Pension - where to move it.

ABN

Have nearly £100,000 in a Friends Provident pension scheme. Every time it gets really close the passing the £100K shares drop and the pension fund with it.

I'm 56 and out of work with what seems like little prospect of returning to work but don't really want to start drawing on the pension until as late as possible.

With the current economical climate I am very fearful of a big stock market crash and/or recession both of which will dramatically effect the funds in the pension.

With FP you can move your monies twice a year with no charge.

In your considered opinions what area would it be best to move it to try to maximise the growth or at least keep it well above the PUBLISHED inflation figures and hopefully above the real rate of inflation whilst giving good protection against any possible recession.

Thanks

dunstonh

With the current economical climate I am very fearful of a big stock market crash and/or recession both of which will dramatically effect the funds in the pension.

Common sense and you certianly need to be gradually reducing your equity content.

In your considered opinions what area would it be best to move it to try to maximise the growth or at least keep it well above the PUBLISHED inflation figures and hopefully above the real rate of inflation whilst giving good protection against any possible recession.

Need to be careful answering this because it is borderline advice and that is against board and FSA rules.

You have a portfolio which doesnt sound as if it is very well invested. If it keeps dropping back every time it gets close to £100k, then it suggests you dont have enough diversity in the portfolio. Including lower risk areas such as commercial property, global bonds, uk bonds, fixed interest etc should have been done years ago. So doing it now makes sense. The amounts you switch will depend on your risk profile.

EdInvestor

What is it invested in presently? Any idea what charges you are paying?

Are you planning to put it into income drawdown (alternative to an annuity) and take the 25% tax free cash soon? This could involve taking income, but not necessarily - you can leave the fund invested for later if you like.

For someone in your position IMHO the best idea is to set it up so that you can take an income, but the fund can still grow.

ABN

I appreciate that you cannot give “advice” hence the request for opinions, was hoping that would get around the problem.

All opinions would of course be further researched before committing to anything.

The current “portfolio” is simply split 50/50 between their managed fund and their stewardship fund (only investing in green areas). Not 100% sure exactly where they invest, but always rather naively assumed that being “managed” would mean that they move things around to minimise “simple” losses which sadly seems not to be the case. Same with the “managed” Abbey bonds. They take the 1% management charge each year yet they appear to perform no better than a simple tracker which would require no management (unless I’m missing the point with “managed” bond etc.)

My risk profile is very low, (keep it under the mattress sort of level)

I full admit to being financially illiterate and having led a life where my earning have always meet with my modest life style its not something I have has to worry about. However my recent redundancy has somewhat made me have to take my head out of the sand so to speak.

So back to the original point. The current pension funds are, as far as I’m aware share based. Since I strongly feel that shares are likely to be hard hit in the very near future, combined with possible recession what type of “investment” area is likely to be the safest whilst still trying to meet or beat the true inflation levels.

EdInvestor was typing this one finger at a time before your reply. Am currently reading the drawdown thread. That was an area I was thinking about as my wife is somewhat younger than I and the current level of inflation link annuity passing over to her on my death seemed worryingly low. Have got half though it and feeling uneasy about both atm.

dunstonh

Not 100% sure exactly where they invest, but always rather naively assumed that being “managed” would mean that they move things around to minimise “simple” losses which sadly seems not to be the case.

It is not the case. They have a remit to invest in certain areas but cannot move outside of those areas. If that area is not the best area to be in at this time, then they cannot move out of it.

It is the job of your adviser, discretionary investment manager or yourself to do that.

My risk profile is very low, (keep it under the mattress sort of level)

And your current two fund portfolio is much higher than that.

what type of “investment” area is likely to be the safest whilst still trying to meet or beat the true inflation levels.

property, corporate bonds, global bonds, fixed interest are the main classes you would put as low risk as far as volatility goes.

Am currently reading the drawdown thread. That was an area I was thinking about as my wife is somewhat younger than I and the current level of inflation link annuity passing over to her on my death seemed worryingly low. Have got half though it and feeling uneasy about both atm.

Drawdown is at least a medium/high to high risk transaction and your risk profile doesnt reflect that.

ABN

My initial reasons for thinking about drawdown or at least my version of it were thus

Current Situation
No mortgage with current realistic equity of £210K
Cash £270K
Abbey bonds £70K shortly to be cashed in due to poor performance
Premium Bonds 20K
Other odds and sods 20K

Thus was intending to live of off the interest and small amount of the capital. When needed top up the interest by taking the interest only from the pension fund. By then income would be further increased by the state pension. This would have left all the pension fund available for my wife upon my death.

Having been forced into thinking about and starting to use this simplistic approach has made me realise that it just won’t work.
Had neglected to account such things as large items of expenditure such as when the 15yr old car needed to be replaced.
Had intended to “downsize” out of the London suburbs to a better property with a view in the South West. But the HPI in the SW has narrowed the price gap so much to make that idea financially impracticable.
Also foolishly believed the government figures on inflation and trusted them to run the country in a sound manner rather than just getting it into every deeper dept that is likely to have a dramatic effect on savings and the cost of living.

dunstonh

Had intended to “downsize” out of the London suburbs to a better property with a view in the South West. But the HPI in the SW has narrowed the price gap so much to make that idea financially impracticable.

You could head east We are still dirt cheap out here with £200k buying 4 bedroom detached.

If you look at your bonds, cash and pension you could afford to take some investment risk with it. However, it would need to be calculated low risk. There are some good options out there. Putting it all in risk based investments would be bad but keeping it all in cash would be equally bad.

EdInvestor

What level of income do you need?

ABN

Currently expendature is between £1000-£1200 per month (quite a bit of that to feed my drug habit . Makes note to self Must cut down on the fags)

Don't fancy East to near the North Sea with all those cold winds blowing off of it. Wouldn't mind Wales if to ever stopped raining there. Hence the warm climate of the SW for me

EdInvestor

Gosh if that's all you need :eek: no need to worry, you can save and reinvest from your cash as long as it's in high interest accounts.

You only have around 25% of total assets is anything risky, so no need to worry. What I would do is "take benefits" from the FP pension by transferring it to "phased drawdown" in a cheap online Sipp, taking the 25% tax free cash out, and then reducing the risk over present investments by splitting it half into equity income funds and half into commercial property funds.

These should pay out a 4% annual income, but you don't need to take that at present, you can just allow it to accumulate.You still have the option of contributing to a SIPP like that later if work restarts.

I assume you are using your cash ISA every year?How much have you got in TESSAs and ISAs? You ought to be using your 4k mini investment ISA as well.That could go into the same type of lower risk investments as mentioned.If your wife is a bit less risk averse than you, then max out a 7k annual investment ISA for her as well.

You could look at a DIY index-linked gilt portfolio - the rate may not be much lower than an annuity and you keep the capital. Also the National Savings index linked products. When a lot older a "purchased life annuity" might be useful if you want some guaranteed income - much better tax treatment than the ordinary pension variety and significantly higher than cash.

Finally I would continue paying voluntary contributions into the state pension: this is an excellent investment in index linked basic income and both of you should benefit from the new minimum of 30 years' contributions to qualify for the full payout, down from 44(male)/39(female) coming in shortly.

ABN

True it may not seem a lot but please remember that is just the day to day expense and does not cover things like car repair/replacement, washing machine TV etc replacement, clothing, holidays i.e. items that should be budgeted for and will now have to come out of the capital.

No ISA's etc as I had to cash all those in to use for a rather expensive short term investment. Will have to start getting them again.