Anxious about markets before pension drawdown

thriftytracey

Hi


We have started the process to go to drawdown (signed the forms on Friday) i.e. sell funds within my husbands Aviva pension and buy funds in a Royal London flexi access drawdown. This is via an IFA.


I believe it takes about 3 days for the actual sale and purchase to take place.


What worries me if there was a significant fall in the markets- on the day the funds are sold and then the markets regains fully the day the funds are purchased in which case there would be a loss. The pension funds haven't been moved to cash and fixed interest they are still in a moderate portfolio I think there was a sudden drop in February this year arising from a number of factors.


There is nothing to mitigate this risk. I did wonder whether there was an insurance to cover this eventuality. I expect not.


I understand it could also work the other way which would be in our favour but I would rather it just be equable either way.


My husband is going to then start drawdown using up the 25% tax free until that has been exhausted. He is in receipt of a DB pension.


This is a persistent anxiety at the moment!


Am I worrying unnecessarily? Thanks for any input.

dunstonh

I believe it takes about 3 days for the actual sale and purchase to take place.

Aviva can be quick to transfer. I have seen 3 days on a more modern plan moving form them but months on a legacy plan that required manual calculations.

Royal London are bit sluggish at the moment by their standards. Although about a week from when they get funds (they honour the receipt date).

What worries me if there was a significant fall in the markets- on the day the funds are sold and then the markets regains fully the day the funds are purchased in which case there would be a loss.

That is a highly unlikely scenario. Losses are certainly possible but size and recovery are more than a few days. The dot.com period took 3 years to fall in value before taking 5 years to recover. The credit crunch declines took place over 6 months with a double dip and took years to recover.

What normally happens (but anything is possible) is that drops tend to be quick and recovery tends to be slow. if you are worried about this then perhaps drawdown is not for you because there is always a crash coming. Its not a matter of "if" but "when". And you will likely see several over your retirement.

Are you actually invested in the markets?
Have you asked told your IFA of this anxiety? One solution is to move to a deposit fund with Aviva before you transfer. You will miss gains but you will miss losses as well.

kidmugsy

thriftytracey wrote: »

My husband is going to then start drawdown using up the 25% tax free until that has been exhausted. He is in receipt of a DB pension.

Is your husband drawing his state pension yet?

Does his DB pension use up all of his Personal Allowance against income tax?

Brynsam

thriftytracey wrote: »

Hi

I believe it takes about 3 days for the actual sale and purchase to take place.
I think there was a sudden drop in February this year arising from a number of factors.

I did wonder whether there was an insurance to cover this eventuality. I expect not.

This is a persistent anxiety at the moment!

You seem to be relying heavily on guesswork and surmise, neither of which is going to bring you much comfort. How about finding out the facts? The answers may be reassuring - or not, in which case you might like to question whether the unpredictabilities of drawdown are for you.

thriftytracey

dunstonh wrote: »

Aviva can be quick to transfer. I have seen 3 days on a more modern plan moving form them but months on a legacy plan that required manual calculations.

Royal London are bit sluggish at the moment by their standards. Although about a week from when they get funds (they honour the receipt date).



That is a highly unlikely scenario. Losses are certainly possible but size and recovery are more than a few days. The dot.com period took 3 years to fall in value before taking 5 years to recover. The credit crunch declines took place over 6 months with a double dip and took years to recover.

What normally happens (but anything is possible) is that drops tend to be quick and recovery tends to be slow. if you are worried about this then perhaps drawdown is not for you because there is always a crash coming. Its not a matter of "if" but "when". And you will likely see several over your retirement.

Are you actually invested in the markets?
Have you asked told your IFA of this anxiety? One solution is to move to a deposit fund with Aviva before you transfer. You will miss gains but you will miss losses as well.

Thank you Dunstonh. We are happy with a drawdown. If there is a crash, there is a crash and we both lost jobs in 2008 but we got through it. A selfish point of view is that a crash affects many whereas the scenario outlined above is personal.


I will think about your suggestion.

thriftytracey

kidmugsy wrote: »

Is your husband drawing his state pension yet?

Does his DB pension use up all of his Personal Allowance against income tax?

No, Kidmugsy, he is not drawing his state pension yet. He is 62 and SRA is 66. His DB uses all his personal allowance. Hence drawing down the tax free element, a modest amount which will last (just) until his state pension.

BLB53

As you have it managed by a FA, my advice would be to forget about it and let your adviser do the worrying about the markets...this is partly what you are paying for, peace of mind.

thriftytracey

Brynsam wrote: »

You seem to be relying heavily on guesswork and surmise, neither of which is going to bring you much comfort. How about finding out the facts? The answers may be reassuring - or not, in which case you might like to question whether the unpredictabilities of drawdown are for you.

Well - our IFA said about 3 days. It can't be set in stone though. On average/usually, however you want to phrase it.


I don't pretend to know the multiplicity of factors that caused the drop in February.


"Earlier this week, the Dow suffered its worst fall in six years, losing 4.6 per cent in a single day and triggering a sell-off around the world. It went on to recover, but the loss — it was down by 1,175 points at one point, the largest drop in its history — was a lesson for everyone. "


There was a quick recovery. If a crash happens, it happens. We are moderate to cautious and fully understand the risks of a drawdown.

tacpot12

When the DOW or the FTSE may "crash" in one day, the sorts of funds your husband islikely to be investe in won't tend to crash as fast, and a crash while you are out of the market will work in your favour.

I would say though that it would be best to mentally prepare for the value of the funds on arrival to be less than the value of the funds currently. They are never going to be the same if you are out of the market for a period, even if it is only for one day.

I would expect the effect on your income to be tiny.

thriftytracey

Thanks for these words of reassurance. I will keep taking the tablets!