Passive Multi Asset Funds

Stegor

Hi,
My wife has a £25k S&S ISA that she's looking to transfer and open a SIPP at the same time, both in Passive Multi Asset Funds. She's 52 and hoping to retire in the next 3 to 5 years. We have been looking at the Vanguard Life Strategy 60% and 40% and also the Target Retirement 2025 fund for the SIPP. Does anyone have any opinions on these or advice on other platforms? Thanks

QrizB

Does your wife have enough earned income to contribute £31250 to a pension in a year?

What about her workplace pension, is that paid by Salary Sacrifice?

What is her plan for the SIPP - is she going to withdraw it all within a few years of retiring, or is she going to leave it invested for the next 30 yearts?

[Deleted User]

Actual target retirement funds are good if you want a completely “hands off” approach.  They tend to move into bonds a little too fast and too early from my perspective.

You can easily execute a target retirement strategy using VLS series by moving into a lower number VLS over time.  This allows for a bit more control and for adjustment to your circumstances.

Balanced 60/40 funds like VLS 60 went out of fashion a couple of years ago because bonds were yielding almost zero.  Now they are back. 

Stegor

Thanks for the comments.

My wife earns around £8k a year so well below the tax threshold, she pays 5.5% into an LGPS pension scheme so we would be looking at paying around £200 a month into a SIPP and getting the tax relief added. We would then transfer her ISA into a passive multi asset ISA and pay around £200 a month into that also. The idea is to build up a pot that she could use between her retirement and SP age (whatever that is going to be in the future) alongside my wages/pensions and savings.

Mordco, would you recommend the VLS 60 and 40 for the SIPP as well as the ISA or go for the target retirement? Thanks again.

[Deleted User]

Stegor said:

Thanks for the comments.

My wife earns around £8k a year so well below the tax threshold, she pays 5.5% into an LGPS pension scheme so we would be looking at paying around £200 a month into a SIPP and getting the tax relief added. We would then transfer her ISA into a passive multi asset ISA and pay around £200 a month into that also. The idea is to build up a pot that she could use between her retirement and SP age (whatever that is going to be in the future) alongside my wages/pensions and savings.

Mordco, would you recommend the VLS 60 and 40 for the SIPP as well as the ISA or go for the target retirement? Thanks again.

Personally I would happily buy VLS 60 for both SIPP and ISA. 

However her time horizon is short (3 to 5 years).  Thats too short for investments.  One would need more info to “recommend”.  

- Both bonds and stocks could be down in 3 to 5 years.  How detrimental would that be?  

- Do you have other means of allowing her to retire? Is this fund just a cherry on the top or will she have to save on basics if the fund does not perform in 3 to5 years? 

- Could she delay, depending on investment performance? 

- How much are you expecting to draw annually when she retires?  Given the current size of her pot and the amount she can invest between now and then, she won’t be able to safely draw all that much.  

On the balance of probabilities VLS60 would beat inflation over a 5 year period of time but its far from guaranteed.  If you go for VLS40 or target retirement with 5 year horizon then:
- chances of NOT beating inflation increase. 

- The expected returns decrease
- Volatility will decrease too. 

Her alternative, given the 3 to 5 year horizon, is to put it all in cash.  She will gain interest in nominal terms but almost certainly lose to inflation in real terms.  Investments can’t guarantee positive returns even in nominal terms. 

Stegor

I have a military pension which increases with CPI in 3 years time and currently will be paying around £14k. She has a small LGPS pension which will pay around £2k a year from 65, obviously a lot less if she takes it early.

I have shares with my company worth £70k which are very safe in the current climate and I'm adding £150 a month through the sharesave scheme. I have DC pensions currently worth around £100k and I am adding 25% of my wage to that through salary sacrifice and AVC's.

Our plan is to try and get as much as we can into her retirement plan now to reduce the tax burden on my income when we retire. The ISA she has currently was originally going to be used to pay off our mortgage but is no longer required for that, so it has higher charges than the Vanguard platform and also includes life cover which we have to pay for from the monthly subscription. I also have £20k in the same type of ISA but we are probably going to use this to pay off the mortgage before our fixed rate ends in May 2023.

We both have full state pension so with that and my military pension we should be very secure when we start to receive it at 67 (or 68)  we're just looking for the best way to go between retiring and SP age if that makes sense. Thanks again

[Deleted User]

Yes, based on what you said, personally I would put everything into VLS 60. 

Albermarle

Deleted_User said:

Yes, based on what you said, personally I would put everything into VLS 60. 

Or one of their competitors similar funds, like HSBC global strategy balanced, or Fidelity Multi allocator Growth .

Stegor

So open a VLS 60 or one of the similar funds quoted for both the isa and the sipp then move to a VLS 40 or similar later but keep invested, withdrawing as and when required. Thanks for all the info.

Albermarle

Stegor said:

So open a VLS 60 or one of the similar funds quoted for both the isa and the sipp then move to a VLS 40 or similar later but keep invested, withdrawing as and when required. Thanks for all the info.

To go from 40% equity to 60% equity would be a personal decision. Some  would stay at 60%, as I think in the long term historically it gives a better outcome, but the difference would not be huge. Usually it is recommended not to go below 40% if you are planning to withdraw from the pension over a long period.

gm0

As @Abermarle says if you take a 40+ year view of DC drawdown in retirement then the backtesting data and random returns simulations tell the tale.  If you have a *huge* pot vs income need then you can do anything - risk fully off - cashflow matched ladder of maturing gilts. Or risk on - 100% growth assets. Or anything else to taste. 

But for normal ratios of pot to income WR then 40%-70% growth assets (equities etc) is a very reasonable long term risk range if you are more interested in sustainability than a chance of larger legacy (albeit with an accompanying greater risk of retirement shortfall with a very bad sequence). <40 not enough returns for income.  Above 70-80 volatility spikes and sequences in the historic record start to show it can interfere with the % of success - even if "most" paths at >70% lead to (significantly) greater riches at death.  Asymmetric risk.  Running out is a problem. Dying with another unexpected 200k or more isn't.

If you have your other contingencies worked out then you can do whatever pleases you.

Pension freedoms are a remarkable construct.  But they do place a lot of responsibility on the individual.