Cash Pot?

Sarahspangles

phlebas192 said:

Albermarle said:

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

No, that's not how it works. Neither individual PBs nor the drawing mechanism have a memory - ie they don't know that you have had bad luck previously. Every bond and every holder has an equal chance in each new draw.

It just doesn’t feel like that. I’m also emotionally attached to this cash because I remember slogging to accumulate it. However fungible cash is, this has history.

SVaz

My wife is currently getting better interest for cash outside her pension but she’s in the fortunate position of having spare personal allowance to draw from her Sipp drawdown pot tax free and stick it in savings, fixed term and ISA because she has the savings starter rate. 

After the next 2 years she’ll use all her PA to get everything UFPLS-ed out of her Sipp tax free for 4 years before she hits 67,  which will be invested for the long term in an S& S ISA. 

It’s deciding when to sell her remaining investments that’s the dark art.  Hopefully when things aren’t dropping. 
I’d just got my 1st Sipp over the £100k mark,  that lasted all of a week 🙄  but with 40% of it in STMM,  the drop is less that it would have been. 

I haven’t looked at Sipp number 2,  still contributing and not concerned. 

Albermarle

phlebas192 said:

Albermarle said:

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

No, that's not how it works. Neither individual PBs nor the drawing mechanism have a memory - ie they don't know that you have had bad luck previously. Every bond and every holder has an equal chance in each new draw.

Of course ( and my comment was more light hearted than serious) but on the other hand statistically if you keep them long enough you should get the average return.

poseidon1

This 'cash pot ' debate seems to be predicated on the pension funds divided into two distinct parts. Cash ( earning interest ) and non income producing growth  investments. 

 However there are a wealth of income producing investment opportunities  ( high, medium and low yield) that do not preclude a degree of growth thereon.

 Seems to make a great deal of sense ( at least to me ) to have income generators constantly throwing out income available for draw down, leaving the growth orientated investments to do their thing. From time  to time one creams off profit from the growth investments to top up the income generators if there is need for increased yield ( eg to combat higher inflation).

Yes, this  may require a little more active management, but should cover situations where markets fall steeply ( perhaps disproportionately affecting the growth investments) but as long as the income generators remain unaffected with regard to their regular cash flow, no need to adjust ones drawdown levels or contemplate any distressed investment sales to maintain income. 

Having said the above, my original intention in accessing the Sipp was via infrequent UFPLSs (possibly quarterly).

However with pension pots eventually becoming subject to IHT in the near future, I am now having to  consider  whether accessing the full 25% TFC up front sooner rather than later might make more sense.  This will of course mean less funds to deploy between the growth and income generating investments within the SIPP, so my ISA will have to be reconfigured and weighted towards higher income,  to take up the slack.

For those who planned to  or are  already actively accessing their SIpp via UFPLSs, does the spectre of IHT change their plans in the investment/cash structuring of their Sipp in drawdown? Obviously answers may differ depending on whether you are single or married with kids.

Albermarle

Not sure taking the 25% TFC sooner or later will make any difference to IHT, as it will still be in your estate from 2027 ( making an assumption the legislation will go through) either way.
The main tactics for people now staring at a much bigger IHT bill, is to give more money away earlier and to spend more.

Linton

poseidon1 said:

This 'cash pot ' debate seems to be predicated on the pension funds divided into two distinct parts. Cash ( earning interest ) and non income producing growth  investments. 

 However there are a wealth of income producing investment opportunities  ( high, medium and low yield) that do not preclude a degree of growth thereon.

 Seems to make a great deal of sense ( at least to me ) to have income generators constantly throwing out income available for draw down, leaving the growth orientated investments to do their thing. From time  to time one creams off profit from the growth investments to top up the income generators if there is need for increased yield ( eg to combat higher inflation).

