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

dunstonh

FWIW, yes, we could turn those taps off.  You suggest your clients could for perhaps 2 years too, right?

If the client had their cash buffer outside of the pension, then turning off the income or reducing it would be sensible as that is the purpose of the cash buffer.   Whether the cash buffer exists inside the pension or outside of the pension doesn't really matter.   It is whether it exists at all that does.  Along with having a strategy that the client is aware of.  i.e. if the client knows the strategy is to turn off the income during a downturn and use the external cash buffer instead then it is fine.   

You also probably wouldn't turn it off fully as you would look to continue to use the personal allowance.  No point paying 20% tax in a future year to replenish the cash buffer/float when you can draw an amount tax free.     The effective tax of 15% or 20% (depending on availability of tax free cash) is the equivalent of a crash.

However, as to the suggestion that I could suggest turning it off then it is unlikely.  I have been dealing with investment withdrawals from all wrappers for over 25 years.  Never once have I done that.  Through the dot.com, credit crunch etc.  Never had a need to.    I have recommended to a number that they reduce their draw but only those that draw more than I would like them to.  In most cases, they did not but they are well versed on the risks and know what I am going to tell them before I say it.

thriftytracey

I just wanted to know if other people with pension drawdown products had had to stop taking income, not experienced DIY SIPP investors.  From the above it sounds like I have been sold a rubbish product.

But I suppose if I want to get out of in the future I will have to pay a transactional fee to the IFA or another IFA.  I was thinking about ending the relationship.  It seems a lot of money for an annual very thin booklet which is mostly cut and paste from financial software tools.  I used to work in Financial Services testing a back office product for IFA's and intermediaries so I know the tools that are out there.  I login to RL and check the value so having a continuing relationship for both of our RL pension drawdown products costing a few £k just doesn't seem worth it.

I wanted to know if I was alone in having to stop drawdown?  

ukdw

dunstonh said:

FWIW, yes, we could turn those taps off.  You suggest your clients could for perhaps 2 years too, right?

If the client had their cash buffer outside of the pension, then turning off the income or reducing it would be sensible as that is the purpose of the cash buffer.   Whether the cash buffer exists inside the pension or outside of the pension doesn't really matter.   It is whether it exists at all that does.  Along with having a strategy that the client is aware of.  i.e. if the client knows the strategy is to turn off the income during a downturn and use the external cash buffer instead then it is fine.   

You also probably wouldn't turn it off fully as you would look to continue to use the personal allowance.  No point paying 20% tax in a future year to replenish the cash buffer/float when you can draw an amount tax free.     The effective tax of 15% or 20% (depending on availability of tax free cash) is the equivalent of a crash.

However, as to the suggestion that I could suggest turning it off then it is unlikely.  I have been dealing with investment withdrawals from all wrappers for over 25 years.  Never once have I done that.  Through the dot.com, credit crunch etc.  Never had a need to.    I have recommended to a number that they reduce their draw but only those that draw more than I would like them to.  In most cases, they did not but they are well versed on the risks and know what I am going to tell them before I say it.

Those people holding cash buffers outside of a pension wrapper do always have the option in market downturn months to use a part of their cash buffers to re-purchase corresponding investments within for example a S&S ISA. 

Then when markets pick up again the cash buffer could be built back up again by selling some of the increased in value investments in S&S ISA.  This would I propose achieve a similar effect to switching off drawdowns, without extra work for the advisor and also simplify tax planning.

Also in more normal interest rate times I suspect that better interest rates on the cash buffer are likely to be available outside of the pension than those available within the pension - which often work out as effectively being negative due to platform and advisor fees.

thriftytracey

I just checked the IFA charges and I paid £1483 for the two RL pension drawdown plans 0.75% of the plan value.
I just don't know if it is worth it for one annual visit and small amount of administration.  I paid RL management charges of £864.

dunstonh

Those people holding cash buffers outside of a pension wrapper do always have the option in market downturn months to use a part of their cash buffers to re-purchase corresponding investments within for example a S&S ISA. 

They do.  However, those in retirement drawing an income tend not to think of their cash buffer as an opportunity to purchase when markets are lower.     So, agree with the theory but not so sure it would be that common for the group in question.

Then when markets pick up again the cash buffer could be built back up again by selling some of the increased in value investments in S&S ISA.  This would I propose achieve a similar effect to switching off drawdowns, without extra work for the advisor and also simplify tax planning.

What happens when you get a three negative years and you have reinvested all your cash on the way down and then left yourself nothing for the recovery?

thriftytracey

Before Covid I thought it had done quite well as the value was £5k more than the start and included £4.5 in transactional fees and almost a year of income drawdown.

dunstonh

From the above it sounds like I have been sold a rubbish product.

No you haven't.  The UK's biggest provider of drawdown does not get there by offering a rubbish product.   

But I suppose if I want to get out of in the future I will have to pay a transactional fee to the IFA or another IFA.

You can end service with the current IFA at no cost. 

 I login to RL and check the value so having a continuing relationship for both of our RL pension drawdown products costing a few £k just doesn't seem worth it.

It  doesnt seem to be offering you value.   I think I said earlier that the RL pension makes a good transactional advice option for a low knowledge consumer.  The GP/GRIP range takes the investment allocations away from the adviser along with the fund choice.  It is just like a multi-asset fund.  So, you are not getting any ongoing investment advice. Just general advice on your drawdown.   So, in that respect, its a lot to pay for very little.

[Deleted User]

thriftytracey said:

I just checked the IFA charges and I paid £1483 for the two RL pension drawdown plans 0.75% of the plan value.
I just don't know if it is worth it for one annual visit and small amount of administration.  I paid RL management charges of £864.

Read “hurdle number five”. Will answer your question.  Keep in mind that in the UK IFAs have to take a 4-months course to qualify.  

https://www.etf.com/docs/IfYouCan.pdf

Also “big” is not a synonym for “good for you”. Never has been. 

jamesd

thriftytracey said:

I just wanted to know if other people with pension drawdown products had had to stop taking income, not experienced DIY SIPP investors.  From the above it sounds like I have been sold a rubbish product.
...
I wanted to know if I was alone in having to stop drawdown?  

Not alone but all cases where it happened would involve bad planning by the adviser. That planning failure is more important as an issue than the RL investment product, though most of us think that it's not ideal for you either, sometimes for different reasons.

thriftytracey said:

Before Covid I thought it had done quite well as the value was £5k more than the start and included £4.5 in transactional fees and almost a year of income drawdown.

Given the moderate level of investment risk that's an entirely reasonable outcome. We haven't been through the sustained bad times that would show it at its best.

[Deleted User]

...or worst. If brief bears of 2018 and 2020 are indicative, then RL3 will provide no protection whatsoever during a longer downturn.