Vanguard Life Strategy

badger09

jem16 wrote: »

The rules for Flexible Drawdown mean that you have to have secured pension income of £20k. Final salary pensions, pensions where an annuity has been taken and the state pension provide that secured pension. As you have rightly said, your public sector pension doesn't have a "pot" as it's a defined benefit pension.

If you now choose to invest within a SIPP or PP instead of a S&S ISA, you would then have additional funds that would attract 20% tax relief and which you could then enter into Flexible Drawdown with. This would allow you to take 25% tax free and the rest could be taken as a lump sum subject to normal income tax.

In other words if you had £20k of secured income with your public sector pension plus your state pension and then built up a SIPP pot of £20k, you could take £5k as a tax free lump sum and have the other £15k taxed at 20%.

@ jamesd and jem16

Thanks for clarifying. The penny has dropped - well partly.

I’m having difficulty getting my head around starting to invest in a SIPP or PP in my 60s. I’ve done a bit of reading on Flexible Drawdown but I’m going round in circles .

Using your example of £20k, it would actually cost me £16k on the way in, but I could withdraw £17k (after tax on 75% assuming no increase/decrease in value of investment)?. I know there are other costs involved in a SIPP or PP, and that tax relief is not available on contributions once Flexible Drawdown has started, but are there any advantages or disadvantages that I’m not aware of? Obviously all the caveats as for S&S ISA investment apply.

jamesd

Yes:

• Pay in £16,000 topped up to £20,000 by tax relief.
• Eventually withdraw £5,000 tax free lump sum, gaining 20% income tax gain on it, £1,000 of free money.
• Withdraw the remaining £15,000 at 20% tax, no tax gain here because you're already using your whole personal allowance.

Your gain is the tax relief on the tax free lump sum. The rest is no different from the ISA, other than the broader range of investments allowed in a SIPP if you use one of those. As you wrote, you put in £16,000 after tax and get to take out £17,000 after tax, an extra gain of 6.25% on your money compared to an ISA, before fees that'll reduce it a bit.

As soon as you start flexible drawdown you're effectively prohibited from making any more pension contributions because of large penalties. You can do capped drawdown to get the lump sum and some income at any time, though, and continue adding to a new pot and taking lump sums until you want to withdraw the remaining capital with flexible drawdown.

Assuming you're not a PAYE employee somewhere you're limited to no more than £3,600 of after tax relief pension contributions a year.

This is useful for already retired public sector and other final salary employees but it can be a wonderful tool to use for those among them who are approaching retirement and who can make higher contributions for a while, knowing that they will be able to get at the money.

adewalton

Afternoon!
Hope everyone is settling into the Easter weekend!!!!

Little help with this if you will.......

Already hold VLS 60% Equity Inc fund as you may or may not know.

Was thinking of adding another fund to my S & S ISA for next FY around the 6th of April.
Would it be a bad idea to add the First State Global Emerging Market Leaders Acc Fund?
Was thinking £1k in above and the rest (£1250) in VLS 60%?
Then carry on with my drip feed ie £150 VLS & £50 in FSGEM
Well not a bad idea, just your thoughts is what I'm asking I guess?
The other option is to stick it all in the VLS 60% fund and carry on with drip feed at £200 per month?

Thoughts........
Please
Cheers
Ade

takesyourchances

If you like to add more exposure then it is not a bad idea at all if you are happy with the added fund in your overall portfolio. The First State EM is one of the side funds I took out, as I am sure you will have read I added a few extra funds to my VLS 60%.

If you have another area you wish to cover and have an idea of what percent you would like it overall then this is similar to what I have done and personally I am happy enough to have added other areas on top of my VLS 60%.

Thanks.

thesaver79

Hi All,

I've just opened a S&S ISA with HL to invest £5640 for this year in a Vanguard Lifestyle fund. I'm still a bit undecided between the 80% or 60% equity. I'm 33, so I should probably go for the former, given that I'm intended to leave the sums invested at least for 10 years.

This said, shall I invest the lump sum in one go or shall I try to split it across various deals in the next few weeks or months to reduce risk?

adewalton

Some say go for the one with the bonds nearest your age?
So in your case it would be the 60% equity / 40% bonds?

It's only a guide though I think?

But given your age and timeframe the 80% is an option too..... This just has a bit more risk attached I guess!!!

Someone with more detail / experience will be along and comment further before long!!!

Remember you need to get a wriggle on if you want to invest in this FY?

badger09

jamesd wrote: »

Yes:

Assuming you're not a PAYE employee somewhere you're limited to no more than £3,600 of after tax relief pension contributions a year.

This is useful for already retired public sector and other final salary employees but it can be a wonderful tool to use for those among them who are approaching retirement and who can make higher contributions for a while, knowing that they will be able to get at the money.

I can see the point for those who can make higher contributions while still working, but to be honest, it seems rather complicated for £3600 a year.

innovate

It's an easy £720 every year....enough for a handbag and a pair of shoes! :cool:

badger09

innovate wrote: »

It's an easy £720 every year....enough for a handbag and a pair of shoes! :cool:

Or a new dishwasher

Yes, you're right, as usual. And given at least 10 years to invest, I suppose it makes sense not to waste it.

Its just that there seem to be so many rules around Flexible Drawdown, and my head is already hurting from S&S ISAs, AMCs & TERs, platform charges, balanced portfolios, pound cost averaging etc etc. :eek: More reading required!

jamesd

Always more to learn. It's not a huge amount of money - £180 tax relief gain on £3,600 put in each year. But since the investment choice is the same it's free extra money.