Yes, this  may require a little more active management, but should cover situations where markets fall steeply ( perhaps disproportionately affecting the growth investments) but as long as the income generators remain unaffected with regard to their regular cash flow, no need to adjust ones drawdown levels or contemplate any distressed investment sales to maintain income. 

Having said the above, my original intention in accessing the Sipp was via infrequent UFPLSs (possibly quarterly).

However with pension pots eventually becoming subject to IHT in the near future, I am now having to  consider  whether accessing the full 25% TFC up front sooner rather than later might make more sense.  This will of course mean less funds to deploy between the growth and income generating investments within the SIPP, so my ISA will have to be reconfigured and weighted towards higher income,  to take up the slack.

For those who planned to  or are  already actively accessing their SIpp via UFPLSs, does the spectre of IHT change their plans in the investment/cash structuring of their Sipp in drawdown? Obviously answers may differ depending on whether you are single or married with kids.

Yes, exactly what I do.

On taking the TFC up front, it is highly beneficial for the income generators to be held in an S&S ISA.  So it woud be highly tax efficient to use the TFC to fund the income generation but only take sufficient in any one year  to use up your ISA allowance.  Thiswould also help to keep your ongoing pension drawdown below the higher rate tax band, should that be a factor in your planning.

Triumph13

I'm with Linton on not seeing cash as part of my portfolio, but as sitting between income and expenditure.  Various income streams pour into the cash bucket.  Expenditure is taken out of it.  Income tends to be more than expenditure, so cash tends to grow*.  If I have a sustained period when income < expenditure, then I might need to cut back. But the cash buffer means it would need to be quite a long period now, so I get to sleep at night and not try and time the markets**.

*The exception is cash specifically held to take the place of income streams that haven't come on line yet.  That does go down.  Just not as quickly as it was planned to

** I actually did do a bit of market timing.  I had been selling only about 2.2% of my SIPP each year, rather than the planned 3.5%, just because I had other income taking up some of my 20% tax band.  This year, noting the record highs, I actually sold my full 3.5% and left the excess cash in my SIPP, so now I have a little cash buffer there too!

poseidon1

Linton said:

poseidon1 said:

This 'cash pot ' debate seems to be predicated on the pension funds divided into two distinct parts. Cash ( earning interest ) and non income producing growth  investments. 

 However there are a wealth of income producing investment opportunities  ( high, medium and low yield) that do not preclude a degree of growth thereon.

 Seems to make a great deal of sense ( at least to me ) to have income generators constantly throwing out income available for draw down, leaving the growth orientated investments to do their thing. From time  to time one creams off profit from the growth investments to top up the income generators if there is need for increased yield ( eg to combat higher inflation).

Yes, this  may require a little more active management, but should cover situations where markets fall steeply ( perhaps disproportionately affecting the growth investments) but as long as the income generators remain unaffected with regard to their regular cash flow, no need to adjust ones drawdown levels or contemplate any distressed investment sales to maintain income. 

Having said the above, my original intention in accessing the Sipp was via infrequent UFPLSs (possibly quarterly).

However with pension pots eventually becoming subject to IHT in the near future, I am now having to  consider  whether accessing the full 25% TFC up front sooner rather than later might make more sense.  This will of course mean less funds to deploy between the growth and income generating investments within the SIPP, so my ISA will have to be reconfigured and weighted towards higher income,  to take up the slack.

For those who planned to  or are  already actively accessing their SIpp via UFPLSs, does the spectre of IHT change their plans in the investment/cash structuring of their Sipp in drawdown? Obviously answers may differ depending on whether you are single or married with kids.

Yes, exactly what I do.

On taking the TFC up front, it is highly beneficial for the income generators to be held in an S&S ISA.  So it woud be highly tax efficient to use the TFC to fund the income generation but only take sufficient in any one year  to use up your ISA allowance.  Thiswould also help to keep your ongoing pension drawdown below the higher rate tax band, should that be a factor in your planning.

Interesting you mention avoidance of 40% tax. I hotly resented higher rate tax during my working life  ( felt like i was working for HMRC's benefit at times ). 

