SIPP & Alpha - Is my portfolio & retirement plan right?

twotonealex

Afternoon All,

Just a brief summary before I get into it, apologies for the long post but I need to give all the info! I am disregarding state pension, I am 41 years away from being able to receive it, god knows what they will have done to it by then!

-I am 27, a civil servant on the Alpha Pension scheme (DB) earning £34K a year.
-I am planning on retiring at 55 years old, essentially the Alpha Pension will support me from 65 (I am paying EPA to reduce the age I can receive this, from 68 to 65, I am aware this could change).
-I am looking at bridging the gap from 55 to 65 with my SIPP & BTL Properties/sale of these properties, and maybe further into retirement.

Alpha Pension

As this is defined benefit it is relatively easy to know approx. how much I will get from retirement age, however this is subject to adjustments with inflation.

Based on 2.32% of my salary going into a 'block' each year, by the age of 55, I will have accumulated approx £22K, this is based on no pay rises and no index adjustments (Highly unlikely I will stay at this for the rest of my life, as I'm considering alternative roles at £45K+ in the next 2 years).

I would like to end up with between £25-30K from the Alpha Scheme.

SIPP

I started my SIPP with HL around 1 year & 3 months ago, putting in little over a grand I had from a £10 per month Virgin Stakeholder Pension I contributed to. I contribute £25 per month + Tax relief into this, and will look to up it to £50 next year.

After a tip off from a customer of mine at the time who was an IFA, I invested this tiny pot in a company called 'Fever Tree', who are much better known to me now! I have had some real growth as you'll imagine.

I closed & added £3K from my previous employers work pension that had grown by 0.13% in just shy of two years (Aviva managed), and invested this in various funds through HL.

I've listed my SIPP portfolio below, I'd really appreciate it if people can give me a an honest appraisal of my mix/risk etc.
Naturally, I am open to more volatile funds, however I have bought and sold around 6 in addition to the ones below based on performance/costs etc.

FUND VALUE GROWTH PERIOD
FEVER TREE £2,225.18 102.87% 15 months
L&G Global Tech Index £341.89 18.13% 3 months
Axa Fram. Tech Fund £339.54 17.31% 3 months
Fidelity Global Tech Fund £337.13 16.48% 3 months
L&G Health & Pharma. £326.34 8.78% 3 months
L&G Japan Index £299.86 3.60% 3 months
L&G Asian Income Trust £297.16 2.67% 3 months
HSBC FTSE World Index £307.99 2.66% 3 months
L&G Emerg. Markets Ind. £292.20 0.96% 3 months
Architas Birthstar 2046-50 £935.47 -0.48% 1 week
TOTAL VALUE £5,720.59 (30.39% GROWTH)

Basically, I've had good growth since managing my own portfolio, I've diversified more than when I started, however I still feel like I'm open to too much risk.

The Tech funds have similar top 10s but each of them have larger % investments with different companies to each other too, so that's the reason I have kept all 3.

I am also concerned regarding FEVR (Fever Tree), the growth has been fantastic, and is showing no signs of slowing down, especially with them now looking to dominate the US market. However, I am mindful of whether I should 'skim off the fat' and invest it in another fund, leaving my original investment amount in there or just ride it out.

Property
I am currently clearing £10K of debt from a previous business, thankfully I am now paying off over £1K per month so will have it cleared by April next year. Once this is done, I am saving to buy a house with my partner, which will be possible 3 years from next April (April 2022) My first property will be around the £370K so not cheap.

Once this is complete, I am looking to save and purchase two properties for around the £100-125K mark my home area, or even one more expensive one (I may look to purchase more if I can). This is planning to purchase property at age 35, with a 20 year repayment mortgage, to coincide with my target retirement age.

I am then able to sell at retirement age or continue to rent generating me an income.
Based on selling these two example properties for £130K each or renting out with an income of around£1-1.2K a month between them.

FINALLY....

Am I on the right track?
What would you change?


I appreciate the time it has taken to read this far. I appreciate parts such as the property may be deemed as speculation to some, and I am not able to predict the market. I also imagine there will be those who may feel that I am foolish for looking ahead this far, but I am not working until I am 68. This is not laziness, or anything else, I want to enjoy my later life and am surrounded by people who's circumstance or poor planning meant they are not doing so, and instead working till NRA.

Thanks for reading!

kidmugsy

twotonealex wrote: »

I am 27, a civil servant on the Alpha Pension scheme (DB) earning £34K a year. I am planning on retiring at 55 years old ... I am looking at bridging the gap from 55 to 65 with my SIPP & BTL Properties/sale of these properties, and maybe further into retirement.

I started my SIPP with HL ... I contribute £25 per month + Tax relief into this, and will look to up it to £50 next year.
I am currently clearing £10K of debt from a previous business, thankfully I am now paying off over £1K per month so will have it cleared by April next year. Once this is done, I am saving to buy a house with my partner, which will be possible April 2022. My first property will be around the £370K so not cheap.

Once this is complete, I am looking to save and purchase two properties for around the £100-125K mark my home area. This is planning to purchase property at age 35, with a 20 year repayment mortgage, to coincide with my target retirement age.

Have either you or your partner owned residential property before? If not open a Cash LISA and divert the HL contributions to it.

The attractions of a mortgaged BTL for a (prospective) payer of higher rate income tax are dwindling fast. Maybe you should consider owning the properties within a limited company. That would also give you a tax-effective way of having the company contribute to your HL pension.

