees by IFAs for setting up drawdowns and these involve setup charges and ongoing advice and also the loss of control as they want to be the ones accessing the wrapper and doing the trades. I am happy to accept the risks of my own actions, I have been careful long enough in accumulating the fund and will continue to so me in drawing income from it.

Has anyone been through this and can suggest a wrapper that can be set up and administered by the client (excepting the mandated reviews) in the same way that one sets up and manages ISAs?

MiloH

I have a client managing his own SIPP on selftrade.co.uk who seems to be happy with it. Alliance Trust?

Targetting cautious returns in drawdown can be a flawed strategy. Wikipedia has a good description of mortality drag.

EdInvestor

Have a look at https://www.sippdeal.co.uk. Now that it is moved its broking inhouse and reduced trading costs, this will be a better deal than the Selftrade SIPP (which is administered by Sippdeal via https://www.sippdealextra.co.uk).

You may also like to check out https://www.h-l.co.uk as well as alliance trust.With a large fund, depending on your investment strategy it may be cost effective to set up two drawdowns.

The actual transfer process is quite simple, all the forms are on the Sippdeal site.There is no need to employ an IFA to do it.You may need to do some chasing depending on which provider you are currently using, but I've done 2 drawdown transfers personally with no problems at all, they both took a couple of weeks only..

Are you planning to invest in anything other than ETFs?

jamesd

MiloH, since the optimal age to annuitise is currently 75 for an average UK person mortality drag is hardly a concern for a typical person just approaching retirement.

That Wikipedia article could do with some non-imaginary example numbers that might give a better idea of where mortality drag starts to hurt. Might be a useful public benefit effort by a CFP.

EdGasket

Question: Lets say I have a fully invested SIPP (with SippDeal) but decide I want to take 25% lump sum and start the drawdown. Do I sell 25% of the holdings myself and turn it into cash in order to draw out as a lump sum and leave the remainder invested or does it work some other way? I guess a similar question arrises for each drawdown payment although the cash required would be less.

MiloH

jamesd wrote: »

MiloH, since the optimal age to annuitise is currently 75 for an average UK person mortality drag is hardly a concern for a typical person just approaching retirement.

That Wikipedia article could do with some non-imaginary example numbers that might give a better idea of where mortality drag starts to hurt. Might be a useful public benefit effort by a CFP.

75 is the age when you get the highest annuity rate but that doesn't mean delaying taking the annuity until 75 is the best course of action.

A source of realistic numbers for mortality drag and a good plea about the importance of getting your head around this complicated concept is here. A 65 year old delaying annuity purchase until age 75 needs a return of 2.8% per year just to offset mortality drag.

I've mocked up a quote assuming dxt is male, 65, invests £500K after payment of the lump sum via Transact on a nil commission basis in a basket of cautious ETFs. I've selected an income level equivalent to the best open market rate according to the FSA Comparative Tables (with apologies to dunstonh - it's late and I'm at home!) of £2,872 per month (single life, non increasing). Click here. Scroll on to the last page where it refers to critical yield. In this example the fund has to grow by 6.0% per year for the amount of income that is being taken to be maintained if annuitised at 70 or 75. A return of less than 6% per year would see income drop when the annuity is purchased.

There are other reasons why dxt may still prefer drawdown to an annuity but I just wanted to point out that targeting a 4% to 5% return doesn't make financial sense unless dxt is willing to sacrifice a lower future income for the death benefits. If drawdown is being chosen for investment reasons alone, dxt should consider the importance of targeting higher returns and be sure that he or she is happy with the risk.

jamesd

MiloH, source of the 75 age was one of the Pensions Commission reports, the second, I think. A 6% critical yield doesn't sound unreasonable so that seems to fit.

Agreed about the income. With that low a target buying a range of annuities might be a better idea, just to reduce the risk. A range to diversify against possible annuity provider failure, unlikely though that is. Might be inheritance issues in the way of buying an annuity, though.

greenal

EdGasket wrote: »

Question: Lets say I have a fully invested SIPP (with SippDeal) but decide I want to take 25% lump sum and start the drawdown. Do I sell 25% of the holdings myself and turn it into cash in order to draw out as a lump sum and leave the remainder invested or does it work some other way? I guess a similar question arrises for each drawdown payment although the cash required would be less.

Normally you would keep a but in cash to pay out the income each year. What you do is more or less selct which funds you would like the tfc paid out from and then it is disinvested and paid to you. You would obviously have paperwork or online forms to complete to confirm what you want to do, plus the lifetime allowance form.

[Deleted User]

OP I manage two sipps with sippdeal, mine and that of my husband. Mine is small and his is large. I started both in drawdown, mine two years ago and his 6 months ago. The logistics are very straightforward and inexpensive. All the details and forms are on the sippdeal site. You do not need an ifa

whiteflag_3

kittie wrote: »

OP I manage two sipps with sippdeal, mine and that of my husband. Mine is small and his is large. I started both in drawdown, mine two years ago and his 6 months ago. The logistics are very straightforward and inexpensive. All the details and forms are on the sippdeal site. You do not need an ifa

In the interest of balance perhaps you could have given a bit more information to allow the OP to make a more infromed
decision given your post here

http://forums.moneysavingexpert.com/showthread.html?p=26625945&highlight=#post26625945


While I agree Kittie you dont need an IFA, many people wouldnt have the time, money and inclination to go through the process you have.

Can you be kind enough to clarify what you mean by "very straightforward and inexpensive" in the light of your previous thread?

EdInvestor

Kittie's comments are referring to online trading arrangements to get paid drawdown income, which are simple and inexpensive, no intermediary required.

The link you refer to seems to be discussing learning how to invest, an entirely different subject?