 However, far more sanguine having  hit 40% in retirement  via passive investment  income/pensions although not overly  keen to breach the £100k threshold resulting in erosion of the  personal allowance. 

Due to expensive interests and hobbies (which I denied myself due to  work), an ever rising income is  necessary to fund those indulgences. Ever increasing personal tax exposure is the price paid..

cfw1994

Sarahspangles said:

phlebas192 said:

Albermarle said:

Sarahspangles said:

This thread is apropos of something I’m currently pondering. With retirement imminent, I’m looking at the best way to hold savings and investments for the next two or three years. I have been holding a year’s basic income in Premium Bonds in case of a gap between contracts - but I think that’s now duplicating my ‘first year’s pension’ in the STMM fund. My rolling return on PBs is 1.3% (equivalent to 1.63% in an easy access account, as I’ve used my personal savings allowance) - is it time to ditch them? 

You have been unlucky with the PB's so far, so maybe with the law of averages, if you keep them you should see better than average returns?

No, that's not how it works. Neither individual PBs nor the drawing mechanism have a memory - ie they don't know that you have had bad luck previously. Every bond and every holder has an equal chance in each new draw.

It just doesn’t feel like that. I’m also emotionally attached to this cash because I remember slogging to accumulate it. However fungible cash is, this has history.

I absolutely understand ERNIE is random….& yet….when we either cash some in or buy some more, it feels like it joggers something, & we get more wins.  I know, must all be in the mind….

On the subject of cash pots….we have a reasonable amount (perhaps 2+ years) & have a mental position that if things dropped 15-20%, we will take action to pause the draw & move to cash.  Not a precise science, but a guideline for us 🤷‍♂️

I also appreciate that this might not be a perfect approach 🫣

bjorn_toby_wilde

Linton said:

poseidon1 said:

This 'cash pot ' debate seems to be predicated on the pension funds divided into two distinct parts. Cash ( earning interest ) and non income producing growth  investments. 

 However there are a wealth of income producing investment opportunities  ( high, medium and low yield) that do not preclude a degree of growth thereon.

 Seems to make a great deal of sense ( at least to me ) to have income generators constantly throwing out income available for draw down, leaving the growth orientated investments to do their thing. From time  to time one creams off profit from the growth investments to top up the income generators if there is need for increased yield ( eg to combat higher inflation).

Yes, this  may require a little more active management, but should cover situations where markets fall steeply ( perhaps disproportionately affecting the growth investments) but as long as the income generators remain unaffected with regard to their regular cash flow, no need to adjust ones drawdown levels or contemplate any distressed investment sales to maintain income. 

Having said the above, my original intention in accessing the Sipp was via infrequent UFPLSs (possibly quarterly).

However with pension pots eventually becoming subject to IHT in the near future, I am now having to  consider  whether accessing the full 25% TFC up front sooner rather than later might make more sense.  This will of course mean less funds to deploy between the growth and income generating investments within the SIPP, so my ISA will have to be reconfigured and weighted towards higher income,  to take up the slack.

For those who planned to  or are  already actively accessing their SIpp via UFPLSs, does the spectre of IHT change their plans in the investment/cash structuring of their Sipp in drawdown? Obviously answers may differ depending on whether you are single or married with kids.

Yes, exactly what I do.

On taking the TFC up front, it is highly beneficial for the income generators to be held in an S&S ISA.  So it woud be highly tax efficient to use the TFC to fund the income generation but only take sufficient in any one year  to use up your ISA allowance.  Thiswould also help to keep your ongoing pension drawdown below the higher rate tax band, should that be a factor in your planning.

Yes, that’s my plan for the next several years until SPA. Draw out sufficient to fill our S&S ISA’s every year.

Once SP kicks in there’s less headroom.

I would think doing it via UFPLS until then is more efficient than taking the TFC up front as it would leave more tax free to be taken after SPA.