Managing SIPP in retirement

zagfles

kempiejon said:

I was surprised to hear that some DB pensions had a capped annual inflation limit of a measly 3%. My chum's DB pension is made up of three separate plans - same employer just different negotiations with members and each part has different clauses on inflation and other conditions.

For pre 1997 service there's no requirement to have any inflation increase in payment except on the GMP part. Many schemes do but usually with a low cap around 3%. For service 1997 to 2005 they had to provide inflation increases up to a cap of 5%, since 2005 the cap was reduced to 2.5%. 

LHW99

zagfles said:

kempiejon said:

I was surprised to hear that some DB pensions had a capped annual inflation limit of a measly 3%. My chum's DB pension is made up of three separate plans - same employer just different negotiations with members and each part has different clauses on inflation and other conditions.

For pre 1997 service there's no requirement to have any inflation increase in payment except on the GMP part. Many schemes do but usually with a low cap around 3%. For service 1997 to 2005 they had to provide inflation increases up to a cap of 5%, since 2005 the cap was reduced to 2.5%. 

And before 1978, there were (apparently) no increases required. I had one dating from 1975 - £6 per month when it was created, and the same when it was drawable. It also couldn't be transferred - I asked a couple of times, so received a grand total of £106, subject to tax on 75%. Might have been worth £20 per month at 3% increase over the years.

bjorn_toby_wilde

Sarahspangles said:

kempiejon said:

I was surprised to hear that some DB pensions had a capped annual inflation limit of a measly 3%. My chum's DB pension is made up of three separate plans - same employer just different negotiations with members and each part has different clauses on inflation and other conditions.

MY OH's is like this. Fortunately the portion that has a lower limit is the smallest. Back when he was a lad inflation must have been less of an issue. The extent of inflation-proofing was a consideration when he made a decision about his PCLS, as the commutation rate for that was pretty good. The resulting lump sum is of course exposed to inflation risk but is likely to go towards our next house purchase, hence swapping inflation for house price inflation.... 

One of mine is a very similar. Increases on the pre1997 chunk are entirely at the company’s discretion. My old employer was taken over by a huge American conglomerate. Every year the trustees ask for an inflation increase and every year the company declines to give one. Thankfully I had about 50% of my pension in post 97 service. I really feel for colleagues who retired in the late 90s and just see their pension decline in real terms every year.

It was a major factor in my taking the lump sum too. I’ve pushed all of that into S&S ISAs over the last two years.

AlanP_2

bjorn_toby_wilde said:

Sarahspangles said:

kempiejon said:

I was surprised to hear that some DB pensions had a capped annual inflation limit of a measly 3%. My chum's DB pension is made up of three separate plans - same employer just different negotiations with members and each part has different clauses on inflation and other conditions.

MY OH's is like this. Fortunately the portion that has a lower limit is the smallest. Back when he was a lad inflation must have been less of an issue. The extent of inflation-proofing was a consideration when he made a decision about his PCLS, as the commutation rate for that was pretty good. The resulting lump sum is of course exposed to inflation risk but is likely to go towards our next house purchase, hence swapping inflation for house price inflation.... 

One of mine is a very similar. Increases on the pre1997 chunk are entirely at the company’s discretion. My old employer was taken over by a huge American conglomerate. Every year the trustees ask for an inflation increase and every year the company declines to give one. Thankfully I had about 50% of my pension in post 97 service. I really feel for colleagues who retired in the late 90s and just see their pension decline in real terms every year.

It was a major factor in my taking the lump sum too. I’ve pushed all of that into S&S ISAs over the last two years.

Sounds like the one I was in until I transferred the CETV on offer as the thought of a c1% increase each year by the time you applied the CPI increase on the GMP element pro-rata to the overall pension.

AS you say those who retired at the "wrong time" must be suffering, particularly on top of quite likely losing their job and seeing their accrued share scheme savings wiped out.

MeteredOut

My DB pension (a small part of my overall retirement plan) is

GMP	Pre 88:
	Does not increase
	Post 88:
	CPI to a maximum of 3%
Non-GMP	Pension accrued Pre 6 April 1997: RPI to a maximum of 2.5%
	Pension accrued 6 April 1997 to 5 April 2005: CPI to a maximum of 5%
	Pension accrued from 6 April 2005: CPI to a maximum of 2.5%

BobR64

Bostonerimus1 said:

You don't really need much of a strategy if all you need is 2% plus inflation every year. Just put it in something like VLS80 or VLS60 and sit back. 

My retirement income needs basically come from pensions and some rental income so I just leave my DC pension money in 85% equities and the rest in a mix of cash and bonds and leave it alone.

Yes, I guess that was I was hoping - it would be nice to do something simple and sit back!

I'm not entirely convinced about the VLS funds though as ETFs tend to be cheaper to hold than funds and I am pretty comfortable with sticking to simple global index trackers for the equity component. Also, I understand that VLS tend to weight a bit too heavily towards UK stocks. 

