Portfolio for SIPP Flexible Drawdown

5-Star

I have a SIPP that has been funded by the transfer of maturing share options so at the moment all the assets are in the shares of a single company which I know is high risk. I want to diversify into a portfolio suitable to support flexible drawdown starting next year after I retire, at which time I hope to have around £80K in the SIPP. As I will be receiving a final salary pension and do not want pay 40% tax I will keep the drawdown to around £5k per annum for 6 years until my state pension kicks and thereafter only dip in if I need emergency funds.

Not withstanding that I currently have all my eggs in one basket I am a “cautious investor” and as I’m not looking to replace the funds that are taken out, I will be happy with a low risk,low cost portfolio that generated sufficient returns for the money remaining in the SIPP to keep pace with inflation. My thoughts are 50% in FTSE index tracker and 50% in a corporate bond tracker – does this approach seem sensible and what are the alternatives?

TH1878

First thoughts are that you would be over-exposed to the UK

Linton

A FTSE tracker is not a low risk investment. Look at the graphs - the FTSE100 index has halved and doubled (more or less) twice in the past 12 years.

dunstonh

My thoughts are 50% in FTSE index tracker and 50% in a corporate bond tracker – does this approach seem sensible and what are the alternatives?

Not consistent with cautious risk profile and totally over exposed to one of the worst performing stockmarkets in the western world. Diversification is awful.

5-Star

Thanks for the feedback so far - I'm obviously way off base in my approach so what do folk suggest as an alternative?

middlepuss

Linton wrote: »

A FTSE tracker is not a low risk investment. Look at the graphs - the FTSE100 index has halved and doubled (more or less) twice in the past 12 years.

"FTSE tracker is not a low risk investment..." compared to what and over what period of time?

middlepuss

OP, I don't think you are way off base.

You will not be relying on the fund for your main source of income. If you invest the pot in, say, a FTSE All Share Tracker 50% and 50% in an emerging markets unit trust and they went on a roller coaster ride over the next few years would that matter?

Do you mean flexible drawdown? I think there's a difference between ordinary drawdown - where the income you can take is limited - and flexible drawdown - where you can take the whole pot out in one go if you want to.

SIPP providers usually charge you a lot for flexible drawdown as opposed to ordinary drawdown. With "ordinary" drawdown you can vary the income you take each year.

If the income you take from the pot is more or less covered by the dividends from the underlying investments does is matter if the capital value of those investments goes up and down? Despite the oscillations in the FTSE over the past 12 years the income from a FTSE tracker has been relatively stable, and is rising.

Ilya_Ilyich

Given that the OP's concerned about hitting the 40% tax threshold I think it's safe to assume she meets the requirements for flexible drawdown.

middlepuss

Ilya_Ilyich wrote: »

Given that the OP's concerned about hitting the 40% tax threshold I think it's safe to assume she meets the requirements for flexible drawdown.

Yes, I'm sure you're right, the OP would meet the legal requirements for taking Flexible Drawdown. However, I'm wondering if the OP really means Flexible Drawdown or whether she really just wants the flexibility to vary the income from her SIPP - which she can do without opting for Flexible Drawdown per se.

Linton

There can be many definitions of Risk. One measure that perhaps would be most meaningful to many investors, particularly those who claim to be risk averse, is the % fall in the bad times. If one looks at the 1772 funds on the Trustnet list FTSE trackers appear around the 450-600 th positions in the ascending list of returns during 2008. That is rather low down in the 3rd quartile.

To have a fund of this level of risk as half a SIPP portfolio is certainly open to question, though it may be justified by good long term returns.

Looking at the 10 year data FTSE trackers appear around the middle of the total return table. Doesnt look convincing to me.

robmatic

Linton wrote: »

Looking at the 10 year data FTSE trackers appear around the middle of the total return table. Doesnt look convincing to me.

They're meant to be around the middle of the table. That's kind of the point about a tracker...