Audaxer

Well done on the growth you have received to date. I've never heard of Fever Tree but as the portfolio seems high risk, you could suffer a very large percentage loss in an equity crash. I think most people would suggest for a portfolio valued at £5,700 you don't need single sector funds, some with values of only £300 or so. Usually a globally diversified multi asset fund to suit your risk level would be enough until you have a much larger portfolio.

twotonealex

kidmugsy wrote: »

Have either you or your partner owned residential property before? If not open a Cash LISA and divert the HL contributions to it.

The attractions of a mortgaged BTL for a (prospective) payer of higher rate income tax are dwindling fast. Maybe you should consider owning the properties within a limited company. That would also give you a tax-effective way of having the company contribute to your HL pension.

My partner co-owns the property we live in currently with her parents, and is on the mortgage. I however am not, so will be opening a LISA next year when it comes to saving for a property.

May I ask the reason for diverting the £25 a month to a LISA rather than HL to invest? I understand the LISA bonus etc but does the opportunity to invest in S&S outweigh the LISA bonus?

I will certainly look at options for a LTD company when it comes around, in all honesty I had not considered the tax implications of BTL!

Thanks

Audaxer wrote: »

Well done on the growth you have received to date. I've never heard of Fever Tree but as the portfolio seems high risk, you could suffer a very large percentage loss in an equity crash. I think most people would suggest for a portfolio valued at £5,700 you don't need single sector funds, some with values of only £300 or so. Usually a globally diversified multi asset fund to suit your risk level would be enough until you have a much larger portfolio.

Thanks! I have become a bit a hunter when it comes to seeking out the best possible short term wins to get my capital up a bit, and then would diversify out as I get more in the pot. I recently purchased the Architas Birthstar fund to get some wider exposure, a mix of index and equities.

I appreciate the overall and individual amounts aren't a lot, but as this is a start of my 10 year gap bridging fund, I am trying to be as smart as I can!

I will look at some multi asset funds, and will look at the possibility of reducing my shares in FEVR.

Thanks!

Dazed_and_confused

I will certainly look at options for a LTD company when it comes around, in all honesty I had not considered the tax implications of BTL!

It is a complicated area but in simple terms the ability to claim mortgage interest as an expenses against the rental income is being phased out.

It is a five year transition and we are currently in the middle

2016:17 - 100% of qualifying interest could be claimed (the old system)
2017:18 - 75%
2018:19 - 50%
2019:20 - 25%
2020:21 - 0% (new system fully in place)

The basic consequence is that the BTL profit for income tax purposes will be higher.

You are entitled to a tax credit off your Self Assessment tax bill in respect of the qualifying loan interest which cannot be claimed as an expense but this credit has its own complicated rules and even when fully claimable is limited to 20% tax relief.

This is perceived as only affecting higher rate payers but the change in rules means some basic rate payers will be pushed into higher rate tax because their BTL profit has increased.

Their tax bill can then be reduced by the interest tax credit but this is only due at 20%, not higher rates so overall the end bill can be (much) higher.

Gov.uk has more detailed information.

kidmugsy

Audaxer wrote: »

I've never heard of Fever Tree ...

Our G&Ts always use their "naturally light" tonic water. It suits us to use any old gin with the best tonic we know. And a slice of lime. Yippee.

kidmugsy

twotonealex wrote: »

May I ask the reason for diverting the £25 a month to a LISA rather than HL to invest? I understand the LISA bonus etc but does the opportunity to invest in S&S outweigh the LISA bonus?

It's a matter of sequencing and tax efficiency. While you plan to buy property, and get only basic rate income tax relief on your SIPP contributions, be sure to accept the taxpayer's boost of 25% on your LISA contributions.

Then later when your mighty property company is making profits, avoid corporation tax and income tax/dividend tax by instructing it to make pension contributions to HL on your behalf. This will be a particularly good deal if your earnings are higher then and you might be exposed to higher rate income tax and dividend tax on the salary and dividends that you might extract from the company.

A youngster in my extended family opened a limited company: it was all remarkably quick and cheap. You need an accountant to keep you right: he too proved to be very good value. Be sure to ask him whether you should make your beloved a shareholder too.

twotonealex

Thanks everyone!

Kidmusgy - apologies for my lack of understanding but I have a few questions.
I appreciate if/when I become a higher rate tax payer as a result of a payrise/BTL properties, the tax relief on contributions would be naturally higher.

In the mean time is the jist of the comments here suggesting I halt payments to my SIPP and instead pay towards a LISA? Tax relief on SIPP would be 20%. LISA bonus is 25%, so are you suggesting I just focus on the property purchase for the moment and come back to the SIPP at a later/more tax efficient point in my life?

Thanks again!

kidmugsy

twotonealex wrote: »

I appreciate if/when I become a higher rate tax payer as a result of a payrise/BTL properties, the tax relief on contributions would be naturally higher.

Exactly.

twotonealex wrote: »

In the mean time is the jist of the comments here suggesting I halt payments to my SIPP and instead pay towards a LISA?

Correct.

twotonealex wrote: »

are you suggesting I just focus on the property purchase for the moment and come back to the SIPP at a later/more tax efficient point in my life?

Precisely.

Audaxer

twotonealex wrote: »

Thanks! I have become a bit a hunter when it comes to seeking out the best possible short term wins to get my capital up a bit, and then would diversify out as I get more in the pot.

Investing is for the long term. You would have to be very lucky and experienced to spot opportunities for short term gains to try and increase your capital that way. I think it would be better to invest as much as you can on a regular basis into a globally diversified multi asset fund until your pot is much larger.