Income Drawdown Control Account %

SallyG

Is it normal practice to keep 17% of an Income Drawdown fund in the "Control Account"/not invested?

dunstonh

depends on your investment strategy

GhIFA

Is this on a plan where the investments are being managed on the planholder's behalf by an investment manager/discretionary fund manager?

SallyG

It's a SW managed fund -
I'm looking at an SW illustration to try to decide whether to move to the same fund in its post RDR version - allegedly lower charges ...........
ashamed to say it's the first time I've really got eyeball to eyeball with the grisly details - it may well be this control account has always been there/is a feature of all drawdown pensions ?
This would be the control account arrangement if I moved to the post RDR version
http://www.scottishwidows.co.uk/pensions/retirement_account/faqs.html

"The Control Account acts as a clearing and transactional account. Positive balances held within the Control Account will receive ‘positive balance adjustments’ which are calculated daily and added each month. The adjustments are currently calculated at a rate equivalent to Bank of England bank base rate."
17% of the fund in that doesn't sound healthy for me.

dunstonh

IIRC, SallyG is DIY with SW retirement account.

Many unbundled contracts operate a cash account for the handling of transactions. How much is held in there depends on what you are using it for. Growth only tends to see around 2% as the ideal figure. Income may but how much would depend on which income drawdown strategy you are using.

SallyG

Thanks - er .....drawdown strategy ..... I take out the max 120% GAD asap each pension year - so I'm using it for income ..... but need growth to provide that income - so I'm never quite sure of the difference between income and growth ....
the RA Control Account would hold about £9000 in excess of max drawdown and total account charges - seems a lot to be swanning about not earning?

dunstonh

Thanks - er .....drawdown strategy .

There are multiple strategies that can be viable for drawdown.

I take out the max 120% GAD asap each pension year - so I'm using it for income

How do you invest to make that viable over the long term as well as dealing with short term and medium term (as your pension now effectively has to deal with multiple timescales)

SallyG

I've read on a bit further through the Illustration - it's hard going, lots of cross referencing/back covering - apparently my control account is "recommended" to hold the first two years of income and ongoing adviser charge ...... nothing so far about interest rates.
No "Control Account" as such apparent for my current SW Income Drawdown arrangement; maybe it's smoothed over/hidden in the unit price like the "advice" charges?
It appears SW can do the same deal for about 0.7% lower charge annually as long as I pay one off £600 joining advice fee and £300 annual review advice fee and keep 17% of my fund uninvested so SW have the benefit ?????

dunstonh

It appears SW can do the same deal for about 0.7% lower charge annually as long as I pay one off £600 joining advice fee and £300 annual review advice fee and keep 17% of my fund uninvested so SW have the benefit ?????

We had this discussion before. A tied agent will only do what their compliance allow them to do. It will typically be a one-size-fits-all approach for everyone. You will get basic investment options and one strategy. Probably computer based as well. However, there are multiple drawdown investment strategies and methods of drawdown available.

SallyG

Provider confirms there's no control account with my current drawdown deal - 100% of my pot invested - I've no idea of the mechanics of the annual drawdown payment but this is year 3 and there's been no problem with the payment taken as an annual lump sum ....but I don't know whether this "no cash held" aspect is somehow to my disadvantage/a handicap to growth/selling at a bad time etc.
The new deal illustration projections are based on 100% invested despite recommending in the same illustration that I keep 17% of my pension pot in limbo at an alleged 1% [verbal]
I can only assume this means that a recommendation is not a requirement - maybe I could carry on not having a control account black hole and still get fund charges halved and not pay for advice I don't get?

Linton

A cash reserve in my view is highly desirable for a pension in drawdown as it reduces the necessity to sell investments at a possible loss in the bad times when an income payment is required. If this protection is available you can afford to take greater risks and gain a higher return with that part of your drawdown pot that is assigned to equity investments.

Alternative strategies are to invest your pot conservatively or to stop taking income when prices are low.

I personally intend to keep about two years payments in cash and invest significantly in higher risk funds.