When you say you have a mix of cash and bonds, what form do you hold the bonds in inside your pension? I think one of the main things I am interested in is to find out what people are doing practically for the bond component.

BobR64

JayRitchie said:

One thing to consider is the inflation clauses on your DB pensions? Do you know what those are?

If inflation is a significant risk for your retirement plans you may wish to consider if you can reduce this risk somewhat through the DC holdings.

That's a good point. I don't know these off the top of my head. I know they all have at least some index linking but there probably are caps on them. That is something I will be looking into.

incus432

BobR64 said:

What form does this actually take? Do I buy bond funds/ETFs or am I buying gilts within my SIPP? If funds, what sort of thing am I looking for?

Specific suggestions for things I should read or watch would be very welcome.

Some really good questions which I have also been trying to answer.  Like you I have a sound DB pension and also SP which meets our expenditure needs. I no longer draw an income from my SIPP as I would pay 40% tax on it, so my intention is to let it grow and assuming I predecease my OH let her take an annuity or drawdown from it.

Like many I got burned by bond funds in 2022 and since learned a vital lesson - that holding bond funds (I held VGOV mainly) is completely different to holding a bond to maturity.  So my inclination now is to hold mainly equities in a global tracker - SWLD or VHVG - and for the 'bonds' component either to buy short term gilts (I never knew till recently you could do this) and hold to maturity or just buy a MMF, on the basis that cash is just as good at reducing volatility as bonds, and much safer. In fact my SIPP pays 3.25 to 3.75% interest on straight cash holdings. Does this make sense?  If not I'd be happy to know!

I have found Pensioncraft videos useful and also James Shack seems to really know his stuff (if you can keep up with his machine gun delivery). I skip through the promoted sections, I dont think it invalidates the content.

Bostonerimus1

BobR64 said:

Bostonerimus1 said:

You don't really need much of a strategy if all you need is 2% plus inflation every year. Just put it in something like VLS80 or VLS60 and sit back. 

My retirement income needs basically come from pensions and some rental income so I just leave my DC pension money in 85% equities and the rest in a mix of cash and bonds and leave it alone.

Yes, I guess that was I was hoping - it would be nice to do something simple and sit back!

I'm not entirely convinced about the VLS funds though as ETFs tend to be cheaper to hold than funds and I am pretty comfortable with sticking to simple global index trackers for the equity component. Also, I understand that VLS tend to weight a bit too heavily towards UK stocks. 

When you say you have a mix of cash and bonds, what form do you hold the bonds in inside your pension? I think one of the main things I am interested in is to find out what people are doing practically for the bond component.

I keep a couple of years of spending in the bank and a money market fund for cash flow and emergencies. DB pension and rent cover my expenses. The rest is in three funds; a US equity index; an International ex-US equity index; and a small amount in an income fund that invests in bonds and dividend stocks. The asset allocation is something like 60/25/15. I haven't messed with it for 10 years and it's averaging 10% annual gain. The fees are low and I DIY so no advisor fees. I keep expecting the markets to fall and to have losses, but I don't worry about that because I'm not depending on those funds for income.

AlanP_2

Bostonerimus1 said:

BobR64 said:

Bostonerimus1 said:

You don't really need much of a strategy if all you need is 2% plus inflation every year. Just put it in something like VLS80 or VLS60 and sit back. 

My retirement income needs basically come from pensions and some rental income so I just leave my DC pension money in 85% equities and the rest in a mix of cash and bonds and leave it alone.

Yes, I guess that was I was hoping - it would be nice to do something simple and sit back!

I'm not entirely convinced about the VLS funds though as ETFs tend to be cheaper to hold than funds and I am pretty comfortable with sticking to simple global index trackers for the equity component. Also, I understand that VLS tend to weight a bit too heavily towards UK stocks. 

When you say you have a mix of cash and bonds, what form do you hold the bonds in inside your pension? I think one of the main things I am interested in is to find out what people are doing practically for the bond component.

I keep a couple of years of spending in the bank and a money market fund for cash flow and emergencies. DB pension and rent cover my expenses. The rest is in three funds; a US equity index; an International ex-US equity index; and a small amount in an income fund that invests in bonds and dividend stocks. The asset allocation is something like 60/25/15. I haven't messed with it for 10 years and it's averaging 10% annual gain. The fees are low and I DIY so no advisor fees. I keep expecting the markets to fall and to have losses, but I don't worry about that because I'm not depending on those funds for income.

Boston, you always make good points about KISS and passive investing etc. but I think it is worth you pointing out when you specify your investments and returns that you are based in the USA and not the UK.

60% in a US tracker might be OK for some UK based investors but certainly not all and a UK based investor wouldn't get the same returns (even if invested in "same" funds) as currency movements would have an impact.