Three years before retirement. Finalising my DIY Passive plan.

RichardS

So I’ve put a few posts on here recently and I’d like to thank all the folks that read them and responded, it’s been really helpful and I really appreciate the time people take on this forum to give advice.  I think I am just about ready to take the plunge into DIY investing and I have created some sort of plan. I’d really appreciate it if anyone can see any PLEASE DO NOT DO THIS red flags here or similarly if anyone things this is a reasonable plan of action.

I’m 57 and looking to retire in 3 years.
I have a £203k personal pension which is managed by an FA and which I pay 1.57% fees. 

I have a £26k ISA with Nutmeg.
I have a workplace pension with Scottish Widows.  Current value £34k. 

Between the ages of 60 and 67 I would like to have an income of around £15k a year from the above - full state pension kicks in then as well as my wife’s full state pension and her DB pension. I’m pretty sure we will be fine from 67 onwards, it’s the gap between 60-67 I am more concerned about (wife not planning on retiring until 67). 

I want to reduce my fees especially with the personal pension so what I am planning to do is move the Pension and the ISA somewhere else and go down the DIY passive index route.

I have been looking around at platforms and cost-wise I think Interactive Investor is going to suit me best (with its fixed platform costs). I’ve been following a lot of the Meaningful Money channel and thought I would to begin to setup something similar (ish) to the CashFlow Ladder recommended on there using HSBC Global Strategy funds (I’m not feeling brave enough yet to choose individual index funds). I expect I am only going to invest in index funds going forwards or multi-asset funds like VLS or HSBC Global.  For now it appears HSBC Global are a bit cheaper than the VLS fund so I will probably go with them.

My plan would be to transfer the ISA into an ii ISA invested in HSBC Global Strategy Conservative as I am looking at that as a 3-5 year investment as it is probably what I will need to draw on first.  I am going to be paying £600 a month into this until I retire - current value is £26k

My workplace pension is a balanced 60/40 portfolio (approx) which I don’t have much control over but for my current purposes I will consider this to be my 6-10 year investment. Current value is £34k and I will be increasing my contributions into this meaning that with employer contributions there will be £1100 a month going in (salary sacrifice). When I retire I guess I will move that over to ii and re-balance things then. 

The personal pension currently has a value of £203k and I will think of this as my 11 year + investment. I will transfer this to ii and keep contributing £400 a month into it until I retire and will put this in a long term pot, possibly half of it in Global Strategy Dynamic, and the other half in Global Strategy Adventurous. 

To me the above plans feels reasonably safe and reasonably well thought out (!) , but I realise I might be being naive and would appreciate anyone’s advice on it, be it negative or positive.

Albermarle

The obvious question is why pay £600 a month into an ISA, when you could increase your pension contributions by the same amount and get tax relief ( assuming you earn enough to do this) This could be to your workplace pension or your personal pension. The former would be better if your company operates a salary sacrifice scheme.
You will get a minimum 6.25% tax advantage, however if you are a 40% taxpayer today and will be a 20% taxpayer when retired, the advantage is a lot more.

NoMore

Totally agree with Albermarle, don't see the need to increase ISA when you could increase Pension instead for all the reasons listed in the post above.

tacpot12

One red flag is that you haven't said whether you will be investing in accumulation funds or income funds. The HSBC Global Strategy Conservative fund looks a poor choose for income (yeild is less than 3%) and any accumlation version is a poor choice to hold over a short period

Also you are considering each of your existing pensions as a bucket from which you can draw from. You need to consolidate your pensions and then work out what your will invest in, and why. Don't think of them as three seperate buckets. 

RichardS

Albermarle said:

The obvious question is why pay £600 a month into an ISA, when you could increase your pension contributions by the same amount and get tax relief ( assuming you earn enough to do this) This could be to your workplace pension or your personal pension. The former would be better if your company operates a salary sacrifice scheme.
You will get a minimum 6.25% tax advantage, however if you are a 40% taxpayer today and will be a 20% taxpayer when retired, the advantage is a lot more.

Yes I was planning on doing that originally but my thinking was to rebalance my pension/ISA ratio a bit especially as I will possibly need to be drawing on the ISA earlier than my pension. But maybe that’s wrong.  Thanks for the advice. 

