Drawdown Pensions - your experiences during 2020 and intentions in 2021?

dunstonh

BritishInvestor said:

cfw1994 said:

shinytop said:

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

It happens to a lot of threads.  The OP askes how to wire a plug and before we know it people who have never wired a plug before are arguing about advanced electromagnetic theory. 

Seems to be precisely what has happened here.  I come back a few hours and 3 pages later and still no useful additions in the interim.......Where’s that “unsubscribe” button 

I'm not really sure what more you were expecting from the thread. There were several comments from people on here that have wired a plug, from electricians that wire plugs for a living, and from electricians that write books on how to wire plugs.
Many expressed surprise that the RCD had tripped given the mild spike in current and wonder why the power hadn't been restored sooner.

I think that is a fair assessment. 

We can eliminate all the posts talking about whether RL is a good option or not.  It is a simple option and does the job as well or better than all the other simple options out there.    It won't be best.  it won't be worst.  It will be like the rest of the simple options in being middle of the road.
The focus should really be on why there didn't appear to be the preparation for a negative period (maybe the was as the OP said they knew it could happen but didn't expect it so soon), the lack of any emergency fund outside of the pension (maybe there was and this was part of the plan to fall back on during negative periods)  and why such an extreme option of turning off the income altogether took place (again, maybe that was the plan if there were sufficient cash funds to call upon).   
Maybe an ad-hoc withdrawal should be made from the pension now to replenish those cash funds seeing as the markets are higher (maybe this is the plan too)

BritishInvestor

jamesd said:

Deleted_User said:

 RL portfolio 3 delivered negative return over the last 3 years. Thats unusual.  Did this portfolio cushion the blow vs a 100% equity portfolio? No.   The adviser told OP to stop withdrawals after a really bad month. Give me one reason to continue with this adviser and RL 3. 

The original poster seems comfortable with them. That's your required one and only one that I see.

What I want to see is an adviser using safe withdrawal rate plus state pension substitution and phoning the customer to reassure them that it's OK to continue drawing as usual because the drawing rate is robust against far worse things. Or that and suggesting a rebalanced into equities when prices are low.

Risk analysis seems to have been confined to investment volatility rather than risk of plan failure and that is also not a good thing.

I'd be happier with safe withdrwal rate and 30-40 year plan success at meeting objectives analysis. The sort of thing that amateurs routinely do in posts here.

Spot on

jamesd

BritishInvestor said:

Regarding the dampening effect of index-linked offerings, most I've seen tend to be longer duration - something like a 15-20% fall in a week in March for example which is not ideal.
https://www.vanguardinvestor.co.uk/investments/vanguard-uk-inflation-linked-gilt-index-fund-gbp-acc/price-performance

Some US work looked at the retirement drawdown performance of bonds in low interest environments and found that cash (one year Treasury bills) beat bonds. The bonds paid more but not enough to compensate for their capital losses as interest rates rose. As you and others have illustrated well, dampening currently requires short duration bonds, not long, if bonds are to be used at all.

It's part of why I'm  currently low bonds and high cash, though an offset mortgage definitely helps that choice.

jamesd

Audaxer said:

itwasntme001 said:

Also no one ever holds an active fund for much more than 10 years anyway - what are the charges after 10 years?  Styles go out of fashion quicker than the fashion itself.  Holding onto an active fund for long than 10 years means you are likely to be holding onto a loser.  Market timing is required if you hold active funds.

I've never heard it said before that you are on a likely to be on a loser if you hold an active fund for more than 10 years. Is that a generally held view? Or that market timing is required if you hold active funds. I think there are plenty of investors on this forum with portfolios of active funds who would dispute that they require market timing to manage their portfolios? 

 Reasons include

1. Change of human manager. If the human was responsible, this resets the performance expectation and you're better off switching than speculating on the new manager. Career lengths limit how long the manager can stick around in practice. Don't follow the old one to their new venture either, their past performance was influenced by both those around them and what they were investing in. Wait until they prove it works.
2. Change of investment cycle. Certain things tend to do better at different points in an investing cycle.
3. Variation in successful styles, like value or growth, large cap or small.

