Index linked gilts and index linked annuities: are you moving money into them, yea or nay?

Alexland

SnowMan said:

So index linked gilts still looking like a good potential opportunity for someone planning their retirement income, and even more so since November 2024 given the roughly 0.5%pa increase in real yields at the around 20 year term.

For me the crash in bond prices has been a game-changer in expectations on retirement income.

I had for a long time been planning a really conservative 1/35th (sub 3%) drawdown rate (as I expected a low or even negative real return from the non-equites that I would eventually have to buy to avoid sequence of returns risk) but now with both unexpectedly strong equities gains and having switched around half my pensions into ILGs at current prices then I can plan for 4% from age 55 with confidence.

I'm now likely to retire with roughly twice as much income as I currently spend. If equity markets crash then I'm happy to reduce my spending (maybe I would still spend dividends, maybe reinvest them at lower unit prices) as I'm unsure what I'd spend the equities half of the pension income on anyway. My medium term forecast for equity growth is only 2% above inflation given current valuations so around the same as ILGs.

It's even changed my life pre-retirement as I no longer need to put any more money into my pensions (other than to get matching) although I was tempted to keep pension stuffing until the budget made that significantly less attractive. So I can put the money I was adding into the pensions into ISAs for an earlier retirement.

So I'm kinda annoyed about the changes in the budget as the rules are getting worse for me but my situation overall has worked out a lot better than expected and maybe the budget was the push I needed to stop me over-stuffing the pensions.

tigerspill

One question relating to the recent budget.  
In terms of the changes coming for ISA limits for cash and cash-like top ups, will ILGs fall into the investment or cash-like parts?

Alexland

tigerspill said:

One question relating to the recent budget.  
In terms of the changes coming for ISA limits for cash and cash-like top ups, will ILGs fall into the investment or cash-like parts?

It's too early to say but I suspect that buying shorter duration gilts will be prohibited as too cash-like maybe if they have 5 years or less until redemption. If so it will be a pain for platforms to police this. The whole thing is awful - nobody asked for S&S ISAs to get worse it's completely the opposite of the stated ambition of making them more attractive to people by limiting Cash ISAs. For simplicity some platforms may apply the restrictions to a broad range of investments, regardless of customer age and stop paying any interest.

tigerspill

Alexland said:

tigerspill said:

One question relating to the recent budget.  
In terms of the changes coming for ISA limits for cash and cash-like top ups, will ILGs fall into the investment or cash-like parts?

It's too early to say but I suspect that buying shorter duration gilts will be prohibited as too cash-like maybe if they have 5 years or less until redemption. If so it will be a pain for platforms to police this. The whole thing is awful - nobody asked for S&S ISAs to get worse it's completely the opposite of the stated ambition of making them more attractive to people by limiting Cash ISAs. For simplicity some platforms may apply the restrictions to a broad range of investments, regardless of customer age and stop paying any interest.

I agree, it is ridiculous.
I am wondering if this new rule only relates to new money added to an ISA, and that we will be able to trade ILGs freely with money already in an ISA.  e.g. sell £50K of other investments and purchase £50k of ILGs.  How on earth will platforms know whether it is new or existing money.  Maybe put 20K in, but some shares, sell immediately and buy ILGs.   

Alexland

tigerspill said:

I agree, it is ridiculous.
I am wondering if this new rule only relates to new money added to an ISA, and that we will be able to trade ILGs freely with money already in an ISA.  e.g. sell £50K of other investments and purchase £50k of ILGs.  How on earth will platforms know whether it is new or existing money.  Maybe put 20K in, but some shares, sell immediately and buy ILGs.   

I suspect the restriction will apply to new purchase trades and they will refrain from forcing asset sales but even that will stop dividend reinvestment working.