RichardS

tacpot12 said:

One red flag is that you haven't said whether you will be investing in accumulation funds or income funds. The HSBC Global Strategy Conservative fund looks a poor choose for income (yeild is less than 3%) and any accumlation version is a poor choice to hold over a short period

Also you are considering each of your existing pensions as a bucket from which you can draw from. You need to consolidate your pensions and then work out what your will invest in, and why. Don't think of them as three seperate buckets. 

All the strategy funds were going to be accumulation 

RichardS

tacpot12 said:

One red flag is that you haven't said whether you will be investing in accumulation funds or income funds. The HSBC Global Strategy Conservative fund looks a poor choose for income (yeild is less than 3%) and any accumlation version is a poor choice to hold over a short period

Also you are considering each of your existing pensions as a bucket from which you can draw from. You need to consolidate your pensions and then work out what your will invest in, and why. Don't think of them as three seperate buckets. 

I am not really considering “buckets” at the moment. I’m just trying to think of my assets in terms of short term and long term needs and balancing things up a bit. I will be doing nothing with the workplace pension until I retire (apart from contributing into it). At that point I would consolidate things.

RichardS

Thanks @Albermarle so would you recommend not paying into the ISA at all and putting my maximum available cash into the workplace pension i.e increase that by £600 a month and just leave the ISA to accumulate without contributing any more into it?  If the salary sacrifice benefits are that beneficial then an additional step could be to do the same with the personal pension i.e for the next three years increase my workplace pension contributions by £1000 a month and stop contributing to the ISA and the personal pension all together. 

af1963

You can salary sacrifice right down to minimum wage level, but no lower.  If that leaves you with spare cash or savings, you can make further SIPP contributions up to a (grossed-up)max of your post-sacrifice salary+work benefits, and you'd get tax relief on those too, even if you didn't pay income tax on all or part of the money.

During the years before SP starts, you can get up to about £17K out of the pensions each year without paying any income tax on it, if you have no other income. Worth taking out even if you don't spend it all - just save any surplus into your ISA. Then you pay 20% on any further withdrawals from the pension. ( up to the usual higher rate tax threshold)

RichardS

@tacpot12 your comment has made me wonder if I should think about consolidating my pensions now rather than in three years i.e transfer my £203k personal pension (which is currently on Fidelity platform and managed by my FA for 1.57%) into my Scottish Widows workplace pension.  I could then put all my available money every month into the workplace pension and get as much salary sacrifice benefits as I can before retiring. I would be saving on fees and having things in one place might be simpler. I could still start the DIY investment approach now but just for the £26k ISA and then consider what to do with the pension pot when I retire in three years. 

Albermarle

RichardS said:

Albermarle said:

The obvious question is why pay £600 a month into an ISA, when you could increase your pension contributions by the same amount and get tax relief ( assuming you earn enough to do this) This could be to your workplace pension or your personal pension. The former would be better if your company operates a salary sacrifice scheme.
You will get a minimum 6.25% tax advantage, however if you are a 40% taxpayer today and will be a 20% taxpayer when retired, the advantage is a lot more.

Yes I was planning on doing that originally but my thinking was to rebalance my pension/ISA ratio a bit especially as I will possibly need to be drawing on the ISA earlier than my pension. But maybe that’s wrong.  Thanks for the advice. 

If you were younger there is then a trade off between the tax benefits of a pension, and the ability to access the ISA . However as you are 57, you can withdraw from a pension when you want. The only caveat is that if you do withdraw any money from a pension, it should only be the tax free cash whilst you are still working as you do not want to trigger the MPAA . 

 If the salary sacrifice benefits are that beneficial then an additional step could be to do the same with the personal pension i.e for the next three years increase my workplace pension contributions by £1000 a month and stop contributing to the ISA and the personal pension all together. 

The main benefit for most people of salary sacrifice, is that you save on NI. It is not a lot if you are a higher earner, but good  if you earn <£50K and even better if your employer passes on their savings as well ( some do some do not) .

So from the info supplied, then yes it looks like everything into the workplace pension for 3 years looks the best option.