SIPPs Diversity / Risk Strategy OK?

scottwinner3

HI All, any comments / suggestions welcomed on this post.
I am 46 and looking to cash in a previous final salary scheme pension worth approx £200k. (the scheme has been recently changed to a 'CARE' scheme which means I would only gain a max of 2.5% increase year on year from now on).
I think I have settled on the Interactive Investments SIPP as it charges a flat fee of £90 per year rather than a percentage based fee.
I am looking at selecting passive tracker funds to invest in (is this a good idea ?).

so, here is the breakdown I am looking at now :
Vanguard Life Strategy 40% Equity Fund - 40%
HSBC FTSE 250 Index C Acc - 20%
HSBC American Index C Acc - 20%
Fidelity Index Emerging Markets - 10%
Fidelity Index World I Acc - 10%

I guess my question is mainly, is this a risky strategy or a medium risk strategy?

I have asked for a final surrender value from my old scheme so suspect will not be able to action any transfer until next tax year. I am self employed and have £8k to put into a SIPP this year, which I will probably do the same split as shown above.

Thanks for any thoughts!

cloud_dog

scottwinner3 wrote: »

I think I have settled on the Interactive Investments SIPP as it charges a flat fee of £90 per year rather than a percentage based fee.

Just a quick comment... I think you've misunderstood the charging structure. It is £100 + VAT per year for the SIPP, and there is a platform fee of £22.50 per quarter. The £22.50 can be offset against trading (buy/sell) costs.

Linton

scottwinner3 wrote: »

HI All, any comments / suggestions welcomed on this post.
I am 46 and looking to cash in a previous final salary scheme pension worth approx £200k. (the scheme has been recently changed to a 'CARE' scheme which means I would only gain a max of 2.5% increase year on year from now on).
I think I have settled on the Interactive Investments SIPP as it charges a flat fee of £90 per year rather than a percentage based fee.
I am looking at selecting passive tracker funds to invest in (is this a good idea ?).

so, here is the breakdown I am looking at now :
Vanguard Life Strategy 40% Equity Fund - 40%
HSBC FTSE 250 Index C Acc - 20%
HSBC American Index C Acc - 20%
Fidelity Index Emerging Markets - 10%
Fidelity Index World I Acc - 10%

I guess my question is mainly, is this a risky strategy or a medium risk strategy?

I have asked for a final surrender value from my old scheme so suspect will not be able to action any transfer until next tax year. I am self employed and have £8k to put into a SIPP this year, which I will probably do the same split as shown above.

Thanks for any thoughts!

If you have little experience, investing in passive trackers is probably better than most other choices you could make. I would call it medium/high risk as it is about 75% equity (shares) and 25% bonds. Perhaps liable to a 30% fall in a bad crash. But this is less significant a risk than your proposal to sacrifice the 100% guaranteed income from the CARE scheme unless there are special personal circumstances that justify the proposal.

The details of what you plan to do seem a little odd. You buy VLS40% which has 40% spread across US, UK, Far East and Europe, add FTSE World which also invests broadly across the world and then add in UK,US and EM trackers (which include SE Asia). It seems you dont like Europe or Japan - any reason?

It would be simpler just to invest 70% in VLS 60 or VLS 80 and then add in FTSE250 and EM trackers.

bostonerimus

Linton wrote: »

If you have little experience, investing in passive trackers is probably better than most other choices you could make. I would call it medium/high risk as it is about 75% equity (shares) and 25% bonds. Perhaps liable to a 30% fall in a bad crash. But this is less significant a risk than your proposal to sacrifice the 100% guaranteed income from the CARE scheme unless there are special personal circumstances that justify the proposal.

The details of what you plan to do seem a little odd. You buy VLS40% which has 40% spread across US, UK, Far East and Europe, add FTSE World which also invests broadly across the world and then add in UK,US and EM trackers (which include SE Asia). It seems you dont like Europe or Japan - any reason?

