Short term investment

Pipkin1812

I’m looking for some thoughts on what might be a good investment fund for a relatively short term period (5-7 years) within my SIPP. I have a DB pension but looking to boost my SIPP so I can defer taking DB pension as long as possible. 

Thrugelmir

Hold cash or a cash equivalent in your SIPP.  All the other alternatives have a degree of risk attached. 

Pipkin1812

Thanks. What are the other cash equivalents?

MX5huggy

Is this a lump sum that is already in your SIPP or are you proposing to to contribute over the next 5 to 7 years? Or a combination of the 2?

5 to 7 years is that nasty period where cash will get eaten by inflation yet stocks could take a big hit and not have time to recover. 

Seems to me you can take a bit of risk you have the DB to fall back on. Look at Vanguard Target Retirement or similar that will dial down the risk as the years pass.

https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds

Pipkin1812

Thanks. Yes I have LGPS DB pension since 1983 which I want to hang on taking for as long as possible, especially as I have worked part time for the last 20 years so not as good as it could have been. I am 56 and looking to retire around 62 but want to defer as long as possible. I opened my SIPP a year ago and currently have around £8K invested across a range of AJ Bell funds but was conscious that over a short period returns are quite risky. Going forward I wanted to reduce the risk on anything else I put in. It will be small monthly contribution (£100) with maybe an occasional lump sum ( I have an NSI savings certificate (around£13K) due to mature next year). I have approx £16K in S&S ISA’s and £38K in a Marcus account. I have 2 more years to qualify for full State pension. 

Pipkin1812

Forgot to mention I’m also paying into LGPS Linked AVC (via Salary Sacrifice). 

DairyQueen

Pipkin1812 said:

I’m looking for some thoughts on what might be a good investment fund for a relatively short term period (5-7 years) within my SIPP. I have a DB pension but looking to boost my SIPP so I can defer taking DB pension as long as possible. 

Are you looking to use this pot as an income bridge between your preferred retirement age (62?) and the NRA of your DB pension? Or SP age? O some other age?

Just trying to work-out how many years before you begin drawdown, and how many years after that you will be in drawdown. 

As a general principle equities are ill-advised for those who need access to the asset in <10 years. However, between now and when you intend exhausting the pot may be > 10 years.

Pipkin1812

I have protection by R85 on some of my pension if I retire at 60, some at protected retirement age of 65, but NPA is 67 on CARE element since 2014, so generally trying to put off claiming DB as long as possible to minimise reduction. So really looking for SIPP to supplement savings for a couple of years before DB is taken. Thanks. 

kidmugsy

Pipkin1812 said: ... I am 56 and looking to retire around 62 but want to defer as long as possible. I opened my SIPP a year ago and currently have around £8K invested ... anything else I put in ... will be small monthly contribution (£100) with maybe an occasional lump sum ( I have an NSI savings certificate (around£13K) due to mature next year). I have approx £16K in S&S ISA’s and £38K in a Marcus account. I have 2 more years to qualify for full State pension. 

(i) Can you take the AVC out of the LGPS pension without activating the DB pension?  If that were possible it might be better to maximise the salary sacrificed AVC contributions rather than SIPP contributions insofar as the minimum pay restriction allows.

(ii) If you want to live on the SIPP (or indeed the AVC if permitted) for a few years the trick is to get it big enough that each year lets you withdraw a sum equal to the Personal Allowance against income tax (£12,570 currently) plus the tax-free lump sum that comes with it => an annual total of £16,759. So, how can you pile some more money into (say) the SIPP?  Well, you can start with emptying the ISA and contributing that money into the SIPP (subject to your Annual Allowance for pension contributions) and then putting a fair whack of your Marcus money in too, since £38k is perhaps a needlessly large emergency fund for someone in a secure job: but you know better than I do how much comfort that instant access Marcus money brings you. Still, you are already 56 so any cash in your SIPP probably does count as an emergency fund because you can probably withdraw it at somewhere about 30 days notice. You could always back up your SIPP cash by opening a 0% credit card to help cover the 30 days if needs be.

(iii) As for your NSI savings certificate (around £13K) due to mature next year: if it's one of the index-linked ones I'd be inclined to hang on to it until it's the last money you have available to add to the SIPP, as long as you know how to withdraw cash at minimum penalty.   

Does the arithmetic of this scheme work for your situation?

kidmugsy

I suspect that almost nobody your age will listen to such a notion, but here goes.  You'd like to defer taking your DB pension until as late as you can afford to.  The latest age that makes sense is 67, so you would them have max DB pension plus your State Pension (which you will presumably have taken steps to maximise).  So at age 67 you will be reasonably prosperous.

But meantime you would like cash to live on after age 62.  How about borrowing it?  Interest rates are very low by historical standards, and if you get a loan at a low fixed rate, and then inflation takes off, the burden of the debt will fall. We can assume, for the sake of argument, that your income after age 67 will be big enough to let you finish off repaying the loan.  How cheap a loan could you get?  For instance, if you took out a small mortgage loan, how cheap might it be?

The whole purpose of debt is to allow you to shuffle money about between two different times.  That is the problem you face - you want, as it were, to move some of the income you will have at age 67+ to the period of age 62+.  Worth a ponder.  Note that it might be far easier to borrow while you are still in employment.

DairyQueen

Pipkin1812 said:

I have protection by R85 on some of my pension if I retire at 60, some at protected retirement age of 65, but NPA is 67 on CARE element since 2014, so generally trying to put off claiming DB as long as possible to minimise reduction. So really looking for SIPP to supplement savings for a couple of years before DB is taken. Thanks. 

I am no expert on the LGPS. @Silvertabby is the key forum contributor. Hopefully, she will be along presently. 

Generally, providing that any element of your DB pension is subject to a late retirement factor that makes deferment (or taking at NRA if early retirement factor is onerous) worthwhile then your plan is sensible.

Can I assume, for purposes of your question, that you DO intend drawing down this pot from age 62 until age 67 in variable annual amounts? This suggests an 'accumulation' period of around 6 years, followed by decumulation (drawdown) of around 5 years?

Also, that you will be adding to the pot by means of regular payments, and occasional lump sums, until age 62?

'Decumulation' requires a different investment approach to 'accumulation' and this can be quite challenging at normal times. These are not normal times so the historic use of bonds as a counter to equity risk is not as robust as in previous decades.

If you could answer the above that would be a useful guide.