Drawdown Timings

Spivo46

I am looking to access my pension fund. I will be crytalising a smaller percentage (£80K) from which i can draw approx £11k taxable and A £20k TFLS. This will keep me under my personal allowance. With fund values fluctuating on a daily basis by 3 to 5k it seems like a lottery because if you instruct the pension company to carry out the action today the value may have dropped at the point they action your instruction days later. Have i misunderstood?

Albermarle

You are right. If you ask for a specific amount of cash, then more or less units/investments will have to be sold depending on the prices that day. With many pensions you can ( or are required to) sell the investments yourself at the time of your choosing before the withdrawal date.
It is often recommended to sell to cash in advance to cover the next couple of years withdrawals, so you know where you stand.

Doctor_Who

I am keeping ~2 years worth of withdrawals in a short term money market fund in my SIPP. That way I know what I have since STMMFs are very cash-like with low volatility. As I withdraw funds from the STMMF, I can replace them over the year with dividend income from other investments in the SIPP and some strategic selling of longer term funds.

SVaz

Anyone with any sense will start building a cash pot in the 5 years before drawdown,
either by having income funds or by selling funds when prices are high.
Far too risky to leave it till you actually start drawdown. 

squirrelpie

The pension company should normally execute your sell instructions within a day in my experience. It won't take several days.

Spivo46

SVaz said:

Anyone with any sense will start building a cash pot in the 5 years before drawdown,
either by having income funds or by selling funds when prices are high.
Far too risky to leave it till you actually start drawdown. 

It should not be assumed that people who do not fully understand the end to end complexities of pensions do not have any sense. I am working my why through the best course of action now, hence the questions on this forum (and i really appreciate the guidance). In my opinion there is a problem in the UK, the goverment should have invested time and effort to educate people earlier and throughout life, and not with a "Pensionwise " option that is not fit for most peoples purpose. Yes, there are financial advisors available but personally i would prefer to make my own informed decision after taking in the information required.

Spivo46

squirrelpie said:

The pension company should normally execute your sell instructions within a day in my experience. It won't take several days.

Interesting, I will ask Royal London that direct question. Thank you

nicknameless

SVaz said:

Anyone with any sense will start building a cash pot in the 5 years before drawdown,
either by having income funds or by selling funds when prices are high.
Far too risky to leave it till you actually start drawdown. 

Far too simplistic surely?  Some will not want to lose potential gains by moving to cash.  Bucket strategies highly controversial.  Surely anyone with any sense will understand there are options with pros and cons to each?

gm0

Different providers will take instruction from you to pay you from a cash fund - if you keep one.  Or to smear sales across all fund holdings in proportion, or to take from the largest first.  A range of choices

Aware of this you can pick a provider that does it the way you want by configuring your account or just because it's their default method.  Safer generally to be on the default and not some kind of per request exception requiring them to read the notes properly - as this is likely to lead to disappointment and irritation (ask me how I know).

Whether to hold any cash and control timing of sales to replenish it vs just sell every month/quarter from the chosen invested asset allocation is a decision only you can make. 

But consider Sequence Risk - In the event of a (normal) equity correction - say for example to the 50% level early in retirement - the "fully invested" version will deplete capital units at twice the intended rate selling for income until it starts to climb back.  i.e. very bad sequence can hurt a lot.  More so if early. And if forced sales are made.

It is easy to say "I won't do that then".  But rather less easy for the essential income portion to keep going - housing, tax, energy, food etc.

Even if the long term asset class average return is regained (much later) for your mix. Because you *don't have the units* having sold them twice as fast as planned in earlier years for income - you are now suffering reduced outcomes into late retirement.  Bad path. Not median path.  And locked into it.  The late recovery happens.  But you enjoy less of it.  Unlucky deaccumulation cohort (for your chosen access method).  Somebody has to be the limiting case which defines MSWR "failure" in backtesting.

The money made by people buying units on the cheap in accumulation during a dip is funded by people selling units on the cheap in the same dip in deaccumulation - you can think about it as a wealth transfer from you to them.  A selfless act by baby boomers for the millennials.  ;->

Full protection against this nasty arithmetic is not feasible. There are examples of markets which were poor for an extended period and so 7-10 years income in "minimal risk assets" could be needed.  Which is unachievable for most alongside planning a decent income from a mix of capital and returns.

A happy medium - to your taste may be appropriate - sacrificing some potential return yes - but not faced with an immediate issue to suspend essential income or start selling excessive numbers of capital units.

This is the logic by which I hold a cash buffer between rebalancings and draw income from that.  I control when trading occurs and it does not happen at predefined dates regardless of market conditions.  Nor do I need to try and cancel anything in the teeth of a crisis.  If I sit on my hands.  Nothing happens.

This part is also emotional and your response to risk and negative outcomes and media.  DIY requires thinking it through.  But it also requires you to sleep soundly while living with it.

You can say how much is too much - for you.  6 months 1 year.  2 years. More ?

And some are happy fully invested with regular sales only at point of need.  I'm not.  But some are.

I find the concept of assessing your income needs into two categories the true essentials, and the desirable a useful technique in assessing how much buffering to consider for a really bad scenario starting to play out.

Steve_666_

squirrelpie said:

The pension company should normally execute your sell instructions within a day in my experience. It won't take several days.

Funny that, I asked Ae**n to switch funds on a Monday morning, looks like the "sell" took place on the following Friday after a week of world markets falling, needless to say that the buy took place the next week when the markets had started to rise. All in all, by the time the paperwork had run the rings, the website presentation of this wasn't "clear" for 14 days.

dunstonh

Steve_666_ said:

squirrelpie said:

The pension company should normally execute your sell instructions within a day in my experience. It won't take several days.

Funny that, I asked Ae**n to switch funds on a Monday morning, looks like the "sell" took place on the following Friday after a week of world markets falling, needless to say that the buy took place the next week when the markets had started to rise. All in all, by the time the paperwork had run the rings, the website presentation of this wasn't "clear" for 14 days.

Insurers are often slow to act on instructions but use the unit price on the day they should have done it (next dealing point after receipt).