MSE Blog: Do you know the difference between pensions guidance and advice?

jamesd

Linton wrote: »

The trouble is that 5.8% inflation linked only beats 5.6% with no link in the long term. Having lost a year or more of SP income the payback time starts getting rather close to life expectancy.

Yes, payback time is much more of an issue at 5.8% than at 10.4%, where it's in the 9-12 year sort of range depending on tax rate.

Compared to an annuity that's a bit of a red herring, though, since the annuity has the same issue: you spend the capital then have to live long enough to get the money back.

doshunta

jamesd wrote: »

Linton, anyone considering drawdown is likely to have had many decades of investing already, the least well informed probably in managed balanced funds..

Can you shine a bit more light on improved alternatives to MBFs?

Some background:

I'm coming up to 52 with around 25% of my fund in Schroders MBF, having put more of my fund there following a period of poor fund management from my last IFA. I scuttled back to this as a default 'safe' choice as it had performed reasonably at the time and was the company's default scheme, so 'felt safe'.

I'm at that age where I realise how important net fund growth (ex inflation and fees) is, given I would look to retire in but am now becoming less hungry for full on equity risk, particularly given poor recent experience.

Thanks a lot!

dunstonh

Can you shine a bit more light on improved alternatives to MBFs?

You wouldnt use balanced managed funds typically for drawdown. You would use an appropriate strategy for income provision (there are several).

having put more of my fund there following a period of poor fund management from my last IFA. I scuttled back to this as a default 'safe' choice as it had performed reasonably at the time and was the company's default scheme, so 'felt safe'.

Were the performance differences down to timing or relative performance to sector?

gadgetmind

dunstonh wrote: »

You wouldnt use balanced managed funds typically for drawdown. You would use an appropriate strategy for income provision (there are several).

I've never been convinced by this. I don't care whether the money I draw down comes from dividends/coupons or capital gains. If you restrict yourself to only drawing income, then you reject all assets that don't generate enough income.

What evidence do we have that by eliminating large parts of the investment universe you'll get better results?

dunstonh

I've never been convinced by this. I don't care whether the money I draw down comes from dividends/coupons or capital gains. If you restrict yourself to only drawing income, then you reject all assets that don't generate enough income.

Capital growth can be part of the withdrawal process. However, how are you going to structure this years withdrawals which have under 12 months investment time. How are you going to structure withdrawals for 3 years time. How about 5 years, 10 years, 20 years. You are drawing from a pot that is going to have different investment timescales for different periods.

A single balanced managed fund is single risk and has no consideration of some of the money being short term and some longer term.

gadgetmind

dunstonh wrote: »

However, how are you going to structure this years withdrawals which have under 12 months investment time. How are you going to structure withdrawals for 3 years time. How about 5 years, 10 years, 20 years. You are drawing from a pot that is going to have different investment timescales for different periods.

That's an issue no matter what you invest in unless the "natural yield" is greater than the desired drawdown.

My plan (subject to ongoing review!) is to enter drawdown with about three years of essentials covered by cash held in (mainly) index linked cash, and with my drawdown portfolios heavy (50%+?) with fixed interest to lessen the impact of sequence risk. I'll then slowly increase equity holdings as other income (SP) kicks in based on the backtesting done by tools such as firecalc.

Our ISAs will be the last port of call, so these will continue to grow for 12+ years after retirement, so these can maintain a much larger equity allocation.

Or I could just say "sod it" and bang the whole lot into some income oriented Investment Trusts.

gadgetmind

Oh, and I probably didn't interpret your comments correctly so we might be violently agreeing!

doshunta

dunstonh wrote: »

Were the performance differences down to timing or relative performance to sector?

Poor fund choice and timing, then lack of action to stop the slide early enough... also clear that my 5% growth targets didn't need such relatively high risk fund choices...

jamesd

The FCA just released clarification of what is and isn't investment or personal advice or guidance.

Finalised Guidance
FG15/1: Retail investment advice: Clarifying the boundaries and exploring the barriers
to market development