Suitability of a gilt ladder

BobR64

I am aiming to retire fairly soon - probably some time in 2026 and probably after I have turned 60. I have a lump sum which is currently sitting in my HL Stocks and Shares account after selling some company shares I got as RSUs. My intention for some time has been that the proceeds from these shares would roughly bridge the gap to the state pension for me and my wife. The rest of our pension would come from DBs and my SIPP.

It is only fairly recently that I have looked seriously into the details of how this money would fund this seven or so year period, and one of the ideas I keep coming across and which seems to make sense for my situation is to put it into a gilt ladder. My first question really is to look for some reassurance: is this a reasonable strategy for my situation?

Assuming it is a reasonable strategy, the next thing is whether or not to go for index linked gilts. I had more or less got my head around non-index linked gilts but index linked seem a lot more complicated. But then I found a tool, https://lategenxer.streamlit.app/Gilt_Ladder. This made it seem easy without having to worry too much about the details. I was all ready to buy index linked gilts in my HL account when I discovered that most are unavailable for online dealing and have to be done with telephone dealing. Then I read an old thread on here today where someone was talking about negotiating the price when buying and someone else not knowing the price until the trade had completed and it's all making me think that I don't understand this well enough to do this.

The other option is to cop out and buy non-index linked. I can use the same tool and do it all online. I can get a slightly higher annual withdrawal for the same lump sum (obviously reflecting not being index linked). Would it be a reasonable approach not to worry about index linking given that this is a relatively short timescale?

MK62

A gilt ladder is certainly a viable way to bridge the gap until your state pension kicks in.......using index linked gilts is the most  obvious method, but if that's impractical, you can build in some annual escalation using conventional gilts. It may not match RPI exactly, but then neither does the state pension itself.
The tool you mentioned can do this, but you need to use the advanced method, and give it a csv file with 7 withdrawal dates and matching amounts (if you want a 7 year escalating gilt ladder that is).

eg...feeding the tool this csv file......

,

06/04/25,12000

06/04/26,12600

06/04/27,13200

06/04/28,13800

06/04/29,14400

06/04/30,15000

06/04/31,15600

Gives this result

5.000% 2025-03-07 TR25 100.11 100.82 4.66% 110.37 11,127.72

0.125% 2026-01-30 T26     95.70   95.74  3.66% 112.26 10,747.68

3.750% 2027-03-07 TS27   99.09   99.62  4.16% 118.40 11,795.27

0.125% 2028-01-31 TN28   88.84   88.87  3.80% 128.84 11,450.46

0.500% 2029-01-31 TG29   86.72   86.84  3.92% 135.01 11,724.03

0.875% 2029-10-22 TR29   86.45   86.46  3.89% 142.30 12,304.18

4.750% 2030-12-07 TR30  104.08 105.94 3.99% 148.93 15,776.61

Cash                      0.00

Total                 84,925.96

Obviously, you'd need to adjust the dates and amounts to suit your own circumstances/preference......

RogerPensionGuy

https://moneyforums.citywire.com/yaf_postst16330_Tax-Efficiency--Gilt-Ladder-vs-Wealth-Preservers.aspx#:~:text=Whereas the gains from a,be increasingly sheltered in ISAs).

***

Just posted the above for interest. 

A while back I decided to buy some gilts and try doing my own gilt ladder and researched a bit, pension craft on YouTube was a source of information and hope I understand it now.

This was all in a GIA. 

My big pick up was I could buy loads of gilt products and indexes and the like, but any increase in value was subject to CGT unless a neat government gilt. 

So hopefully I've understood it correctly, I just purchased various different government neat gilts with low interest/coupon % income.

I intend to keep the gilts until maturity and pay any tax on the interest as required. 

I look at the gilt prices now and then and they appear a bit volitle, but plan was to keep them and just get the £1 back at maturity and no CGT issues. 