The last two can apply to nominally passive investing as well, since it's not immune to them.

dunstonh

jamesd said:

BritishInvestor said:

Regarding the dampening effect of index-linked offerings, most I've seen tend to be longer duration - something like a 15-20% fall in a week in March for example which is not ideal.
https://www.vanguardinvestor.co.uk/investments/vanguard-uk-inflation-linked-gilt-index-fund-gbp-acc/price-performance

Some US work looked at the retirement drawdown performance of bonds in low interest environments and found that cash (one year Treasury bills) beat bonds. The bonds paid more but not enough to compensate for their capital losses as interest rates rose. As you and others have illustrated well, dampening currently requires short duration bonds, not long, if bonds are to be used at all.

It's part of why I'm  currently low bonds and high cash, though an offset mortgage definitely helps that choice.

That is also reflected in the asset model allocations from our research company.  They started reducing bond allocations pretty consistently around 3 years ago and today there is no bond allocation in any of the risk profiles except those that have a long timescale duration.  Gilts (not index-linked) and cash are the two risk volatility reducers used (generally viewed as the two least worst options).

Moe_The_Bartender

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

I will then.

My position at the start of the year was that I was receiving my state pension and a DB pension that covered my tax free allowance. My wife was taking enough from her SIPP to cover her tax free allowance plus her tax free cash so together we were receiving about £29000 a year tax free. This is more than sufficient to cover our outgoings.

In addition I was drawing another £1000a month from my SIPP which was for purely discretionary spending (mostly travelling). When COVID struck, I stopped taking money from my SIPP as I couldn’t spend it anyway.

The end result is that the value of our SIPP investments has grown by about 12% over the year and I'm looking forward to the opportunity to spend some of it.

jamesd

Deleted_User said:
Don’t get me wrong - one can make money on junk bonds. I have 2 problems with this asset: 

1. RL holds them in cautious portfolios.  There is nothing cautious about this type of investment. ...

...

Also, re assets within RL3:

1. I really dislike when illiquid property funds are promoted to cautious investors.  Highly misleading. Inappropriate for anyone in drawdown.

They also have equities in this cautious fund and equities are normally regarded as high risk. Should they also remove equities? You seem to be missing a vital point: what matters is the overall portfolio risk, not the risk of individual pieces within it. Both junk bonds and equities are appropriate for this fund, as is commercial property in some version, but perhaps not this version if it requires 100% liquidity.

Drawdown investment time frames typically start at 30-40 years. It's an excellent time to have some illiquid components to extract some illiquidity returns premium. Property funds are very well suited to this, at a percentage suitable for the investor and remembering that many years without ability to sell is possible. Daily pricing and in normal times selling is nice but it's not remotely close to being needed over a 30 year plan. If the rest can provide the drawdown income for 20-25 years, that's both ample and far longer than likely property fund illiquidity.

What can be a problem is property in a multi-asset fund that blocks selling any of that fund to provide income or transfer. Better done as a dedicated fund.

BritishInvestor

jamesd said:

Deleted_User said:
Don’t get me wrong - one can make money on junk bonds. I have 2 problems with this asset: 

1. RL holds them in cautious portfolios.  There is nothing cautious about this type of investment. ...

...

Also, re assets within RL3:

1. I really dislike when illiquid property funds are promoted to cautious investors.  Highly misleading. Inappropriate for anyone in drawdown.

They also have equities in this cautious fund and equities are normally regarded as high risk. Should they also remove equities? You seem to be missing a vital point: what matters is the overall portfolio risk, not the risk of individual pieces within it. Both junk bonds and equities are appropriate for this fund, as is commercial property in some version, but perhaps not this version if it requires 100% liquidity.

Drawdown investment time frames typically start at 30-40 years. It's an excellent time to have some illiquid components to extract some illiquidity returns premium. Property funds are very well suited to this, at a percentage suitable for the investor and remembering that many years without ability to sell is possible. Daily pricing and in normal times selling is nice but it's not remotely close to being needed over a 30 year plan. If the rest can provide the drawdown income for 20-25 years, that's both ample and far longer than likely property fund illiquidity.

What can be a problem is property in a multi-asset fund that blocks selling any of that fund to provide income or transfer. Better done as a dedicated fund.

Junk bonds: For me they fail the drawdown (peak to trough context) adjusted returns test. I therefore cannot see them as a defensive component, and believe equities give more (long term) bang for your buck.
Property: If you want property exposure I would suggest there are funds that don't seem to suffer suspensions, and I don't think their spreads widened too much during the recent turmoil. But for those funds that are more illiquid - are you really being compensated for accepting that liquidity risk? I accept the 30-year retirement horizon, but things like rebalancing, CGT harvesting, periodic withdrawals etc might require some form of liquidity.

