Deciding which pot to draw from

Stoodles

Are there any general rules on which pot to draw from first?

Between us we have two SIPPs (£92k in global trackers, £19k in active funds) and two Aviva Personal Pensions (£145k and £32k) where about a third of the value of each is in terminal bonuses. We will start drawdown in the coming financial year, and want to draw £8k pa. Other income will come from ISAs and DB pensions.

Linton

It depends on your circumstances, mainly tax:
 -  If your income is below your tax allowance, perhaps between retiring and getting your SP, it would be worthwhile to max your drawdown up to your tax allowance putting any spare money into an S&S ISA.  SImilarly maximise the drawdowen under basic rate tax if you are in danger of being a higher rate tax payer later in retirement.

 - Perhaps you dont really need the money and intend to pass it on to your children as money in pensions is outside your estate.  It which case it would be better to use ISA money. for your living expenses.

 - If you are planning to draw some of the money down from dividends/interest it would be better to do this from an ISA as it will be tax free whereas from a SIPP it will be fully taxed.  Arranging a one-off SIPP payment is much more hassle than transferring out of an ISA.  Your ISA platform may be able to transfer out dividends and interest automatically,  II do this.  I think SIPPs would be  less likely to support this as they may not like running PAYE for very small payouts.

 - Another aspect could be to make life as simple as possible.  So it could be worthwhile to clear out a small DC pot quickly so you dont have to bother with it.

dunstonh

Are there any general rules on which pot to draw from first?

No.  It depends on what pensions you have, the terms and your objectives.    Many people dont keep individual pots but consolidate them into one.   Unless there is something about one of the contracts that makes it sensible to keep apart.

Most Aviva personal pensions dont offer full drawdown functionality.  If you ask the question if they do drawdown, they will say yes.  However, you usually find its only UFLPS that they offer.  Not regular monthly income.   You need to be on their modern plans to do that.

green_man

Sometimes a personal Pension may have some safeguards. I.e. my old SunLife/Phoenix pension had a minimum pension pot value at my defined pension age. If yours (Aviva) have anything like this they could be worth leaving to second as a means of a backstop in the case of a big crash.   

If not, then it would be more along the lines of which assets you liquidate to provide the years income.  In a SIPP most would maintain a 2-3 year cash sum (or bonds - but maybe not now) to draw down in the case where there has been a big crash (so you don’t have to liquid shares at a big loss). if one particular fund does exceptionally well in a year then Drawing down that fund to realise the gains can be one strategy (I like this method, others don’t).

Stoodles

Thanks for your answers. I was anticipating using UFPLS, so would be happy with Aviva's offering.

Part of the Aviva plan has a guaranteed 4%, so as green_man suggested I wondered if that should be held on to. But I also wondered if the terminal bonuses might shrink if the economy stagnates, so it might be wise to start drawing from there.

With the SIPPs it is "simply" a question of deciding whether the active or passive portfolios will do better in the longer term, although personal circumstances mean I can't draw on mine for anther 18 months anyway.

dunstonh

Part of the Aviva plan has a guaranteed 4%, so as green_man suggested I wondered if that should be held on to.

4% before charges.  Check the charges as I have seen some fo these guaranteed growth rate plans have 2.3% p.a. charges before.   Aviva are not normally as much as that though.

But I also wondered if the terminal bonuses might shrink if the economy stagnates, so it might be wise to start drawing from there.

The terminal bonus is always subject to market movements.  However, remember that the economy is not made up of one thing. Whilst certain sectors are decimated, others are seeing little or no difference and some are benefitting enormously. There are winners and losers in every recession and markets do not always react to directly to the current economic status.