Pension/investment advice

Deneb

Trinity_Phil wrote: »

(Please do not interpret this as having a pop at you - Deneb - that couldn't be further from the truth, as I fully appreciate you taking the time to contribute, along with everyone else and try to steer me in the right direction....so apologies if it comes across that way )

No apology required. You gave an honest answer to an honest question. It's your money and your decision, no matter what anyone else here says. I was just a little surprised at the time given your apparent attitude to risk, which you have confirmed to be very low.

I am probably a little over cautious when it comes to spending, as Mrs D keeps reminding me, but having spent so long saving for retirement I admit to finding it difficult to switch into a different mode.

I know exactly where you are coming from regarding the constant rotating shifts, cancelled RDs, working Christmas and kids birthdays, etc. having done 40 years in the same job, over 30 at the sharp end like you.

So I will say no more, other than to wish you a long and happy retirement, which as you rightly say you deserve. Enjoy the cruise, Scandinavia is beautiful.

Durban

DairyQueen wrote: »

OP has a low appetite for risk so the volatility of a fund with a 80/20 split is likely to give him the heebie-jeebies.

More importantly, fund selection is the last stage of the planning process, and that assumes investing in the markets is appropriate for him.

OP:

Here are the basic steps that you need to consider before making any decisions (all figures are at today's value - i.e. inflation means that the sums will raise over time):

1) How much annual, household income will you need when you and spouse are both fully retired? This needs some serious thinking. What do you both want to do? Projects? Hobbies? Travelling? RV? Caravan? Boat?

First make a list of all your essential spends (utilities, food, clothes, car?, etc.). This is the baseline which you will need. Then add the cost of the jam on the bread (eating out, socialising, hobbies, holidays, gifts). The latter are your discretionary spends. The sum of these will guide how much net income you would like in today's prices. Remember that you will have no mortgage payments, no commuting, no pension and savings payments, no cost of supporting kids.

2) Then work out how much income the survivor of you will need on the first death. At the moment you are better provided for if you survive your wife. She will receive (presumably) a 50% widow's pension (from your police jobbie) plus her own SP giving a total of around £18.5k if she survives you. Even so, that's significantly less than the 28.5k you will receive if you survive her.

3) Assuming that your gross £37k (police pension plus 2 x SPs) is sufficient to provide the lifestyle you need in the first stage of retirement (60s/early 70s) then your remaining funds (whether within a pension or not) will provide the cherries and cream unless you need to reserve something to supplement income on the first death. You may also wish to reserve an amount for inheritance. Also, consider the possibility of needing residential care in your dotage. This isn't cheap and a common strategy is to earmark your property for this possibility. You wife is more likely to be the beneficiary and, believe me, if push-comes-to-shove she will be glad she has the means to self-fund.

4) You currently have the £40k balance from your police lump sum available in your plan, plus spouse's 37k DC. This is your current portfolio (I have excluded the 15k emergency fund). But this may be required in later retirement to provide income for the survivor of you two. This is an often-overlooked element of retirement planning.

5) Let's assume that you don't need that £77k for at least 10 years. Let's also assume that you will both continue to build-up pension (as you will both be working for the same period). Final assumption is that you and wife will have some surplus funds from your P/T incomes.

6) The next part of the plan involves income tax planning. Your police pension will eat all of your tax allowance so you will pay 20% tax on all your P/T earnings and, eventually, on all your SP. However, your wife's SP won't use all of her tax allowance. Therefore, it is better to boost pension funds in her name whilst you can. She can pay all of her earned income into a pension (less any contributions she and her employer make into her employer's scheme) and receive tax relief on the lot. As her income is below the tax threshold she won't pay tax on it but will receive an instant cash uplift of 20%.

She can then withdraw the cash entirely tax free providing she doesn't exceed the tax allowance in any tax year. For example: tax allowance £12k. Wife's SP = £8.5k. Difference of £3.5 can be withdrawn from pension without paying tax. Even more if she foregoes the 25% tax free cash at outset and, instead, opts to take 25% of each payment tax free. This form of drawdown is called 'UFPLS' (Google it or search the forum).

7) You won't benefit as much from adding more to a pension as you will receive tax relief on the ''way in' but will be taxed at least 20% on the 'way out'.

8) So, let's assume that you can afford to stash £5k of your wife's income into a pension for the next 10 years. That's £50k plus the tax uplift = £62,500. Plus your wife has that £37k and you have £40k. You are therefore looking to manage a drawdown portfolio of £77k at the outset, rising to £139.5k (plus growth) by the time you are 60. For management purposes this pot could be seen as one pot. Whether it's held within or outside a pension, or in your wife's or your name, isn't pertinent. Optimising tax is the important bit. Note that anything held within a pension wrapper is inherited entirely free of income tax if the holder dies before age 75.

9) ISAs would be a better vehicle for any additional savings in your name. No tax uplift but no tax on the way out either. Your spouse can inherit ISAs tax free,

10) At this point you will have an idea of what kind of sums you are likely to have, and will spend, through retirement

Next the investment bit....

