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

BritishInvestor

ukdw said:

BritishInvestor said:

ukdw said:

thriftytracey said:

Drawdown is only a little above Personal Tax Free Allowance.

£12,500 is about 4.2% of £299k - so not a particularly high rate - especially if you are planning on reducing drawdown a bit once you start getting state pension.

High rate relative to what? 

Relative to the 4% safe withdrawal rate, 3.5% used by some people, and 5% used by people following the more advanced ideas mentioned in this thread.

https://forums.moneysavingexpert.com/discussion/5466114/drawdown-safe-withdrawal-rates/p1

If I had a £299k DC with a state pension of I presume £9.1k coming in 6 years, I would subtract 6x9.1k from the £299k - giving £244k.   I would then probably apply between 3.5% and 5% to the £244k giving an ongoing withdrawal rate of about say £9.7k (4%).

In the intervening years before state pension I would withdraw the £9.7k plus an extra £9.1k in leu of state pension - so up £18.8k.   So based on this calculation £12,500 is not a particularly high withdrawal rate.

Agreed on the state pension (but if this has been factored in it makes it even odder why withdrawals were stopped), but it's important to note that the 4% bears very little resemblance to what SWR an individual will typically experience (excluding state pension).

Taking a 30-year horizon with no fees and a reasonable asset allocation and you are below 4%.
https://finalytiq.co.uk/withdrawal-rates-in-retirement-portfolios-is-the-4-rule-safe-for-uk-clients/

Add in adviser, platform and fund fees and, as Mordko points out, potentially suboptimal asset allocation and you are looking at a lot less. Also if someone hasn't yet received their state pension is 30 years prudent enough?

The more advanced ideas is a separate discussion, but they come with their own downsides.

thriftytracey

There are some pessimistic comments about the funds invested in this portfolio.  The problem I have is that I don't have a clue about self-investing in a SIPP and I would have a lot of sleepless nights worrying about it if I did. I paid a few thousand in fees this year and that is because I trust my IFA to do what is right.  Or am I being naïve?  I did question a couple of the funds when I read in the press their poor performance.  This is the reply he obtained from Royal London:-

“The article compares RLP Medium Index Linked Gilts against the ABI UK Index Linked Gilts sector average. There are differences in the underlying holdings between RLP Medium Index Linked Gilts and the ABI Sector that means these two investments are not strictly comparable. The ABI UK Index Linked Gilts sector holds a broader investment set and includes longer term bonds which are available to the RLP Medium index Linked fund, which is designed to meet a 10 year duration.

 

This difference has significant implication, bonds with a longer duration hold greater interest rate risk than shorter term bonds. As the RLP Medium contains shorter term bonds relative to the sector, this means it has less interest rate risk than the sector average.  

 

Over the last few years, interest rates have fallen causing prices for existing bonds to rise. The magnitude of this rise depends on the bond duration. Longer duration bonds are more sensitive to changes in interest rates, so the falls in interest rates has meant that longer duration bonds have benefited more compared to shorter or medium duration bonds, which are taking less risk.

 

To provide an empirical example of this, please find the performance between RLP Short, Medium & Long index linked bonds. At face value it shows RLP Long has outperformed, which it has, but it has taken on more interest rate risk to achieve this. This is a key reason why we have longer duration bonds in our higher risk portfolios and short/medium duration bonds in our medium/lower risk portfolios.

Performance chart provided (unable to copy and paste)

The chart below shows the RLP Medium Index Linked Bond compared against it’s benchmark that is designed around a 10 year investment horizon

Again unable to copy and paste

Our view is that any comparison should be against an investment which holds the same investment universe as the fund. In the case of RLP Medium Index Linked the fund benchmark is what the fund manager is targeted to outperform and therefore provides a more accurate comparison.“ 

I stopped the income because when Covid first hit markets dropped dramatically.  They did recover although I understand they are still below Jan/Feb 2020 levels.  I stopped it from January because  wasn't sure how Brexit and the economy would pan out in the next few months.

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Thrugelmir

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

[Deleted User]

You should not blindly trust your adviser.  Lets assume your fund is worth 100k and he gets 1% a year. If the fund permanently loses 30k, or shows no growth, your financial well being will be damaged. The adviser still gets his 1k or, at worst 700 quid.  If he gets another client paying 700 quid a year, he more than offsets his paltry “loss”. His primary incentive is to market and gain more high value clients.  You should learn enough to understand what the adviser is advising and make a decision you are comfortable with. 

BritishInvestor

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

dunstonh

I paid a few thousand in fees this year and that is because I trust my IFA to do what is right.  Or am I being naïve?  I did question a couple of the funds when I read in the press their poor performance.  This is the reply he obtained from Royal London:-

Royal London is generally a cheap and simple option.  The Governed Portfolios effectively build a multi-asset fund equivalent (fettered fund of funds would be the closest match).     It's a simple solution that will never be the best or worst.  its relatively low cost and you get the mutual bonus to offset some of those charges.
Royal London are the UK's largest provider of drawdown pensions.    
We tend to use RL on transactional advice cases. Not ongoing advice cases.
All that said, the GP range suffered a bit this year due to too frequent rebalancing with increased the equity content multiple times during the falls

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Its starting to get a bit long in the tooth but its not a bad option.  yes, you could have done better.  But you could also have done worse.   Its a simple option. Simple options will rarely be the best overall but they wont be the worst and can still be best for you. 

