Acc or Inc in Drawdown

Doglegger

Hi
I don't have a SIPP at the moment but come retirement I'll have to set one up to take in the money purchase part of my works pension.
I appreciate that if you have acc funds in an existing SIPP then you may be reluctant to change them over to inc when the time comes to take out of it (not worth the hassle??) but if setting up from scratch to go straight to drawdown, wouldn't inc funds be a better option and more flexible?
What are the pro's and cons of both when in the drawdown phase? If there's any good links to explanations I'd appreciate that too. Thanks

Linton

The company sectors that are included in Inc funds,eg utilities, are rather different to those such as tech that aim for capital growth and do not usually produce sugnificant dividends. Also different parts of the world vary in their attitude to dividends. The UK and the Far East like them, the US less so. For diversification it is sensible to look for both capital growth and income.



The advantage of dividend based income is that the income is rather more stable than capital gains. On the other hand the returns may be lower. Funds that provide a steady income require less managment as the cash turns up regulalrly in your account with no effort on your part though you do need to check that they are not decreasing in value. On the other hand every time you sell from capital gain you need to make a decision. One of which is whether to sell at all if prices have fallen significantly.

dunstonh

What are the pro's and cons of both when in the drawdown phase?

What drawdown and investment strategy are you planning ot use?

Personally, I use inc funds regardless of whether it is accumulation stage or decumulation stage.

Doglegger

dunstonh wrote: »

What drawdown and investment strategy are you planning ot use?

Personally, I use inc funds regardless of whether it is accumulation stage or decumulation stage.

Trying to keep it as simple as possible. Should be £200-£225k. Plan to use balanced multi-asset. TFLS will already have been taken so no UFPLS. Aiming for £10k drawdown pa for 12 years to SP. Not sure what, if any, I'll need after that.
Don't know how I missed it but have now seen some info on this online and inc units seem to be preferred at this stage.

El_Torro

The theory that I subscribe to (not saying it's the "correct" one) is that overall return is the most important thing. Whether the growth comes from the shares increasing in price or from dividends isn't important, hence why I put my trust in acc funds rather than inc.


One problem with this is that you risk selling funds when markets are low, depleting your funds faster than you otherwise would have done. One way around that is to keep a large buffer (in savings accounts, current accounts, regular savers, premium bonds, whatever is safe and you think will give the best return), say 3 or more years worth. That way when share prices are riding high you can sell and replenish your cash buffer and when they're low you just live off the cash.

dunstonh

Trying to keep it as simple as possible. Should be £200-£225k. Plan to use balanced multi-asset.

That suggests you are not going to be using yield. So, are you going to hold x number of months in cash and sell units to top the cash up?

Don't know how I missed it but have now seen some info on this online and inc units seem to be preferred at this stage.

With the investment method you are using, it doesnt really matter.

Doglegger

dunstonh wrote: »

That suggests you are not going to be using yield. So, are you going to hold x number of months in cash and sell units to top the cash up?

Yes, that's along the lines of what I expected I would be doing but now I'm thinking about what could be done with inc funds. I haven't looked into high yield funds before so something else I'll need to look at.

Audaxer

Doglegger wrote: »

Trying to keep it as simple as possible. Should be £200-£225k. Plan to use balanced multi-asset. TFLS will already have been taken so no UFPLS. Aiming for £10k drawdown pa for 12 years to SP. Not sure what, if any, I'll need after that.

If a £200k pot, that's a drawdown rate of 5% per annum so quite high, especially if we are in for a couple of loss years after the long bull run we've had recently. If it was me in that position I'd definitely want a good cash buffer.

MK62

It is quite high on the face of it, but if the OP's aim is £10k for 12 years, from a £200k pot invested in balanced multi-asset funds, he'd have to be extremely unlucky not hit that target (and likely have a fair bit left too)......that said though, I would probably have a cash buffer too, but maybe just a year or so's worth.

Doglegger

Yeah, I'm only looking to drawdown from that until SP or maybe at a much reduced rate after that. I'll have more in TFLS than I will in the SIPP so will keep a cash buffer from it while trying to move most of it to ISA's.

Audaxer

Doglegger wrote: »

Yeah, I'm only looking to drawdown from that until SP or maybe at a much reduced rate after that. I'll have more in TFLS than I will in the SIPP so will keep a cash buffer from it while trying to move most of it to ISA's.

That seems a much safer plan.