Stakeholder Pension Query

sham63

I'm 52 and plan to retire at 55. I have a civil service pension that I can take at 55, but I will receive substantially more if I defer until I'm 60, which I intend to do.

As I have £1600 disposable income each month which I currently save, I'm looking at putting this into a stakeholder pension for the next 3 years until I retire to build a pot of approx £70k to help fund the 5 years between 55 and 60.

My calculations indicate that taking into account tax relief (I'm a 40% tax payer) this will allow me to take approx £1600 per month under the new rules over the 5 years from 55 to 60. This will be my sole income for this period so I will have my full personal allowance to allow me to take the majority tax free.

The stakeholder I have chosen is Aviva (via Cavendish) as the annual charge is 0.55% reducing to 0.5% once the pot hits £20k. I'm doing this myself without an IFA, so need to decide on the funds to invest in. As it's only for 3 years it will need to be cautious, so I've earmarked the Aviva Long Gilt Fund and the Aviva Deposit Fund (which Aviva recommend for < 5 year investments) and possibly a Corporate Bonds fund as well, in equal proportions.

Any major flaws in this plan please? Any advice greatly appreciated.

greenglide

Most of the money will, of course, be invested for more than three years but you will still need to invest with short horizons if this £70k is your sole income (and savings?) for a period of eight years.

Do you have other savings - investments as well?

sham63

No other investments but savings of approx. £30k in ISAs. My partner has savings which will also subsidise the 5 year period. We have wills/power of attorney in place.

Dunnit

One question would be which CS pension are you in as some do not give benefits to partners only spouses?

sham63

It's CS Premium and allows a 'declared partner' so It's ok on that point.

Dunnit

You have the fall back position of 2 years money in ISAs (presumably cash) and the ultimate of taking your CS pension early.
My personal risk profile would be higher but as the UK stock market is riding high; there is an election with impacts from Labour or further left coalition, or Tory faffing about with BRexit; Greece and the Euro; etc then there may be better times in coming years to invest in the stock market long term.

sham63

Perhaps you're right about a higher risk profile - I should think about an equities fund as well as the gilts/deposit/bonds split, with 25% in each given that they will be invested for eight years in total, possibly switching out of the equities fund as I approach 60.

Dunnit

Unless you are going to pay HRT in retirement at 60 then you could plan to pay yourself the equivalent of your state pension for 7 years through your pension i.e. you do not need to drain your pension fund to £0 by your 60th birthday.

kidmugsy

Long Bonds? Are you sure? Why an AVIVA stakeholder?

If you chose a cheap SIPP (see the current blogpost at Monevator) you could instead buy a "ladder" of Gilts that mature during your period of interest; that would remove a lot of risk.

sham63

kidmugsy wrote: »

Long Bonds? Are you sure?

Not really - just following the advice on the Aviva website which indicates this is a sensible move to reduce risk?

kidmugsy wrote: »

Why an AVIVA stakeholder?

Seems very straightforward to apply - lowish fees - uncomplicated - been happy with my dealings with Aviva over the years. Seems cheaper than the rivals (Scottish Widows, L&G etc)

kidmugsy wrote: »

If you chose a cheap SIPP (see the current blogpost at Monevator) you could instead buy a "ladder" of Gilts that mature during your period of interest; that would remove a lot of risk.

Are there risks associated with my suggestions - I thought it was a pretty cautious approach (too cautious?) I'll have a look at that BlogSpot - thanks

dunstonh

Not really - just following the advice on the Aviva website which indicates this is a sensible move to reduce risk?

It is not advice. It is information.