[Deleted User]

jamesd said:

Deleted_User said:
Don’t get me wrong - one can make money on junk bonds. I have 2 problems with this asset: 

1. RL holds them in cautious portfolios.  There is nothing cautious about this type of investment. ...

...

Also, re assets within RL3:

1. I really dislike when illiquid property funds are promoted to cautious investors.  Highly misleading. Inappropriate for anyone in drawdown.

They also have equities in this cautious fund and equities are normally regarded as high risk. Should they also remove equities? You seem to be missing a vital point: what matters is the overall portfolio risk, not the risk of individual pieces within it. Both junk bonds and equities are appropriate for this fund, as is commercial property in some version, but perhaps not this version if it requires 100% liquidity.

Drawdown investment time frames typically start at 30-40 years. It's an excellent time to have some illiquid components to extract some illiquidity returns premium. Property funds are very well suited to this, at a percentage suitable for the investor and remembering that many years without ability to sell is possible. Daily pricing and in normal times selling is nice but it's not remotely close to being needed over a 30 year plan. If the rest can provide the drawdown income for 20-25 years, that's both ample and far longer than likely property fund illiquidity.

What can be a problem is property in a multi-asset fund that blocks selling any of that fund to provide income or transfer. Better done as a dedicated fund.

World equities do have significant downside volatility but have consistently delivered superb returns over extended periods of time.  Equities are only “high risk” to someone with a short investment horizon,  

Junk bonds are different.  This is picking out companies which are rated poorly by the credit agencies in exchange for what right now is a paltry premium.  This investment will destroy value permanently, if and when an event occurs and the government choses to not bankroll companies about to go bankrupt.  I wouldn’t touch them. 

Commodities are different because they return zero above inflation over long periods of time. 

If you consciously want to hold an illiquid element like RL’s property, go for it.  I strongly suspect OP isn’t aware that RL can force him to stop withdrawals whenever they like. For me to hold something like this, it would need some kind of major advantage. Privately owned property which is hard to value and sell, can be volatile and offers no outsized rewards gives me no reason for buying it at all. 

 The other issue is that its pretty clear RL3 holds all these assets as a replacement for bonds. Well they aren’t because these are the assets which drop like a stone in a crisis and unlike equities do not provide superior long term returns. 

[Deleted User]

DT2001 said:

cfw1994 said:

shinytop said:

cfw1994 said:

Is it just me, or has the intent of this thread disappeared in the bickering 
Anyone else got any *cough* actual experiences of drawdown pensions during 2020, and intentions in 2021?
Feels like there needs to be a separate and deeply technical thread for some posters.....

It happens to a lot of threads.  The OP askes how to wire a plug and before we know it people who have never wired a plug before are arguing about advanced electromagnetic theory. 

Seems to be precisely what has happened here.  I come back a few hours and 3 pages later and still no useful additions in the interim.......Where’s that “unsubscribe” button 

Let us try to get it back on track.

thriftytracey 
Putting the off tangent comments aside can you tell us about your retirement plan? When your OH’s SP comes into payment (is it the full amount) was it your intention to reduce the amount drawn from RL or was the extra income allocated for something.
Will you be entitled to a full SP in 6 years and if so will you then draw less from RL?
Maybe someone can then suggest a few pertinent questions to ask your IFA?
My plan for drawdown starts when OH draws her SP (this dictates the amount needed in our pots, at that time, to meet our number). I know, as OH has now deferred retiring, that we will be able to draw down at a higher rate than considered reasonable which will eat into our capital but still have enough later on.

I am not in drawdown. My plan is to have 3 years worth of expenditure sitting in a high interest account.  I would  only withdraw from my investment accounts once a year - on January 1st.  This would be another year’s worth of expenditure. In this way I am not forced to monitor daily movements on the stock exchange and my plans won’t be impacted by a bad month on NYSE. 

The amount I would withdraw would be flexible, based on VPW calculations.  It accounts for DB and state pensions. https://www.finiki.org/wiki/Variable_percentage_withdrawal 

Questions for your adviser should be obvious if you read this thread.  The big question is: what value are you adding in exchange for thousands of quid?   He needs to explain how he is providing a more secure retirement with a portfolio which 
1. dropped faster than stock in 2020 and still hasn’t recovered. 
2 provided negative returns over a 3 year period when most asset classes returned lots
3. Forced you to stop withdrawals completely (wow) and impacted your plan after a bad month on the stock exchange.