Interactive Investor - calculation of 25% tax free cash when holding Index Linked Gilts

Hoenir

Nebulous2 said:

I'm new to this - and may not know what I'm doing, but Charles Stanley gives me the dirty price. Different columns state; tax cost, market value, change in value, bid. 

The market value is equivalent to the number I have times the bid price. The tax cost shows what I paid.  

Charles Stanley as a business is long established stockbroker on the LSE not just a trading platform.  Hence the "you pay for what you get". 

Trading fees and account charges tend to be top of most people' agenda's rather than the nature of the instruments they trade. Social media leads people to invest into many things they wouldn't otherwise do. 

TheGreenFrog

Nebulous2 said:

I transferred my SIPP to Charles Stanley Direct as Fidelity didn't offer gilts and I wanted them. I'm getting cashback as well, but it isn't paid for 12 months. I imagine it is still available. 

Buying gilts requires a phonecall, you can't do it online, but it was quite straightforward, called, told the customer rep what I wanted and he put me through to the dealing room.  

I did have my SIPP with CS but moved it to ii to save on fees. 

But CS were/are very good.  When I transferred to ii I had a (fortunately small) investment in Woodford Equity Income.  It is still sitting in my CS SIPP as it could not be transferred.  CS have received the FCA mandated compensation and transferred it out and over the several years since I transferred out they have not charged me a penny in fees.  Some other platforms I believe continued to charge fees and/or gave you the option of donating your holding to charity....

Lowtrawler

Nebulous2 said:

I'm new to this - and may not know what I'm doing, but Charles Stanley gives me the dirty price. Different columns state; tax cost, market value, change in value, bid. 

The market value is equivalent to the number I have times the bid price. The tax cost shows what I paid.  

Thanks Nebulous, certainly an option for me but the 0.3% platform charges capped at £50 per month are pretty steep. Effectively £400 more per year than ii - you get what you pay for. 

It also sounds pretty hopeful that HL might treat them correctly at key points. If I run into a road block with ii, I'll need to do a bit more investigation.

michaels

Have people looked into getting quotes for an annuity that would do the same as the linkers ladder?  May be the easier option.

Also the option for me may be to take the 25% first and then buy the ladder from the already crystallised pot.

TheGreenFrog

michaels said:

Have people looked into getting quotes for an annuity that would do the same as the linkers ladder?  May be the easier option.

Also the option for me may be to take the 25% first and then buy the ladder from the already crystallised pot.

RPI linked annuities certainly have their place, but whether you choose RPI linked annuity, ILGs or a mixture of both rather depends on your views on your own (and possibly your partner's) mortality.

michaels

TheGreenFrog said:

michaels said:

Have people looked into getting quotes for an annuity that would do the same as the linkers ladder?  May be the easier option.

Also the option for me may be to take the 25% first and then buy the ladder from the already crystallised pot.

RPI linked annuities certainly have their place, but whether you choose RPI linked annuity, ILGs or a mixture of both rather depends on your views on your own (and possibly your partner's) mortality.

I was thinking of a fixed term joint life RPI annuity to basically bridge the gap from retirement to state/DB pension.  I guess with no guarantee then there is a heritance risk compared to the ILGs should both partners die but apart from that it is pretty much the same cash flows you are purchasing.

TheGreenFrog

michaels said:

I was thinking of a fixed term joint life RPI annuity to basically bridge the gap from retirement to state/DB pension.  I guess with no guarantee then there is a heritance risk compared to the ILGs should both partners die but apart from that it is pretty much the same cash flows you are purchasing.

I see yes.  May cost more though?

Lowtrawler

michaels said:

TheGreenFrog said:

michaels said:

Have people looked into getting quotes for an annuity that would do the same as the linkers ladder?  May be the easier option.

Also the option for me may be to take the 25% first and then buy the ladder from the already crystallised pot.