11) You have a very cautious attitude to risk but, arguably, the guaranteed way to lose money is to hold cash as inflation will definitely erode its value. No cash savings vehicle beats inflation. The other option is to take some risk and mitigate that possibility.

12) Over a 10+ year period (and remember you will probably hold a chunk of this money for much longer than that) equities are likely to outperform every other investment. No guarantee of course but if shares don't continue to rise over the long-term then capitalism has ended and we'll all be in shelters eating baked beans.

13) I can suggest ways to invest and vehicles through which to invest but you will be much better-served researching and learning for yourself. However, I would strongly recommend that you include equities in the mix. Forget Brexit, The UK is only 5% of the global stock market and Brexit is a blip even in the UK.

14) For a new investor the usual suggestion is to choose a single, highly-diversified, global tracker (aka 'passive') fund. Vanguard is a popular provider. So are HSBC and Blackrock. As an example, Vanguard (already mentioned) offer a suite of funds called the 'life strategy' range (VLS). These each offer a split between bonds (low volatility and lower risk) and equities (high volatility and high risk). The higher the %age of equities, the higher risk.

'VLS80' has 80% equity exposure and VLS40 only 40% equities. Other percentage splits are also offered. If you drop below 40% equities then the long-term benefit of exposure to shares declines. Your risk profile suggests that something like VLS40 would be better for you.

Take a look at Vanguard's website as they provide a great deal of clear information. Having learned the basics about these types of funds also look at HSBC's and Blackrock's equivalents. All of these offerings are low charges (much cheaper than any fund offered by the Pru) and can be bought through a Pension fund or an ISA.

Last year's drop in the market is nothing dramatic. Rises and falls are a daily occurrence and sometimes the trend is up, sometimes down. It's possible for the markets to crash (20%+ down) at any time. This will happen at some point. However, shares are the best-performing investment by some margin over the long term. The key is to ignore the ups/downs, ignore the gyrations, and don't sell. Short of WWIII the overall, long-term trend should continue upward, as it has for the last 100+ years.

Of course this is only one suggestion but it is a good starting point for newbie investors.

I am no expert but I have learned sufficient over the last two years to manage a large-ish portfolio without feeling sick every time the markets drop.

I hold VLS as the core of my portfolio so I am obviously a fan. However, what's good for me may not suit you.

The very best piece of advice is to read, read, and then read some more. By all means park your cash in premium bonds until you feel confident to take a first step. Over time you will understand enough to at least avoid the biggest pitfalls e.g. investing in a single sector, country or, God forbid, individual shares, and the biggest one of all.... selling when the markets fall.

Investing in the markets doesn't exclude investing in cash but I think you have the interest and ability to join-in with we DIY-ers and make your money work as hard as possible.

End of essay

I have been lurking and reading with interest.
What a fantastic , informative post this is.
Thank you DairyQueen

maloricsmam

Hi Phil
Be very very careful about were you invest it, don't be pressured into moving or investing a these are surely signs of scammers and I know from experience, the SFO are currently investigating a number of people who have run multiple scams after hooking people in with "free pension reviews" which is what happened to us, we were interested in a SIPP but were persuaded to invest in a QROP which is not suitable for promotion to UK residents, we were also introduced to a so called Independent Financial Advisor who turned out to be the scammer who was moving pension funds into his own investment fund (Trafalgar MAF) it was eventually suspended and placed into liquidation and 5 years on we are still trying to recover his pension. Unfortunately because it was based in Gibraltar its not covered by UK compensation schemes or FCA complaint resolution.

Google Pension Life and see what Angel Brookes has to say about scams.

Might be better putting the money into property and taking rental from it.


Good luck

Denise

Trinity_Phil

enthusiasticsaver wrote: »

Personally I would not pay that for setting up 2 ISAs. Whilst 5.5% growth is not that bad (on drawdown rates people often suggest 4% is a good aim on a medium risk portfolio) you undoubtedly would not have to pay £254 each year for managing a £20k isa. Is that per ISA or for both? The IFA we saw wanted to steer us into Prudential so I am not sure if there is a reason they recommend them particularly. I tried to find out what funds they were actually investing in but the site only seems to be available to FAs. It looks like it is a managed fund anyway and I prefer the low cost passive ones. As a comparison my husband and I pay Halifax sharedealing £12.50 each annually for holding our stocks and shares isas. Each deal is £12.50 but as we just invested and left it three years ago it is just the annual charge.

That quote is not for setting up the ISA's...that is for setting up and managing the wife's £21,900 pension fund over the next 11 years until she can draw her SP, plus an additional 1% (£219) set-up fee to our IFA, that I have only just noticed !!

For the ISA'S there is a set-up fee of £400 then 1.27% p.a management fee plus (but could be including ??) 0.75%p.a IFA's fee !!
The ISA's are with the PruFund Cautious Fund ISA and according to the documentation they have sent, was apparently set up in Feb 2015 and there is a graph attached which apparently shows "performance" at 20.6% but it also mentions "discrete" performance for 2016 at 2.4%, 2017 at 8.2% and 2018 at 3.0% and there is also mention of Annualised Performance for the 3 years to 31/12/18 at 4.5% ?????
They are claiming that the expected Growth Rate for this fund is 5.50% p.a. GROSS.
If someone can translate all that into English then I would be very grateful !!