However after more reading and thinking, wondering if I should set a sell order up at a high value and if the value of any of these gilts should ramp up, the sale would occur and deal with that cash as required, maybe just buy more gilts or something else. 

So an open question here from a nearly armchair investor, should I just let these gilts run as a ladder augmenting cash flows over time or put sell orders in just incase it catches any upticks?

For information, these gilts are just a supplementary form of income for me and a Tax/CGT mitigation vehicle I'm trying, so I'm not dependant on needing the maturity as currently planned.

Any views feedback most appreciated. 

Cheers Roger. 

BobR64

Thanks MK62 - that is extremely helpful. I had missed the advanced options or rather had probably assumed that they did not apply to me.

Thanks also for confirming that the general idea of a gilt ladder makes sense.

I will still consider buying index linked gilts. The main problem I see with it is that the tool gives me a list of amounts I need to buy, I have a finite sum to buy them with, I have to do about five separate deals, and if there are any price differences when I try to buy them I am going to be on the phone trying to work out what to do. I'd much rather see something in front of me and take my time with it!

MK62

As you'd be holding the gilts outside of a tax wrapper account, then it might be worthwhile investigating a ladder built from low coupon conventional gilts, where possible, to minimise your tax liability.

zagfles

I've bought index linked gilts over the phone with HL, it was very straighforwards, they give you a price and I've always got a better price than the current quoted buy price. They now charge online dealing rates for IL gilts, rather than the more expensive phone dealing rates. 

zagfles

MK62 said:

As you'd be holding the gilts outside of a tax wrapper account, then it might be worthwhile investigating a ladder built from low coupon conventional gilts, where possible, to minimise your tax liability.

You'd struggle to build a decent gilts ladder from low coupon conventional gilts as there's not that many of them. Far easier with IL gilts as there's far more of them (eg 15 IL gilts at 0.125%, only 2 conventional) 

BobR64

zagfles said:

I've bought index linked gilts over the phone with HL, it was very straighforwards, they give you a price and I've always got a better price than the current quoted buy price. They now charge online dealing rates for IL gilts, rather than the more expensive phone dealing rates. 

Interesting. When I spoke to them the other day they said that phone dealing rates would apply. 1% capped at £50. Would be £50 a deal x 5 for the ladder I had generated. They may even have mentioned VAT on top but not 100% sure of that.

DRS1

I am pretty sure they will only charge you the online dealing fees for those ILGs you cannot buy online - this is because they are making you call them.  Mention that to the dealer if he says anything else.  Other people at HL may not know this but the dealers should.

Also be prepared for a lot of red ink in your holdings list.  They have not got a way of showing your holding at the dirty price only clean so you can get an instant 25% or so loss (on paper). It is not a real loss of course.

MK62

BobR64 said:

zagfles said:

I've bought index linked gilts over the phone with HL, it was very straighforwards, they give you a price and I've always got a better price than the current quoted buy price. They now charge online dealing rates for IL gilts, rather than the more expensive phone dealing rates. 

Interesting. When I spoke to them the other day they said that phone dealing rates would apply. 1% capped at £50. Would be £50 a deal x 5 for the ladder I had generated. They may even have mentioned VAT on top but not 100% sure of that.

That would probably be a deal breaker for me, but double check with them, given what zagfles and DRS1 are saying about their phone dealing charges for IL gilts....

MK62

zagfles said:

MK62 said:

As you'd be holding the gilts outside of a tax wrapper account, then it might be worthwhile investigating a ladder built from low coupon conventional gilts, where possible, to minimise your tax liability.

You'd struggle to build a decent gilts ladder from low coupon conventional gilts as there's not that many of them. Far easier with IL gilts as there's far more of them (eg 15 IL gilts at 0.125%, only 2 conventional) 

Well I did say "where possible".......but in the OP's case, within his maturity window there are 11 conventional gilts with coupons below 1%, so I don't think he'd really struggle that much. The tool mentioned already seems to do a pretty good job of selecting the gilts though........