Pension Dilemma

FuddledFlugelPlayer

Hi everyone

My wife and I are already drawing our pensions from our long term "proper jobs" but for the last 7 years we have been semi retired and running a small business.  We are now in our late 50's.  We will soon be selling the business for c. £1.1m and want to invest the money to draw on, generating additional pension income of c. £40k per annum.

We have been shown projections from SJP that these funds, if placed with them and added to about another £200k we already have with them, would last till we are about 100 years old if drawn out at this rate.

However, my simple brain thinks that if we simply put these funds on deposit (spreading them around different banks to stay within the 85k per bank FSCS safety net) we could get 5% and not reduce the capital.  I realise that there are probably tax efficiencies with the SJP proposal and interest rates could well come down.  But equally, Russia could do something daft and the SJP funds could all shrink horribly!  Also - the SJP option would be all eggs in one basket.

I'd appreciate your thoughts!

Sarahspangles

FuddledFlugelPlayer said:

Hi everyone

My wife and I are already drawing our pensions from our long term "proper jobs" but for the last 7 years we have been semi retired and running a small business.  We are now in our late 50's.  We will soon be selling the business for c. £1.1m and want to invest the money to draw on, generating additional pension income of c. £40k per annum.

We have been shown projections from SJP that these funds, if placed with them and added to about another £200k we already have with them, would last till we are about 100 years old if drawn out at this rate.

However, my simple brain thinks that if we simply put these funds on deposit (spreading them around different banks to stay within the 85k per bank FSCS safety net) we could get 5% and not reduce the capital.  I realise that there are probably tax efficiencies with the SJP proposal and interest rates could well come down.  But equally, Russia could do something daft and the SJP funds could all shrink horribly!  Also - the SJP option would be all eggs in one basket.

I'd appreciate your thoughts!

If you put SJP in the forum search you will see they’re not a popular choice……

Pat38493

FuddledFlugelPlayer said:

Hi everyone

My wife and I are already drawing our pensions from our long term "proper jobs" but for the last 7 years we have been semi retired and running a small business.  We are now in our late 50's.  We will soon be selling the business for c. £1.1m and want to invest the money to draw on, generating additional pension income of c. £40k per annum.

We have been shown projections from SJP that these funds, if placed with them and added to about another £200k we already have with them, would last till we are about 100 years old if drawn out at this rate.

However, my simple brain thinks that if we simply put these funds on deposit (spreading them around different banks to stay within the 85k per bank FSCS safety net) we could get 5% and not reduce the capital.  I realise that there are probably tax efficiencies with the SJP proposal and interest rates could well come down.  But equally, Russia could do something daft and the SJP funds could all shrink horribly!  Also - the SJP option would be all eggs in one basket.

I'd appreciate your thoughts!

Many of the posters on here are DIY investors who manage their own pension.  SJP is seen as a pretty expensive choice as their charges are pretty high.  Therefore my question would be - have you spoken to any independent financial advisers (bold on purpose).  SJP advisers are tied to SJP.  

Also SJP seem to have penalties one way or another if you change your mind and want to take your money out (or at least they did until recently).  Most other providers don't have that.

Therefore if you are not interested in doing the research to DIY your pension, I would recommend looking for an IFA rather than using advisers who are tied into a particular organisation.

That said, SJP are not crooks or anything - probably they will make you a reasonable return on the scenario you mention - however most posters here would posit that you could do even better by following a different route.

SouthCoastBoy

The problem with the op investment strategy is inflation. If you take out all the growth every year the real value will be eroded over time. There is also the problem that interest rates maynot (almost definitely wont be) always be 5% per annum.

I would also suggest looking for an independent financial advisor.

dunstonh

We have been shown projections from SJP that these funds, if placed with them and added to about another £200k we already have with them, would last till we are about 100 years old if drawn out at this rate.

Projections use a range of assumptions.   They are synthetic and pessimistic.    If you ready a projection that is not laid out in the method you are taking then they are completely pointless.

However, my simple brain thinks that if we simply put these funds on deposit (spreading them around different banks to stay within the 85k per bank FSCS safety net) we could get 5% and not reduce the capital.

With this, you are changing the assumptions and its giving you a different outcome as you are not using a comparable method.

With cash, tou are using a straight 5% line.  Not taking into account internal charges and not taking into account inflation.
Whereas the pension uses a synthetic growth assumption assuming pessimistic returns.    That return figure is before charges.  Even though fund returns are shown as net of charges.    It also deducts a further 2.5% for inflation.  

To get a like for like comparison, you would take that 5% for cash, deduct another 2% for charges and deduct another 2.5% for inflation.   So, that 5% would actually project at 0.5% using the same method as the pension.

Its a shame your SJP sales rep hasn't explained it to you.    Maybe their sales reps are limited in the tools they can use compared to IFAs.

The bottom line is that your calculations are very flawed and its leading you to thinking about things incorrectly.

LHW99

This article gives some indication of SJP's fees in (rough) comparison with the average

https://www.telegraph.co.uk/money/investing/how-get-your-money-out-st-james-place/

[Deleted User]

You haven't mentioned tax implications, a chartered accountant and IFA are essential, imo.

penners324

Sounds like you've hit the MPAA so can only contribute £10k each to your pension.

A Flagstone account will do what you suggest and a lot easier.

xylophone

Sounds like you've hit the MPAA so can only contribute £10k each to your pension.

The OP doesn't say that the pensions they are drawing are from DC schemes - if only from DB Schemes they will not have triggered the MPAA.

They might both be well advised to check on the maximum contributions that can be made to a pension scheme while they both still have relevant earnings?

Or perhaps the small business is a limited company and a company pension contribution could be made?

I would think that advice from an Independent Financial Adviser could help them to plan tax efficiently for the future.

https://adviserbook.co.uk/ might be a resource - tick "confirmed independent" and other options required when the menu comes up.

And they might each wish to check their state pension forecasts.

https://www.gov.uk/check-state-pension

poseidon1

Before you start considering investment of business sale proceeds, ensure your accountant has properly advised on cgt implications.

 Under Business Asset Disposal Relief provisions ( previously known as Entrepreneurs  Relief ), 1st £1  million of taxable gain is tax relieved, with balance liable to either 20% or 28% depending on nature of the business.

Once funds are available, suggest you follow forum contributors advice and find yourself an IFA to advise on your future investment strategy. In this way you will then have a yard stick by which to measure SJP performance ( net of fees ), to determine if  they truly are performing well for you.

Finally you make no mention of children or other family on behalf of whom you might wish to consider your joint Inheritance tax exposure ( if any).  There are investment products that can assist in this area, which an IFA would be happy to explore.