Appropriate funds for our SIPP

retireetobe

Please could someone knowledgeable reassure or correct me on this?

My husband (60 now) and myself (58 now ) intend to retire in about two years, although we can be flexible in the event of a market crash or something. We will fund the six years prior to both our SPs by using my DB work pension (paid unreduced) and part of my husband's DC pensions. His DC pensions total £120K and are spread between three companies - Aviva, Prudential and Standard Life. The maths do add up for us and I'm not worried about affordability.

I read this forum daily and am very interested in all things financial. I would like to manage our own pensions, but as yet I'm inexperienced with investments as we've never had any spare money. Today we opened a HL Sipp for him, paying in just the minimum £80 and with a monthly pay-in of the minimum £20. My logic is that this toe-dipping will give us a feel for how it runs and confirm that we are confident managing our own investments before we commit to transferring his three pensions into it. All being well, in 2019 he will then take the 25% TFLS plus withdraw £11500 from the Sipp for the next few years. The remaining money will stay invested for future needs/holidays/house repairs/general peace of mind.

With this strategy in mind, I need to decide a sensible fund to invest in. It's just the tiny balance at the moment, but potentially £120K if all goes well, so I would like to get it right if possible. Reading other threads here I wondered if people consider the Vanguard Lifestages 60 appropriate? Or is there another one that would suit our plans better? I appreciate that no-one here can give 'advice' but maybe someone with experience of these things would know if we're looking along the right lines with the Vanguard LS60?

Thanks in advance for any comments.

AnotherJoe

Why would you move the DC pensions ? They will currently be invested in something amd will have been since they started. What would your rationale for changing those investments be ?

(Your question would be, in car terms, to say " I have a Mercedes a Ford and an Audi but am thinking of buying a different car, what should it be " )

dunstonh

My husband (60 now) and myself (58 now ) intend to retire in about two years, although we can be flexible in the event of a market crash or something.

Or perhaps adjust the volatility of the investments so you dont need to be affected by that.

Today we opened a HL Sipp for him, paying in just the minimum £80 and with a monthly pay-in of the minimum £20. My logic is that this toe-dipping will give us a feel for how it runs and confirm that we are confident managing our own investments before we commit to transferring his three pensions into it.

You are not going to learn anything paying £80pm.

All being well, in 2019 he will then take the 25% TFLS plus withdraw £11500 from the Sipp for the next few years.

Do you have a capital requirement that needs you to draw the 25% in 2019? If not, why would you do that?

With this strategy in mind, I need to decide a sensible fund to invest in.

A pretty bog standard multi-asset fund should do the trick with that small amount. Probably similar to what you have in the existing pensions. Although using HL may well be more expensive.

jamesd

Since you both expect to stop working soon, you should both be looking to pay your whole gross pay into pensions. That saves you the income tax on at least 25% of your pay.

Since you're both 55 or older you can take tax free lump sums from personal pensions now. You can use this to help to fund your lifestyle while putting the maximum into pensions.

There are limits on how much recycling of pension lump sum money into pensions for the same person can be done. One straightforward set of things to do to stay within the limits is:

1. He takes the tax free lump sum into a bank account in his name.
2. He can recycle, directly or indirectly, 30% of the lump sum value into contributions to pensions in his name.
3. He can give you the rest, or all of it if desired, and you can use it for pension contributions or just living expenses.

Your plan to take her tax free lump sum and take income within the personal allowance seems sensible, given that any tax free lump sum not used could be put into ISA investments. But if necessary, taking it earlier to help to maximise pension contributions is likely to be more beneficial than waiting.

You can also do things like using 0% for purchase credit cards with long deal times to help.

The restrictions on tax free lump sum recycling end in the third tax year after the tax year in which the lump sum was taken. It's one reason sometimes why taking tax free lump sums as early as possible can be beneficial.

There's another level within which recycling is fine, up to £7,500 per rolling twelve month period. You can both use this to get at least much of the tax free lump sum money from new pension contributions out to help fund living while maximising pension contributions.