Trinity_Phil

Deneb wrote: »

No apology required. You gave an honest answer to an honest question. It's your money and your decision, no matter what anyone else here says. I was just a little surprised at the time given your apparent attitude to risk, which you have confirmed to be very low.

I am probably a little over cautious when it comes to spending, as Mrs D keeps reminding me, but having spent so long saving for retirement I admit to finding it difficult to switch into a different mode.

I know exactly where you are coming from regarding the constant rotating shifts, cancelled RDs, working Christmas and kids birthdays, etc. having done 40 years in the same job, over 30 at the sharp end like you.

So I will say no more, other than to wish you a long and happy retirement, which as you rightly say you deserve. Enjoy the cruise, Scandinavia is beautiful.

Cheers Deneb :beer:

Thrugelmir

Trinity_Phil wrote: »

For the ISA'S there is a set-up fee of £400 then 1.27% p.a management fee plus (but could be including ??) 0.75%p.a IFA's fee !!

In all honesty for the sum involved. If you wish to hold a low risk (average return) investment at miminal cost. You should consider something along the lines of Vanguard etc. There's no guarantee of a profit over the time frame of holding the investment. Nor will it make you extremely wealthy. However it should outperform money simply left in a deposit account.

By minimising management fees you'll at least give yourself a better chance of making a positive return.

DairyQueen

Trinity_Phil wrote: »

That quote is not for setting up the ISA's...that is for setting up and managing the wife's £21,900 pension fund over the next 11 years until she can draw her SP, plus an additional 1% (£219) set-up fee to our IFA, that I have only just noticed !!

For the ISA'S there is a set-up fee of £400 then 1.27% p.a management fee plus (but could be including ??) 0.75%p.a IFA's fee !!
The ISA's are with the PruFund Cautious Fund ISA and according to the documentation they have sent, was apparently set up in Feb 2015 and there is a graph attached which apparently shows "performance" at 20.6% but it also mentions "discrete" performance for 2016 at 2.4%, 2017 at 8.2% and 2018 at 3.0% and there is also mention of Annualised Performance for the 3 years to 31/12/18 at 4.5% ?????
If someone can translate all that into English then I would be very grateful !!

Average 4.5% over the last 3 years is rather better than any return on cash. The variability of the performance year-on-year just reflects the overall perfirmace of the markets.]

The actual performance of any fund will depend on the mix of investments/.fixed assets and the charges imposed by the fund manager and the platform provider (if applicable).

I think that the next step could be for you take the info produced here and carry-out your own research.

Trinity_Phil

Thanks again Thrugelmir and DairyQueen...the more I hear about Vanguard, the better it sounds

Trinity_Phil

DairyQueen...with regards to your excellent post No.141 part b above, regarding adding as much into my wife's pension pot as possible for free govt cash, (this could be a very silly question...you are all probably used to them by now !!), could/should we put £20k into her pension pot (SIPP ??) instead of doing one of the ISA's, if the Govt top it up for a free 20% uplift ??

Another thing that has just occurred to me is that when I retire on 12th Feb and no longer pay into the police federation (they are wanting £37.45 each month which provides £50k Life Insurance, Travel Insurance, Car Breakdown Insurance, Home Emergency Cover, Legal Expenses and Mobile phone Cover) then I won't have any life insurance cover, which we need until the mortgage deal comes to an end on 30th April and I can then pay it off.
Should I get some separate cover, either short or long term ??
Will we need it after 30th April ??
Does £37.45 sound like a good deal for all of the above cover ??

Deneb

Trinity_Phil wrote: »

Another thing that has just occurred to me is that when I retire on 12th Feb and no longer pay into the police federation (they are wanting £37.45 each month which provides £50k Life Insurance, Travel Insurance, Car Breakdown Insurance, Home Emergency Cover, Legal Expenses and Mobile phone Cover) then I won't have any life insurance cover, which we need until the mortgage deal comes to an end on 30th April and I can then pay it off.
Should I get some separate cover, either short or long term ??
Will we need it after 30th April ??
Does £37.45 sound like a good deal for all of the above cover ??

Phil, FWIW I still pay into the fed group insurance, and have every intention of continuing to do so.

Depends what you need in the way of insurance (some things such as phone cover don't bother me as I'm perfectly happy with a cheap phone) but an annual travel insurance policy and the breakdown cover (ours is RAC and its full cover including at home, recovery and Europe - at least for now. I don't know if that's national, or whether each Fed branch has their own arrangements) would cost a good chunk of that premium if bought separately/elsewhere. Add on the retired officer's £55K life insurance up to age 65, plus £27.5K for your OH and it's very worthwhile IMO.

OK, you might think you don't need the life cover after you've paid off the mortgage, but if the worst were to happen to you in years to come, your OH will receive half your uncommuted pension entitlement. Wouldn't the extra £55K go at least some way towards mitigating the loss of income?