Retiring at 50 - is drawdown best option?

EdInvestor

No_worries wrote: »

My thoughts regarding drawing it now were that I can still leave 75% invested but have the flexibility to get to it IF I want to. If I do nothing before April then I can't access it till I'm 55. I live off savings and some part-time work but have a wife who is ill so the future is a bit uncertain.

You have good reasons for proceeding with drawdown here as it's important to keep funds as liquid and flexible as possible because of the uncertainty.

But I am concerned about costs if you proceed.Is the one-off fee your IFA proposes in addition to the 3% initial charge or intcluded within it? The 1/2% annual fee, does this include fund AMCs?How much trail commission will the IFA receive?

Which provider is he suggesting for the drawdown and how does he think the money should be invested?

In principle this is a feasible and potentially sensible route for you to follow but it also carries risks that fees and charges (apart from poor investment conditions) can erode your capital if the drawdown is managed poorly or in someone else's interests.

dunstonh

You have good reasons for proceeding with drawdown here

You tell everyone they should do drawdown regardless of whether there is good reason or not. There isnt enough info to tell someone to do a once in a lifetime transaction.

But I am concerned about costs if you proceed.Is the one-off fee your IFA proposes in addition to the 3% initial charge or intcluded within it? The 1/2% annual fee, does this include fund AMCs?How much trail commission will the IFA receive?

Assuming the 0.5% is trail, then the only cost to the OP is the 3%. Over 25 years, the 3% cost is negligible.

In principle this is a feasible and potentially sensible route for you to follow but it also carries risks that fees and charges (apart from poor investment conditions) can erode your capital if the drawdown is managed poorly or in someone else's interests.

Getting it wrong can erode it even more than charges. With the 0.5% trail, the interests of the OP and the adviser are aligned as they both want the fund value to go up.

cyclonebri1

£100k pension pot at 50 seems poor, very poor, sorry, just trying to be honest.

What extra funding is in place for your retirement????????????????????????

begbeer

Cyclonebril, 100k pension pot at 50 is a lot more than most people will get unless of course you are in the public sector!!

Peelerfart

begbeer wrote: »

Cyclonebril, 100k pension pot at 50 is a lot more than most people will get unless of course you are in the public sector!!

Not really what the OP was asking though was it ?. Having a go at the public sector here is not really relevant or constructive.

EdInvestor

Assuming the 0.5% is trail, then the only cost to the OP is the 3%. Over 25 years, the 3% cost is negligible. Getting it wrong can erode it even more than charges. With the 0.5% trail, the interests of the OP and the adviser are aligned as they both want the fund value to go up.

The OP's fund is quite small and thus he needs to pay very close attention to cost cutting. Indeed, if he cannot face the idea of DIY then I would be inclined to suggest he doesn't do drawdown as he will just get ripped off.He needs to look into this more before writing it off - investment is not rocket science, despite the ludicrous amount of money IFAs want you to pay them to do it.

What plans does he have for investing the tax free cash? Do they involve investments which generate income ?He can simply duplicate them for the drawdown if he wants to cut down the workload,one lump sum is much the same as another

dunstonh

Indeed, if he cannot face the idea of DIY then I would be inclined to suggest he doesn't do drawdown as he will just get ripped off

So, you are tell people to use HL's SIPP which invests in funds with identical or higher annual charges than what the IFA is going to use but because an IFA is involved, you say he is being ripped off? There is no logic in that at all.

Patchthedog

Maybe this is cynical - but advisers are pushing people into drawdown aided and abetted by the insurance companies.

It is a way of drumming up commission. They target people who are 50 + now but who when the minimum pension age changes to 55 in April next year will no longer be able to draw benefits until they reach age 55 - to encourage them to take their tax free cash.

It's not nice

EdInvestor

dunstonh wrote: »

So, you are tell people to use HL's SIPP which invests in funds with identical or higher annual charges than what the IFA is going to use but because an IFA is involved, you say he is being ripped off? There is no logic in that at all.

Even if he went to H-L, he would save the IFA's £3000 initial SIPP charge and most of the fee plus anything above 1.5% in annual charges.He will also save the initial charge on his investments, typically 5%.There is no charge to run the drawdown.

But of course there are cheaper ways of investing than unit trusts; investment trusts and exchange traded (tracker type) funds are much cheaper with annual charges more like 0.5% than 1.5%, while shares and gilts are basically free on an annual basis.In the new year it will be possible to buy individual corporate bonds, like shares, as well.

IFAs are typically not authorised to sell these investments, which are cheaper because they pay no commission.This is why many people don't run across them.The OP needs to access these cheaper forms of investment if he wants his drawdown to work successfully.

So no, I wouldn't direct him to H-L,which charges extra for the cheap investments, but rather to Sippdeal or Alliance Trust who don't.

dunstonh

Maybe this is cynical - but advisers are pushing people into drawdown aided and abetted by the insurance companies.

Apart from the advisers that are not pushing people into drawdown. You tend to find most advisers are cautious against doing drawdown.

Even if he went to H-L, he would save the IFA's £3000 initial SIPP charge and most of the fee plus anything above 1.5% in annual charges.He will also save the initial charge on his investments, typically 5%.There is no charge to run the drawdown.

That is incorrect. You are making out that the charge is £3000 and another £5000 which is wrong. The cost difference in this case between DIY and IFA is £3000. Yes he could get it cheaper by going on fee basis. Could probably get the fee down to £1000-£1500. However, £3000 is a long way from the £8000 you seem to be suggesting.

The OP needs to access these cheaper forms of investment if he wants his drawdown to work successfully.

Yet most people manage successfully on funds. The use of ITs will not mean you will have a successful drawdown.compared to one using unit trusts or pension funds.