Short term investment

DairyQueen

kidmugsy said:

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.

And I doubt that anyone of your age has the faintest notion of what it's like to live in an era of loan/mortgage rates at 8-15+%. 

Don't assume that interest rates will remain at historic lows throughout your lifetime, or even over the next, few years -chances are that they won't. There is a very good reason the people of 'our age' are leery of debt. We have been there, done it, ironed the t-shirt. We know what it's like to live with high interest rates.

Those of my generation sleep well at night knowing that their homes are not at risk, and that they can pay their bills regardless of the vagaries of interest rates. OP is seeking a low-risk way of bridging. In an environment of rising interest rates, debt is not the optimal solution.

Pipkin1812

Thanks all. 

I believe I can take my AVC if still paying into LGPS and stop paying into the AVC. 

Yes my savings certificate is index linked. 

Yes I would like to draw down SIPP (if pot were big enough with my continued regular payments and occasional one off payments) to cover me until drawing DB pension. 

I could transfer some from ISA’s and Marcus as Kidmugsy suggests. 

Silvertabby

Pipkin1812 said:

Thanks all. 

I believe I can take my AVC if still paying into LGPS and stop paying into the AVC. 

Yes my savings certificate is index linked. 

Yes I would like to draw down SIPP (if pot were big enough with my continued regular payments and occasional one off payments) to cover me until drawing DB pension. 

I could transfer some from ISA’s and Marcus as Kidmugsy suggests. 

R85 first:  Protections only apply to pre 2008 service (and as long as you joined the LGPS before October 2006).

After that, NRA for 2008 to 2014 is 65, and SPA for 2014 onwards.

Yes, it is possible to access your AVC before leaving the LGPS, but you would then be limited to a maximum 25% tax free cash with the remainder being taken as an annuity or drawdown.

The most popular reason for paying AVCs in the LGPS is the 100% tax free cash option (as long as this is within HMRC limits) - but you can only do this if you take your AVC at the same time as your LGPS benefits. 

Pipkin1812

Thanks Silvertabby. Yes pre 2008 protected by R85 (and lump sum) for retirement at 60, 2008-2014 at 65 and post 2014 SPA, hence I’m trying to defer taking it as long as possible in terms of what I can afford. I think you’re right, taking the AVC separately loses too much tax free cash benefit.
I guess I’m back to looking at low risk into my SIPP. 

kidmugsy

DairyQueen said:

kidmugsy said:

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.

And I doubt that anyone of your age has the faintest notion of what it's like to live in an era of loan/mortgage rates at 8-15+%. 
 ... In an environment of rising interest rates, debt is not the optimal solution.

I'm flattered by your assumption that I'm too young to have experienced high interest rates. The rest of your remark is a mystery.  If someone takes out a loan - say a mortgage loan - at a fixed rate then rising rates don't matter a hoot.  Insofar as they are a marker of high inflation they are a good thing - inflation reduces the burden of the debt.  

I don't like superstition, and that includes superstition of the "all debt is bad" kind. 

MX5huggy

@Pipkin1812 have you actually run the numbers for taking your LGPS at different dates/ages? When I’ve looked at it the difference between 60 and 68 (where you’ve stopped working at 60 in either case). It is not as in favour of waiting as you might think, the the total value of pension payments for the 68 option only overtaking to 60 option once you get to 83 or 84, depending on inflation. 

Once you factor in the SS AVC that you are saving the NI on and that you may get them back Tax free lump sum you may see waiting is not really worth it and therefore just increase AVC’s and don’t open a SIPP. You have to take a view on how long you think you might live. 

I’m an LGPS newbi so I only have new scheme contributions and don’t understand R85 or McCloud impacts. 

Albermarle

As far as low to medium risk investments go , there a couple of wealth preservation investment trusts and funds that are often mentioned on this forum . Capital Gearing Trust and Personal Assets trust and Troy trojan fund .They are not risk free, especially over a relatively short time frame. However they have a good record of not going down too much in the case of a market crash and slow and steady growth at other times.
Probably the Troy fund would be better for regular small investments, but that would depend on which sipp platform you are on, as they all have different charging structures ,

Pipkin1812

For me delaying is about increasing my annual DB pension payments as much as possible, due to working part time for many years the latter element of my pension (CARE) is lower. I’m not great with spreadsheets so presume MX5huggy you are talking about the total value of what you would get whilst you are living? 

Albermarle thanks for the thoughts, is there ever value in keeping cash in the SIPP?

Albermarle

Albermarle thanks for the thoughts, is there ever value in keeping cash in the SIPP?

Yes people do keep cash inside their pensions . Clearly it is a bad idea long term as typically it pays zero interest , but for short term needs it can be a good idea .

In a 5 to 7 year timeframe , it could lose say 10% value due to inflation and personally I would be tempted to 'risk ' a low/medium risk investment instead . Just my opinion .

Pipkin1812

My SIPP is with AJBell. They have a ‘cautious’ fund which I have £400 invested in (amongst a range of their other funds). I will look into Troy Trojan, is this likely to be very different from AJB fund? Thank you.