Pension fund selection in flexi-access drawdown

hyperhypo

A change in personal circumstances has meant i've placed my DC pensions into drawdown. In doing this i had transferred in an old former SERPS contracted out with profits scheme into my workplace SIPP, and crystallised total.

I'm using the Tax free element to part fund next three ye,ars living expenses prior to a DB scheme commencing at age 63.

The taxable element ....c. £160k is in an Aegon SIPP under a 0.23% platform charge.

Right now this is in four funds, two active two passive. I have sold next years (2020-2021) personal allowance into cash in event i need to take this but envisage that the bulk of the £150k will remain to allow a very modest annual drawdown...3% ?


Presently,

Cash 14,500



Kames Divfd Monthly Inc B Acc £34,539.65 21.18%
Royal London Sus Div Trst C Acc £34,799.29 21.34%

Vanguard LifeStrat 40% Equi A Acc £44,700.55 27.41%
HSBC Gbl Strat Bal Pfl C Acc £35,010.01 21.47%



I've ended up here by a mixture of advice , DIY , it's a bit half baked but its roughly 50/50 on the averages of the scores.

And i have thought of simply using the Vanguard LS 40 & 60 funds to simply create a 50/50 mix, or work to minimise any Active fund changes.

I'm interested in others view on whether this mix is incongruous..i appreciate using ACC version of the Kames income fund might seem odd.

I'd also like view on how duplicated the mixed asset spread appears...

Candidly i'm not sure how i've ended up here...it's in the right ball-park but still a work in progress.

I'd appreciate others giving it the once-over....

Malthusian

hyperhypo wrote: »

Right now this is in four funds, two active two passive. I have sold next years (2020-2021) personal allowance into cash in event i need to take this but envisage that the bulk of the £150k will remain to allow a very modest annual drawdown...3% ?

Are you not going to do the same in 2021-22, i.e. withdraw the personal allowance?

Or, given that it's purely for tax-efficiency rather than to spend, does it not matter if you're cashing in funds at low prices in order to use the personal allowance, because you'll immediately reinvest at low prices?

The portfolio is a mish mash but I've seen worse. The first thing is to decide what you want. Do you want to use a 50% active / 50% passive approach in the hope of some outperformance or go 100% passives to reduce costs?

Royal London Sustainable Diversified is aimed at ethical investors - any particular reason why an ethical fund for 25% but not the rest?

All the funds are globally diversified multi-asset funds, which on the positive side is consistent but on the negative side means a lot of them will hold the same things.

It's interesting that three of the funds have around 60% equities but when you went for a fund that had the equity content in the title, you went for 40% rather than 60%. Added to what you said about maybe going for a Vanguard 50% equity mix, it sounds as if you making a classic DIY investor assumption that a 50 / 50 split must be the safe middle of the road option.

The risk you are running is that a 50 / 50 equities / bonds allocation could easily struggle to keep pace with inflation while sustaining withdrawals of 3%. The yield on those funds is in the range of 1.5%. When 50% of the funds are in equities it means those equities have to do a lot more heavy lifting given the low interest rate environment.

Once you get below 60% equities, the benefit in terms of lower volatility of adding more bonds rapidly diminishes.

There is nothing middle-of-the-road about being 50/50 in bonds and equities, most people would have more than that in equities. So another question you have to ask yourself is - why do I want less?

I'm interested in others view on whether this mix is incongruous..i appreciate using ACC version of the Kames income fund might seem odd.

Not really. Living off natural income is old-fashioned. It made more sense in the days you couldn't easily take a fixed regular withdrawal from shares or unit trust funds. There is nothing wrong with holding equity income funds but taking a fixed withdrawal and effectively reinvesting the surplus or selling units to meet a shortfall.

hyperhypo

Thanks Malthusian...yes i was at least making contingency for taking at least the personal allowance from April 2020 onwards, and had sold in case this transpires..I might even extend this ensuring i have the allowance for 2021-22 in cash too.

In fact if i do this it seems to support case for me to consider changing Vanguard LS 40 > 60...and even remove the HSBC fund altogther (for VLS 60).

That would make 3 in total , half the folio in VLS 60 , with the other two active funds (Kames and RL Diversified for time being.

I have something of a soft spot for the RL Diversified Trust , i'm happy with the asset spread.

Something to think about.

Thrugelmir

hyperhypo wrote: »

I have something of a soft spot for the RL Diversified Trust , i'm happy with the asset spread.

Never be sentimental when it comes to investments. Focus on what your personal objectives are. Not in the hope that you are suddenly benefit from an unexpected windfall. Once you stop working. Then capital retention is the key.