DIY Drawdown?

okydoky

I have five separate pension funds totalling about £250K (all DC), and will be looking to consolidate these shortly, take about £50K tax free and put the balance into drawdown to take about £9K pa for max tax efficiency as I will not be in other gainful employment (aged 57, recently redundant).

Can I do this using the likes of Hargreaves Lansdown or Fidelity or someone else cheaply on a DIY basis or do I need an IFA?
I have so far managed my non-pension portfolio without the need for an IFA but it is relatively simple with shares, S and S ISA's, cash Isa's and other unit trust type investments.

Anyone else been in a similar situation and been through this, or anyone have an opinion?

Thanks

jamesd

Nothing in the law or regulations makes it necessary for you to use an IFA.

You might want to look into whether Alliance Trust will be suitable for you. It now makes available funds with no commission, so instead of a typical 1.5% fund annual management charge they would be at 0.75% - no 0.5% (for IFA) or 0.25% (platform) parts any more there. Instead they have a range of fixed fees. If you don't trade much you have enough invested for it to possibly be a good deal for you. They charge a fee for each transfer in so it might make sense to consolidate all into one elsewhere then transfer a second time if that reduced costs.

There are others but with the FSA's platform review not due to be done for a year it's still relatively early for there to be lots of no commission competition.

An IFA would probably use a platform on similar terms to Alliance Trust but may find a product with better range or lower costs.

Hargreaves Lansdown just got a little cheaper than it was but they still take most of the 0.75% or so total commission, rebating between nothing and 0.5%, typically it seems around 0.1-0.2%, though it does vary by fund. Beats nothing. The rebates are paid into the pension pot. It's not a really horrible place to use for consolidation and as a holding place until the platform review things get sorted out. On £200,000 you'd end up paying them around £1,000 to £1,500 a year in commission for their service if it was all in active managed funds. So it's worth looking carefully at alternatives even if you did end up switching after a year if the platform review ends up producing better long term deals next year.

It's probably better to take the maximum tax free lump sum and gradually move the money into S&S ISA investments. That'll be more tax efficient long term because it won't be affected buy any possible increase in income tax rates or adjustments in allowances or growth in the value of your investments. Beats the chance of ending up paying tax on some of your income for 40 years if the pension value does grow. It also gives you more income flexibility to handle things like GAD limit changes because there's no GAD limit on how much income or capital you can take out of an ISA. So get it out of the pension now and be certain that it's available if you need it. To reduce the short term possible tax effects you can put the interest producing investments into the S&S ISA first and the growth and dividend payers later.

Do be sure that you don't do something like paying off a mortgage with the lump sum. You can take more income to pay the mortgage bill instead and that'll probably make you better off given the difference between mortgage rates and how much you can take in income from an ISA.

To smooth your income you should consider one to three years worth of investment income left in a savings account and taking your income from that. Have the investments top up the savings account. Then you won't care about just when dividends or distributions get paid. One year's is a bit on the low side, three years provides protection for say a 10% income drop for a long time - 20-30 years, probably more than is really needed for smoothing. So something between the two is likely to be sufficient.

Be particularly aware of the potential for GAD limit changes due to market movements and getting your limit set at a time when markets are down. That could temporarily lock you into a lower income for three years. You need a buffer to handle that - the ISA and the savings account provide that buffer.

PaulCooper

I was in a very similar position to you 7 years ago, here’s what I did--- doesn’t mean to say it’s right, but after 7 years I have no regrets

· Check if your existing pension plans have attractive Guaranteed Annuity Rates, if for example one of yours had a GAR of 9-10% then personally I’d leave it where it was

· Find out the Transfer Value of each fund, this may or may not be different to the current value of the fund, again if the TV is £10k different that the current value, you might consider leaving

· Select a company that provides SIPPs, I found one on the recommendation of the agent (I guess that was an IFA) that I had the pensions with. I went with a company called Barnett Waddingham, they manage the SIPP along with me as joint trustee, their yearly fee for servicing the SIPP is £575. They offer no advice, they will do exactly what I ask them to (if of course it’s within pension rules), they will answer any question I ask them(but of course you have to know the question to ask)

· Once the money was in a SIPP, I crystalized 25%,t he remainder of the fund being in cash, over the 7 years, I’ve averaged 4% growth, not fantastic, but it allows me to play easily with tax free lump sums and drawing down sums to suit my tax position

· I didn’t use an IFA to transfer the funds &still don’t use one



Best of luck

Paul

BLB53

If you are managing a S&S isa OK, you should be OK managing your sipp drawdown.

I use Sippdeal who charge £150 +vat to convert and then £75 PA +vat. Check the comparable fees for HL or Fidelity.

I use investment trusts rather than funds to generate the drawdown income as I think they are smoother and more predictable - so that is another aspect to consider.

Here's a link to a recent article on RIT which might help.
http://www.retirementinvestingtoday.com/2013/01/investing-for-income-via-investment.html

Good luck with everything!