New SIPP with ii..... Passive fund choices!!

Donewithwork1

Hello all, will try to keep this as short as I can hopefully.  I finished work last year, haven't drawn on my pension yet for tax reasons but plan to do so in April when (if) I get my ducks in a row.

Late last year I was considering a 5 year term annuity but have now discounted that idea and have just opened a SIPP with Interactive Investor.  I will be transferring my 3 existing workplace pensions (2 main & one small) total value currently about 480K.

I'm 63, not planning on taking my tax free lump sum, and plan to draw-down to my personal allowance plus the 25% tax free element (£16,790) for the next 4.5 years until I get full state pension.  To be honest, in 12 months time when my OH gets his state pension I won't really need to touch my pension at all, as his DB and state pensions will cover all our outgoings, but it would make sense to utilise my personal tax allowance for the next 4.5 years, so at that point I will pause drawdown and review the situation.  

In effect, excluding inflation and any growth/loss to my SIPP I will have withdrawn around 75K from my SIPP leaving about 410K in 4.5 years.

The thing I'm struggling with is exactly where and what funds to invest the money in!  What I think I want is a low cost passive global tracker fund that has the potential to show some reasonable returns but I'm unsure what level of risk is wise (or unwise).  Bearing in mind that I'm not planning on touching around 410K for almost 5 years or so, and then at that point will not have to drawdown further unless I choose to, i'm left wondering whether to slightly increase my risk profile.

At the moment one of my pensions is with Royal London which I believe is around 40% equities and the other main one is a with profits policy with SL.

Funds that interest me at the moment are possibly HSBC global strategy 'balanced' or VLS 60, both of which are 60% equities.  I'm wondering if its better to split them or just invest in one!  I'm aware that VLS has more exposure to the UK.

Also, as I want to drawdown around 75K in the next 4.5 years, would it be wiser to set aside a pot for around that amount in something more cautious such as HSBC's 'cautious' or 'conservative' funds?

Just to make it clear, I am not seeking any form of 'advice', just opinions, views and ideas as I'm by no means an expert and the bit I have learnt is from this forum.

Financially we own our own home value around 700K, no debt, property abroad and around 225K in safe savings.  If my OH were to die I would still be able to manage without touching my own pension when I reach state pension age with 50% of his DB.

Worse problems to have I know, and I also know that none of us has a crystal ball,but interested in your opinions and suggestions nonetheless.  Thanks for reading this if you are still here. 

Thanks
Sarah

SVaz

You could put most of the  
£75k into a Short term money market fund,  currently paying around 5%.   If interest rates come down,  the rate obviously reduces but it’s ‘safer’ than a cautious fund that you will have to sell down regardless of it’s performance. 

I’d go 2 years in cash and the other 2.5 years in the STMM. 

I’m already building up cash and STMM pots in anticipation of taking UFPLS payments in 4 years time,  I can’t use my full allowance as I will get a military pension next year that will use up almost half but I hope to take around £9k for 4 years,  the rest of the Sipp is almost 100% global equities for long term growth. 

I use HSBC Global strategy Dynamic for a Sipp I will start to use in 8 years. 

RacingDriver

One thing to think about is if using a mixed equity/bond fund such as VLS60 you cannot choose which of the two components to sell, so separate equity and bond funds could give more flexibility.

LHW99

And if you don't expect to immediately need the majority of the pension beyond the first £75k, you could consider putting half of the remainder into something with higher equity (than the VLS60 or equivalent) - as you would probably not need to touch that for 10+ years.

Donewithwork1

SVaz said:

You could put most of the  
£75k into a Short term money market fund,  currently paying around 5%.   If interest rates come down,  the rate obviously reduces but it’s ‘safer’ than a cautious fund that you will have to sell down regardless of it’s performance. 

I’d go 2 years in cash and the other 2.5 years in the STMM. 

I’m already building up cash and STMM pots in anticipation of taking UFPLS payments in 4 years time,  I can’t use my full allowance as I will get a military pension next year that will use up almost half but I hope to take around £9k for 4 years,  the rest of the Sipp is almost 100% global equities for long term growth. 

I use HSBC Global strategy Dynamic for a Sipp I will start to use in 8 years. 

Thanks SVaz, that's a good suggestion re the STMMF, thanks.
When you start your drawdown will you stay in something like 'Dynamic' which I believe is 80% ish equities or will you lower your exposure to risk?

Donewithwork1

RacingDriver said:

One thing to think about is if using a mixed equity/bond fund such as VLS60 you cannot choose which of the two components to sell, so separate equity and bond funds could give more flexibility.

Thanks for the suggestion RD, although I'm not sure i'm knowledgeable enough to manage it at that level!

Donewithwork1

LHW99 said:

And if you don't expect to immediately need the majority of the pension beyond the first £75k, you could consider putting half of the remainder into something with higher equity (than the VLS60 or equivalent) - as you would probably not need to touch that for 10+ years.

Thanks, good point and I am thinking about that tbh.  After the 75K maybe the remainder at 50% in a 60/40, 25% in 80/20 and 25% at 100% or is that brave, or stupid or both!! 

handful

I'm in a situation that is similar but with my OH not as well off as yours! In terms of a strategy though I have similar plans, taking out our PA each year until SPA. If you have >£200k in safe savings then I would have more in equities. But that's me with my risk profile. I have 2 years in Royal London STMM which I will keep there whilst taking dividends /selling some other investments to fund my annual withdrawal.  

SVaz

I’ll stay in that (or similar)  but that’s because I will have built a cash pot and only intend to draw tax free cash over 8 years until I’m 75.
We will have more than enough income from 2 state and my military pension. 
I may change the investment in say 10 years time depending on whether I plan to buy an annuity at 75. 

The other Sipp that I will use for early retirement hopefully won’t be touched after 67 so will be high in equities for the foreseeable. 

LHW99

Donewithwork1 said:

LHW99 said:

And if you don't expect to immediately need the majority of the pension beyond the first £75k, you could consider putting half of the remainder into something with higher equity (than the VLS60 or equivalent) - as you would probably not need to touch that for 10+ years.

Thanks, good point and I am thinking about that tbh.  After the 75K maybe the remainder at 50% in a 60/40, 25% in 80/20 and 25% at 100% or is that brave, or stupid or both!! 

You might find the 100% equity a bit of a roller coaster ride - I believe it is said that could drop by 50% at least once during a 30 year retirement.

80/20 will be more volatile than 60/40, but probably more bearable than 100% equity IMO

Donewithwork1

handful said:

I'm in a situation that is similar but with my OH not as well off as yours! In terms of a strategy though I have similar plans, taking out our PA each year until SPA. If you have >£200k in safe savings then I would have more in equities. But that's me with my risk profile. I have 2 years in Royal London STMM which I will keep there whilst taking dividends /selling some other investments to fund my annual withdrawal.  

Thanks handful, at least I'm not alone with these thoughts.  Tbh I'm not chasing after maximum possible returns as such, just want returns that will allow a reasonable drawdown keeping up with inflation and any charges if I need it and allow it to last my lifetime if possible.

Out of interest, how do STMM's work? Could I buy into this in my SIPP and then crystallise that element to drawdown as and when?  How is interest paid into it?