I suggest initiating transfers to HL now. You just might still have time to get the transfers done and the tax free lump sum money taken within this tax year. HL administration and support is very good to excellent and they will have investment options comparable to those in your existing pensions if you don't want to change those.

The Lifestrategy funds are about twice as expensive as doing the same thing with a few different funds instead. Use the similar ETF versions for most of the money after transferring, to benefit from the £200 per year cap on ETF platform charges, at the cost of paying dealing charges. To minimise those use some fund versions and switch into or out of ETFs about once a year. Fund versions with no dealing charges can be used for newly paid in money and money you plan to draw in the next year or so.

retireetobe

AnotherJoe wrote: »

Why would you move the DC pensions ? They will currently be invested in something amd will have been since they started. What would your rationale for changing those investments be ?

It's because they are all policies started in the 80/90s and none of them offer drawdown. The Aviva one doesn't even have online access. As they would need moving at some point in the near-ish future I thought it made sense to put them together in one place?

dunstonh wrote: »

Or perhaps adjust the volatility of the investments so you dont need to be affected by that.
Yes, that's what put me in mind of the Vanguard LS40 or similar.
You are not going to learn anything paying £80pm.
I suppose not, but I find I absorb things better (with anything, not just financials) by studying actual working examples rather than by studying the theories. And with a small initial balance I would be able to enjoy the learning curve without a great deal of anxiety. Made sense to me!
Do you have a capital requirement that needs you to draw the 25% in 2019? If not, why would you do that?.
We may have. We've just inherited a beautiful but very run-down old house which we intend to modernise and retire into, which will probably take two years. We're still getting prices for the work, so it's all in flux at the moment - but knowing the lump sum is there means we CAN do it even if it costs more than is affordable now. That might also affect our timings of course.

jamesd wrote: »

Since you both expect to stop working soon, you should both be looking to pay your whole gross pay into pensions. That saves you the income tax on at least 25% of your pay.

Since you're both 55 or older you can take tax free lump sums from personal pensions now. You can use this to help to fund your lifestyle while putting the maximum into pensions.

There are limits on how much recycling of pension lump sum money into pensions for the same person can be done. One straightforward set of things to do to stay within the limits is:

1. He takes the tax free lump sum into a bank account in his name.
2. He can recycle, directly or indirectly, 30% of the lump sum value into contributions to pensions in his name.
3. He can give you the rest, or all of it if desired, and you can use it for pension contributions or just living expenses.

Your plan to take her tax free lump sum and take income within the personal allowance seems sensible, given that any tax free lump sum not used could be put into ISA investments. But if necessary, taking it earlier to help to maximise pension contributions is likely to be more beneficial than waiting.

You can also do things like using 0% for purchase credit cards with long deal times to help.

The restrictions on tax free lump sum recycling end in the third tax year after the tax year in which the lump sum was taken. It's one reason sometimes why taking tax free lump sums as early as possible can be beneficial.

There's another level within which recycling is fine, up to £7,500 per rolling twelve month period. You can both use this to get at least much of the tax free lump sum money from new pension contributions out to help fund living while maximising pension contributions.

I suggest initiating transfers to HL now. You just might still have time to get the transfers done and the tax free lump sum money taken within this tax year. HL administration and support is very good to excellent and they will have investment options comparable to those in your existing pensions if you don't want to change those.

The Lifestrategy funds are more expensive. Use the similar ETF versions for most of the money after transferring, to benefit from the £200 per year cap on ETF platform charges, at the cost of paying dealing charges. To minimise those use some fund versions and switch into or out of ETFs about once a year. Fund versions with no dealing charges can be used for newly paid in money gen money you plan to draw in the next year or so.

JamesD, thank you so much for taking the time to write that. It has given me lots to think about and lots of research to do. For the benefit of any other 'beginners', your post prompted me to research pension recycling and I found the gov.uk website has a comprehensive and easy to follow guide, detailing what does and doesn't constitute recycling. As a new member I can't post links, but it's on gov.uk and just search PTM133810

jamesd

There's also https://forums.moneysavingexpert.com/discussion/comment/70696778#Comment_70696778 which is more directed to explaining what you can do to stay within the limits.