Retired and not sure what to do with small HL SIPP fund

Suseka97

My OH retired in July 20 having taken voluntary redundancy and is 2 years away from being able to draw state pension.   His income now comes from 2 x DB pension pots, one is an armed forces pension and the other from his former employer's DB scheme.  About 10 years or so ago (can't remember exactly when) the company he worked for was sold on to another and all EEs were transferred across.  The only change to their T&Cs was that the DB fund was effectively frozen at that point and his pension contributions were paid into a new DC scheme.

The DC scheme is managed by Hargreaves Lansdown and the fund is called BlackRock Consensus 85 and has a value of just under £40k (management fee is 0.45%) so currently around £13/£14 pm.  So this is not his main pension and we can live quite comfortably on his two DB pensions along with my income.  Both his pensions are taxed at BR.  

So, oh wise pension gurus... what should we do with this fund?  Leave it as is or start adding to it - and I think I'm right in saying that he could invest up to £2,880 per year, but would this be considered as 'pension recycling' in some form?

He's very 'risk adverse' and would quite happily just withdraw the whole pot, but seeing as we don't need it I've managed to persuade him to let it be for now.

Dazed_and_C0nfused

I don't think recycling would be an issue if he just contributed the non earners limit of £2,880.

But he may may be able to contribute more in this tax year.

My OH retired in July 20 having taken voluntary redundancy 

Has he checked his State Pension forecast, reading past he headline figure, to see what he has accrued to April 2020?

The BR tax codes should change when the new tax year starts, one might remain but he should start to get the benefit of his Personal Allowance on one.

Suseka97

Yes, he's checked his SP and he should get the full £175pw, but needs 2 more qualifying years and based on what he earned between Apr-July I expect when the NI updates for this year he may only need 1 year.  Will then look at whether it'll be worth making a voluntary contribution for that missing year. 

He's has his tax code notification for the next FY and his armed forces pension will get the benefit of the personal allowance and the remainder across the two will be taxed at BR.

xylophone

Will then look at whether it'll be worth making a voluntary contribution for that missing year. 

Why would it not be? 

Suseka97

xylophone said:

Will then look at whether it'll be worth making a voluntary contribution for that missing year. 

Why would it not be? 

Because sometimes, depending on the numbers involved, the last 'missing' year doesn't always add much to the total amount you would get per week.  In my case I have 3 years currently to get to the full £175.xx and my current estimate is £163.xx as at 5th April 2020.   So assuming that remained the same if I were to purchase 2 years worth, it would add £10 per week bringing my total to £173.xx leaving me just £1.xx short per week.   It's then a case of whether buying that one extra year at £795 is worth the difference or not to me.  Having said that, having just looked at my OH's situation it'll be worth buying that one missing year.

Happy to be corrected if my understanding of this is wrong of course  

DairyQueen

HL charges are reasonable for small pots but I would check-out fees offered by other platforms when/if the total heads toward £100k. 

Blackrock Consensus 85 is a well-diversified, global fund with low charges. The company offers various asset allocations in the Consensus range and this an 85% equity fund. If your OH is risk-averse then he may find it difficult to swallow a 40%+ drop in the fund value if the markets crash. However, if he doesn't need to access the dosh anytime within the next 5/10 years then I would leave well alone. 

If he wishes to access it within a shorter timescale then it may be worth restructuring to (say) 25% cash and the balance in a 100% equity fund. This would give him the option of withdrawing a PCLS tax free sum within the next few years and leaving the crystallised balance to grow. It would need to be rebalanced occasionally to ensure that 25%-ish remained in cash.

HL doesn't charge for holding cash but nor will you receive any interest. Better to take an inflation hit on the cash than to sell at a low price if OH decides he wants to access the pension after the market takes a dive and stays down for a prolonged period.

There is also the option to de-risk to a lower equity %age (Blackrock offers several Consensus options, as do other providers with similar 'one-stop-funds' such as Vanguard, HSBC, L&G). 

Another option would be to take chunks as UFPLS withdrawals as/when he fancies a bit of extra spends. As only 75% would be taxable on each withdrawal he could adjust the amount withdrawn to stay within the BR tax threshold in each tax year.

Pensions are excluded from IHT so are a tax-efficient way of passing on assets when you pop your clogs. Also, if he predeceases you will your income fall substantially? And vice versa? If so, this SIPP could help plug the income gap for the survivor. 

If he takes the lot in one hit then he will be taxed on 75% of the total as income in the tax year in which he makes the withdrawal. This is a great way of increasing his tax bill so if he chooses this option may I thank him on behalf of the Chancellor and the taxpayer community.

Albermarle

Blackrock Consensus 85 is a well-diversified, global fund with low charges. The company offers various asset allocations in the Consensus range and this an 85% equity fund. I

The numbering of the Consensus funds is a bit misleading. They can have a varying equity % and at the moment the '85' fund holds 69% equity . Also it is not particularly well diversified having a strong home bias with 33% in UK . Due to this its recent performance has been relatively poor compared to similar funds . 4.4 % growth in the last 12 months compared to HSBC global strategy at almost 7% , with a lower equity % but a more global diversification.

Blackrock now promote more their 'Mymap' series ; MYmap 5 has 62% equities at present , with a more moderate home bias of 13% and a one year performance of13% ( although as it is a new fund so no track record) 

Suseka97

@DairyQueen and @Albermarle - thank you for the advice and I clearly need to do a bit more research.

We don't need the money and my suggestion was to leave it invested for at least the next 5 years.  His current pensions have a spousal clause and I would be entitled to 50% of its current value, the same goes for him with my DB pension.  Also, mortgage would be cleared and we have no other debts and a decent amount of savings.  We have both worked in industries that had DB schemes since aged 17, so hopefully our retirement will be a comfortable one.  This SIPP is now simply a rainy day, kinda, fund - maybe to spend on a few special holidays or treat our children in later years.

So, do I take it from the replies so far that it's a good idea for him to make payments of £2880 per year for the next, say, 5 years or more and obviously look into a couple of different products that might be a slightly better ROI?

Suseka97

I've had a look at the BlackRock Mymap series, as mentioned above - and whilst I accept them being relatively new products there is no track record, the Mymap 4 - 6 funds have achieved a greater return than the BRC85 fund.  

We will both think about this more carefully, as soon as we can get our house move sorted - but is it relatively straightforward to move monies from one fund to another?  I assume, because the unit price is different between the current one and the MyMap group it simply means he would hold more 'units' and the 'accumulation' option is where any interest earned is simply reinvested back into the fund.

Again, apologies for what may sound obvious - but we've never really had to think about pensions in quite the same way as many others who do not have DB pensions, or who do but also have DC pots.  Truth is I've had to sort out his pensions since he retired and he really doesn't like dealing with money matters.   So,  I'm trying to get things clear in my head for when I have that conversation with OH again and explain that its better left (or moved to a higher return fund, perhaps) than withdrawn and in doing giving a nice tax gift to the chancellor and that its worthwhile continuing to invest the £2,880pa.

AlanP_2

You sell the BRC85 funds and 2 / 3 days later you will get £x in your account, you then buy your new funds.

That is the basic principle, some platforms allow you to do a "swap" which does the Sell / Buy in the backgrouind some don't.

An ACC fund has dividends automatically reinvested inside the fund as opposed to paid out in cash (which can be reinevested if desired).