If you think of a home cinema system.  You can build a system with individual components that mix and match so you get the best in every area with all sorts of configuration options.  Get it right and you have the best sound.  Get it wrong and you can fry components.  Or you can go for the all in one solution with a handful of pre-built configuration options. It wont give you the best sound but it is simple to use.   RL is your all-in-one system.    

Its also worth remembering that there are different ways to invest.  Investing is about opinion.  Different people will have different ideas and all of them could be right.    Drawdown strategies vary too.   Some have the cash float inside the pension and draw against the cash. Some have the cash float in their personal savings and will turn on/off the draw when markets fall.    Some will only draw an amount equivalent to the yield.   Some will will draw x% of the value and adjust the draw amount multiple times a year.   Some segment their portfolio into short term, medium-term and long term and have different risk profiles for each.

[Deleted User]

thriftytracey said:

Thinking back about it I don't think it was as much as 20%, maybe about £30k down on £299k.  Apologies I wasn't checking the values back then.  I don't know if you can retrospectively check the value back in March 2020.

My portfolio is Royal London Governed Retirement Income Portfolio 3.
RLP Global Managed 33.25%
RLP Medium 10 yr Corporate Bond 11.11%
RLP Medium 10 yr Index Linked 10.20%
RLP Property 7.58%
RLP Medium (10 yr) Gilt 6.96%
RLP Global High Yield Bond 6.42%
RLP Sterling Extra Yield Bond 6.34%
RLP Cash Plus 5.31%
RLP Commodity 5.15%
RLP Absolute Return Government Bond 2.94%
RLP Deposit 2.39%
RLP Short Duration Global High Yield 2.35%
Investment Attitude to Risk:  Cautious to Moderate.

Lets try to “reverse engineer” what you own and why.  I am guessing by assigning you a “cautious to moderate” ranking, they limited you to 30-35% stock.  Traditional portfolios are split between “risky” high return assets (stocks) and “low risk, low return” assets (bonds). 

Based on your artificial risk rating, you would normally have a 35/65 percent split.  This is because the advisers follow a standard procedure and don’t understand your real risks.   And 35/65 might be ok in a high interest environment when the bonds can grow. Right now we are in an environment  when real return on high quality bonds is expected to be below zero. Interest rates cant go down by much when they are zero. If they go up, you lose even more. On top of that you have 2 layers of fees, perhaps 1.5%.  So the majority of your portfolio is expected to return less than zero. And that will compound over time. Not in a good way.

RL decided to mitigate the interest rate risk a bit. You have 10% in interest linked bonds. That’s insurance but you pay for it.   

They also have about 10% of junk bonds. That makes your return a bit better when the times are good but hurts you when the times are bad. Its a risky asset. As is property. And commodity. Add all of that to equity and well over half of your portfolio is in “risky” assets which get dumped during a crisis.  

In summary, RL gave you few stocks because of your presumed risk profile and tried to offset the resulting low return and high portfolio costs by juicing it with assets which are just as risky as equity (if not more) but not as good.  

If I were you, I would swap all of this for a very simple and cheap single multi-asset fund with at least 60 or 70% in equity and the rest in high quality bonds.  Given where we are, portfolios with just 30% equity are too risky in reality if not on paper. 

Thrugelmir

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

thriftytracey said:

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Hindsight is a wonderful tool.  Everyone is suddenly an expert after the event. Being cautious is using sound investment judgement when there's uncertainty.  Which there's no shortage of at the currrent time. Following the herd isn't always a wise strategy. 

Hindsight has nothing to do with it. You are surely paying an adviser for a robust retirement plan and peace of mind. A robust retirement plan would be very unlikely to have required any adjustments to spending plans during the recent downturn

Of course it's hindsight. You are using that very thing in making the statement above. I doubt that global pandemics would have been factored into many investors retirements plans. 

The O/P is paying a professional for retirement planning advice. Events much worse than the recent market volatility should be included as part of building a retirement plan.
It really isn't hindsight - given the brevity of the downturn, benign inflation, the multi-year run-up in asset prices prior to the event, quality bonds holding up reasonably well and spending adjustments typically being made on a structured, annual basis, I'm perplexed.
If we were currently a couple of years into a major market slump, inflation was soaring and both bonds and equities were getting hit, I would have a different view.

[Deleted User]

dunstonh said:

I paid a few thousand in fees this year and that is because I trust my IFA to do what is right.  Or am I being naïve?  I did question a couple of the funds when I read in the press their poor performance.  This is the reply he obtained from Royal London:-

Royal London is generally a cheap and simple option.  The Governed Portfolios effectively build a multi-asset fund equivalent (fettered fund of funds would be the closest match).     It's a simple solution that will never be the best or worst.  its relatively low cost and you get the mutual bonus to offset some of those charges.

But from the sound of it it seems that I shouldn't need to do this if I had invested elsewhere as this isn't a great product?

Its starting to get a bit long in the tooth but its not a bad option.  yes, you could have done better.  But you could also have done worse.   Its a simple option. Simple options will rarely be the best...

According to Trustnet this portfolio costs 1%.  On top of that OP pays thousands in fees to the adviser. Most of the assets in this portfolio have expected real returns less than the fees. 

This is not a low cost option. This is unacceptably high cost. A better quality multi-asset fund will cost around 0.1 to 0.2% per year total.  

Nor is this a simple option. This portfolio contains niche and risky assets which are notoriously difficult to make a profit on, such as commodities.  And junk bonds. And property.  

Also, simple options tend to be the best for investors over long periods of time, even though some advisers tend to push clients into unnecessarily complex portfolios.