RPI linked annuities certainly have their place, but whether you choose RPI linked annuity, ILGs or a mixture of both rather depends on your views on your own (and possibly your partner's) mortality.

I was thinking of a fixed term joint life RPI annuity to basically bridge the gap from retirement to state/DB pension.  I guess with no guarantee then there is a heritance risk compared to the ILGs should both partners die but apart from that it is pretty much the same cash flows you are purchasing.

I found the ILG ladder offered around 10% more than a similar annuity, presumably the difference is to cover costs and margin for the annuity provider. The difference would be more if you had guarantees with the annuity.

The only time annuities came out financially better in my modelling were impaired life or if you assumed a significantly above average lifespan. Of course, many people don't have the skills or time to build and manage a ladder and so annuities definitely have their place. Personally, my ladder will expire at 85 although I will have sufficient funds to extend it to 100+. IMV, the funds that would be used extending it beyond 85 are better invested in equities and a decision made closer to 85 about whether to build a new ladder / buy an annuity.

michaels

Lowtrawler said:

michaels said:

TheGreenFrog said:

michaels said:

Have people looked into getting quotes for an annuity that would do the same as the linkers ladder?  May be the easier option.

Also the option for me may be to take the 25% first and then buy the ladder from the already crystallised pot.

RPI linked annuities certainly have their place, but whether you choose RPI linked annuity, ILGs or a mixture of both rather depends on your views on your own (and possibly your partner's) mortality.

I was thinking of a fixed term joint life RPI annuity to basically bridge the gap from retirement to state/DB pension.  I guess with no guarantee then there is a heritance risk compared to the ILGs should both partners die but apart from that it is pretty much the same cash flows you are purchasing.

I found the ILG ladder offered around 10% more than a similar annuity, presumably the difference is to cover costs and margin for the annuity provider. The difference would be more if you had guarantees with the annuity.

The only time annuities came out financially better in my modelling were impaired life or if you assumed a significantly above average lifespan. Of course, many people don't have the skills or time to build and manage a ladder and so annuities definitely have their place. Personally, my ladder will expire at 85 although I will have sufficient funds to extend it to 100+. IMV, the funds that would be used extending it beyond 85 are better invested in equities and a decision made closer to 85 about whether to build a new ladder / buy an annuity.

Exactly the question I was asking, how the cost of an annuity giving the same cash flows compared to that of building your own ILG ladder.  I assume by 'similar' that the annuity also only ran to 85 rather than (second) death?

Lowtrawler

michaels said:

Exactly the question I was asking, how the cost of an annuity giving the same cash flows compared to that of building your own ILG ladder.  I assume by 'similar' that the annuity also only ran to 85 rather than (second) death?

I ran various scenarios including joint lifetime annuity. All of the annuities came in between 8% and 20% more expensive than a ladder unless one of you happened to live into your late 90's. In effect, if you split the ladder into 2 - up to 85 and post 85, you get 10% extra until 85 and can then switch to a lifetime annuity that beats the ladder if either of you live to over 97. If equities perform well in the period to 85, you may get double bubble with the 10% gain from using a ladder in the early years and a pot of money at 85 which buys an annuity that exceeds the ladder value you could buy today while also covering you for longevity risk.

As you age, you are also more likely to get an annuity on an impaired life basis making it even more attractive to delay consideration of an annuity until your later years. IMV, unless you have an impaired life or have reason to believe you or your partner will live long lives, a ladder makes more financial sense than an annuity in your early years of retirement.

What constitutes your early years of retirement is then open to interpretation. I know some people will have a 5 - 10 year rolling ladder which then supports equity investment for anything over a 5-10 year horizon. With a ladder, you are free to choose your own duration and can switch from the ladder to an annuity when you feel the time is right (or not, if you never feel the time is right). I believe the key obstacle to using a ladder and achieving a better financial outcome is most people lack the skills and inclination to operate the ladder approach and so prefer to pay the extra 10% for an off the shelf solution.