It would be simpler just to invest 70% in VLS 60 or VLS 80 and then add in FTSE250 and EM trackers.

I agree with Linton on this. Trackers are a good choice for the novice. Your asset allocation is quite aggressive having such a high equity component, but at age 46 you still have time to recover from losses before retirement. I would look at your asset allocation and rather than adding specific geographical sectors to a core of VLS60 I'd add EM and global small cap if you think that's valuable.

Triumph13

Assuming that the DB would be something in the region of £7k pa, that, plus a full SP, would give a nice, solid, guaranteed core income in retirement. My immediate inclination would be to keep the DB for that purpose and use the freedom having that gives you to go 100% equity trackers in a SIPP with your £8k pa for the next 20 years in the hope that will give you around another £10k pa in retirement so £25k overall with £15k relatively risk free.

Linton

scottwinner3 wrote: »

.........
I am 46 and looking to cash in a previous final salary scheme pension worth approx £200k. (the scheme has been recently changed to a 'CARE' scheme which means I would only gain a max of 2.5% increase year on year from now on).
........

Are you sure that is correct? I would expect the change in Ts&Cs to only apply to new contributions.

JoeCrystal

Just bear in mind that you will need an IFA to sign off on this as it is a legal requirement. Having said that, having a DB pension along with the state pension is really a great foundation to build upon for your retirement so this should be considered very carefully

scottwinner3

Thanks Linton, and all other contributors.
My thoughts were that a SIPP and using trackers the lump sump would over the next 15 years or so outperform the DB pension (the latest prediction I have got from the scheme is that if I retire at 65 it would yield £8k per year pension).
I appreciate the risk in shares going up and down etc, and openly admit to being a novice 8-), but everything I have read on this type of investing is that trackers over a mid to long period will outperform most if not all managed funds, and my thinking is that I could get a better pension by using a SIPP. I guess my selection of funds above show my inexperience, hence me using this excellent forum and all you helpful people (Thanks again).

Audaxer

scottwinner3 wrote: »

Thanks Linton, and all other contributors.
My thoughts were that a SIPP and using trackers the lump sump would over the next 15 years or so outperform the DB pension (the latest prediction I have got from the scheme is that if I retire at 65 it would yield £8k per year pension).
I appreciate the risk in shares going up and down etc, and openly admit to being a novice 8-), but everything I have read on this type of investing is that trackers over a mid to long period will outperform most if not all managed funds, and my thinking is that I could get a better pension by using a SIPP. I guess my selection of funds above show my inexperience, hence me using this excellent forum and all you helpful people (Thanks again).

A SIPP is only covered under the Financial Services Compensation Scheme up to £50k per platform and fund house which is something else to bear in mind when considering cashing in a secure DB pension.

If there is an equity crash just before you want to drawdown the SIPP, how would you feel if the SIPP value dropped below the current value and unlikely to yield £8k per annum when you needed it?

As others have said, trackers are fine, but I think you need a better allocation or have it all in a balanced multi asset fund. When you are ready to drawdown your SIPP you would probably be better with a more income based portfolio of active funds, and should also have a decent cash buffer to use in market downturns when best not to draw on the SIPP.

So I would think carefully, considering all these things before cashing in a secure DB pension.

NoMore

I think you should do some reading and learn about the difference between DB and DC pensions.

Your considering giving up a GUARANTEED 8k per year (plus whatever inflationary increase system the pension uses) with no responsibility on you to generate that income, to switching to managing a fund yourself where all the responsibility is on you to generate the income and keep ahead of or on pace with inflation and no guarantees you will manage to do it.

EDIT: http://www.thisismoney.co.uk/money/pensions/article-4922958/Should-cash-final-salary-pension.html Here's a start but do your own research and check various sources rather than relying on one person on the internet.

Thrugelmir

scottwinner3 wrote: »

the scheme has been recently changed to a 'CARE' scheme which means I would only gain a max of 2.5% increase year on year from now on

Is the scheme not indexed to CPI which is currently higher than that level.