Pension fund investment

tsherar

I have a small self administered pension, with a fund of £400K. At the moment it is in a bank earning 5%.
I am 60 and my wife is 51, and we are retired and drawing down £23k p.a.
I am concerned that investing in shares etc. might lose me a lot of money. Does anyone have any ideas on how i can increase the return on my fund without exposing it to serious loss.
thanks
terry

dunstonh

I am concerned that investing in shares etc. might lose me a lot of money. Does anyone have any ideas on how i can increase the return on my fund without exposing it to serious loss.

You have mentioned deposit and shares but there are a load of options in between. Far too many to list here. Also, what is serious loss? Had you invested in a medium risk sector allocated spread before the stockmarket crash of 2001/2 then you would be up 62% now had you only achieved sector average returns. Compare that to your 5% p.a.

Investing isnt a choice of stockmarket or deposit. There are other things.

jamesd

Become a customer of an investment or pension-specialist IFA. You're currently proving that you need to be one and will almost certainly be better off after fees than you are now.

At present you're drawing 5.75% while earning 5% in interest.

Do not do what I'm about to describe. It's merely an example of what you can do with some basic options, not a well thought out professional plan for you.

Place 24 months - say 50,000 - of your desired income in high interest account and draw your regular income from that account. Something like the Bradford and Bingley eSavings account is paying 5.35% and lets you set up regular monthly transfers from it to a current account. This gives you perfect predictability for day to day living now and for two years into the future, regardless of what the stock markets do.

Buy say 200,000 of funds to provide a stream of income to do partial topping-up of the savings account from income. Not intended to be 100% topping up, just enough so the balance can be reviewed and acted on every six months without dropping too precipitously and worrying you. Funds like Baillie Gifford High Yield Bond and UK equity income funds might feature here. At six monthly checks you can sell some of the capital growth to top up the savings account and keep it varying between 18 and 24 months worth of guaranteed living expenses.

Now you've assured your living expenses two years ahead and arranged for regular topping up from income and selling of units. You're pretty secure for more than five years into the future regardless of what happens to the markets. Even if you lost every penny of the rest, this setup should give you at least as much income as you're currently getting.

And that leaves you free to put the other 150,000 into more adventurous high growth funds. Things like emerging markets, European growth and a broad mix of relatively high risk funds. This is your long-term capital replacement and growth pool, designed to swing with the markets but over time to grow much faster than the income-producing portion. And in particular, to try to keep your fund value and income growing faster than inflation so you don't get poorer over the years. If the markets are doing fairly well, you can shift some of this into the middle chunk to top that up, if necessary. If they fall a lot, you can abstain from doing that for a while, knowing that you aren't forced to sell during a low time because the other areas are taking care of your living expenses.

There are many more options than this - including things like short term annuities and other types of bonds - and the distribution of money between and within the groups is variable but this should give you some idea of how you can set up an asset allocation strategy to assure your income while leaving you free to exploit the capital growth of stock markets. Without losing sleep!

Once more, because it's so important: do not do this. It's just an example of the sort of thing that's possible. It's important enough to get right that you should get professional advice from someone like dunstonh who does this for a living.

EdInvestor

Look for a mix of investments which pay an income. As well as cash these might include funds which invest in

-commercial property
-corporate bonds and gilts
-"defensive" shares ( large household name companies which pay good dividends), these funds are called "equity income" funds.

You will have to take some risk to get a higher return, but look at "asset allocation" which reduces the risk.

For instance you might keep 50% of the total in cash, with the other 50% divided one third each into shares bond and property funds.

Don't ignore charges.Is your SSAS provider competitive or does it hit you for a large annual fee?There are many new cheaper providers online now. Here's an example:

https://www.sippdeal.co.uk

jamesd

Tax time now. You can probably arrange to be paying no tax at all on your income 10-15 years from now, so this will be important.

You say that the money is in a bank account, so presumably you're paying tax on the income. If you don't have a plan to reduce your tax liability, you should, since you can eliminate much of the tax, over time.

One easy starting point is using the stocks and shares ISA allowances of 7000 per person per year, transferring 7000 a year to your wife to use her allowance. It's a per-person limit, can't be shared by a couple, only used as individuals. Start with investments producing high income, since those benefit most from the ISA and will start to shield the income you have to take to live on. The income from the ISA investments will be tax free and you should be able to shift 700-800 in income (350 for each of you, 140 income tax saved) into it each year. Ten years from now you'll have 7000-8000 of tax free income coming from this. Add to your tax allowances and that's no tax to pay on around 20000 a year of income and only 10% on the rest.

Your wife gets her own personal allowance. Are you using it? If not, arrange for her to have at least the personal allowance worth of income in her own name.

Do either of you have a pension? If not, paying some money into a pension then drawing it out again as a mixture of 25% tax free cash and an annuity or pension drawdown can get you tax relief on the contributions. Eventually this can combine with the ISA income to get you tax relief on the way in and no tax to pay on the way out. Free money, though with some catches in how you can use it, so arranging more than your personal allowance worth of pension income isn't really the best of ideas.

There are more considerations and options than these, so again it's time to talk with a professional to make sure that you have a cohesive plan in place.