drwa down

Hunnie1977

HI Hope all are well can any one hlp as not sure what it means as had halixf poly taken over by scotish widiwds moved other policy in th scotish widows one now get this 

gm0

https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/drawdown-investment-pathways

Here is the government web site which explains what pathways are.  

Essentially the regulator invented a standard if still full of jargon way for all pension operators / providers to offer some simplified options for people who don't have a financial adviser employer and haven't learned how to manage their own investments independent

The pathways cover people who are going to remain invested a long time and use drawdown income.  And people who are going to take a pot and buy an annuity in the short term.  Different goals.  Different options.  Different pathway selected.  

DRS1

Not sure the communication you have received has anything to do with whatever merging/moving you have done with your Halifax/Scottish Widows pension plans.

It looks like you have put a pension into drawdown.  Perhaps by taking a tax free lump sum?

You then made an investment decision for the other 75% of the plan (the crystallised bit which is in the income drawdown part of the plan) and the letter is asking if you really meant that.  If you have no intention of touching that 75% for the next 5 years then fine but if you wanted to take some taxable income out of the 75% in the immediate future then they are suggesting that maybe the fund you have invested in is not the right thing for you.

Interesting that they'd send you something like that.  It sounds dangerously like advice.

Marcon

DRS1 said:

Not sure the communication you have received has anything to do with whatever merging/moving you have done with your Halifax/Scottish Widows pension plans.

It looks like you have put a pension into drawdown.  Perhaps by taking a tax free lump sum?

You then made an investment decision for the other 75% of the plan (the crystallised bit which is in the income drawdown part of the plan) and the letter is asking if you really meant that.  If you have no intention of touching that 75% for the next 5 years then fine but if you wanted to take some taxable income out of the 75% in the immediate future then they are suggesting that maybe the fund you have invested in is not the right thing for you.

Interesting that they'd send you something like that.  It sounds dangerously like advice.

It's just a generic comment - and indeed providers are being actively encouraged to include such 'nudges' (much the way they now flag that you should shop around for an annuity). It's not suggesting any particular investment, but rather that the saver should consider reviewing if they are in the best place for them, depending on their objectives.

Hunnie1977

re respones rec please see points below 
retire in 6 max  have 1 other peniosn frozen live rent acc pay maintensnce thus not sur what annutiy is and what pension 

gm0

As Marcon says.  it's  just regulated pension comms. 

The civil service (via FCA) designed pathways.  It's bureaucratic, jargony and a bit lacklustre. But the substance beneath isn't mad.  Poor uptake looks like failure back at base.  Solution.  Force the providers to "nudge" consumers and send returns of how many they have nudged back to the FCA.  Force it into pension provider communications.   You must say this.

Same logic as increasing uptake of pensionwise guidance and forcing it into pension access application processes more aggressively.  Points mean prizes.  And if the public don't notice or take up our offer - perhaps because we rebranded it confusingly several times.  Then forcing them to take up our offer is the best solution.  Not admitting failure or doing something simple and compelling  and marketing it consistently like a sane person with their own money at risk would do.  Process uber alles. 

Providers have contributed to this. As they don't want a regulated low cost offer to have too low a price cap - or to be "too obviously" the best solution.  A bit mediocre and jargony doesn't matter to them other than the customer service impact of confusing customers.

Hunnie1977

Thank you for your message and the link to the information on drawdown investment pathways.

I would like to clarify that I have previously taken a one-off drawdown from my pension to help cover holiday expenses, and I believe that included the 25% tax-free lump sum. However, I am not currently receiving a regular income from my pension, nor do I have plans to draw down more until I retire in around six years.

At that point, I hope to have some money available to support myself and to set something aside for my son’s future.

Due to my current salary and other financial responsibilities, I’m unfortunately unable to continue making contributions to both of my pension plans at this time. I would, however, appreciate any advice or guidance on how best to manage what I already have in place.

Thank you again for your time and support.

gm0

No personalised advice here. But here is some general guidance on how to think about it.

First - how you took the money could be one of two methods.  Tax free cash only.  (Which has not touched the 75% but put it into drawdown - ready for income  (aka crystallised) - this is called Flexible Access Drawdown (FAD).  Or a complete slice of pension containing both elements with the rest left untouched. This is called UPFLS.  The difference between the two is moot if you are not planning contributing.  (UPFLS triggers the lower limit for Annual Allowance (~10k).  FAD with no income does not (~40k) for contributions. 

When taking income year to year UPFLS is better for tax allowances as there is tax free cash baked into each slice each year. On current rules anyway which are unknowable in the future.

In either case a pensioner like you can take "another slice" or some income from the pot. When they choose.  And cannot be in this position (already taken) if below minimum access age. So it is sat waiting for something to happen.  Drawdown income or annuity purchase - an IFA can get quotes for that option closer to the time - as the indirect distribution model is used to keep consumers and pesky consumer handling protection away from the annuity makers - some don't deal direct - at all. Others do but price it in. For years annuities were getting less and less attractive with QE and low interest rates.  A bounce has occurred. With higher rates. More attractive options with some inflation indexation are once again - at least worth considering. It's no hassle once done. Demanding no further attention until 2nd death (for couples).  How all pensions used to be.

For drawdown, or the remaining time up to annuity purchase - what it is invested in and is that right FOR YOU and your intentions - is the question you need to examine.  Let's look at it through the drawdown lens.

This is based on considering your retirement plans, dependents, State Pension entitlements, other pensions in the household (and their widow/widower terms) and household income needs. Income being part essential (to keep going) and part desirable - travel/dining/car etc.  You don't mess around with essential income at 85.  What do you do about that based on likely capacity for work.  You are living on your state pension and perhaps pension credit f your other pension income depletes and fails.  People with no pension provision do exactly that. I am not saying it's impossible. Merely that it's an undesirable outcome starting from here.

Using your example to illustrate the general point.  If a pot is to be used to supply income in 6 years time. For many people that's an age that's somewhere between late 50s and SP normal retirement age 67.  Call it 63. 
It doesn't matter for this purpose.  Close enough.  Average death date for a male is circa 83.   So 26 years from now. And 20 years in payment. Maybe quite a lot longer if you are a long lived family or female another 10 or even 20 years.  But call it very roughly 30 years with the risk of accident or illness prior in the average and the risk of getting the King's congratulations card at 100 for a few.   So our "planning horizon" is 30 years - first pass.

In any event the point is that your true timetable to think about investing is LONG.  Short term things don't matter much. Except in one aspect - the need to take income in 6 years time and every year for up to 25+ 
This is an important but secondary design consideration.  You don't want to be taking income at a time when everything is in a financial crisis.  And it's a problem to take the income by selling your pension assets cheap for several years - slump conditions. And it's a problem to not take the income - because you need it to live.

5 years is still short term in stock market cycles. Long starts to appear at 10+.  Anything you invest in has a long term average return - linked to how *risky* it is.  You get paid for taking risk. A single stock is VERY risky.  A bet on Tesla shares and Elon's latest tweet say.  A fund of 3000+ stocks (still with some Tesla in it) is less risky but still riskier than a government bond of known return.  Each will wobble around on top of that for short term reasons (stock market sentiment and central bank interest rates).  All are irrelevant if not selling any.  Wobbling is good for buyers - sometimes cheap. Sometimes not.  But relevant if selling for income in that you never want to be a "forced seller" of risky things when they are at their very lowest ebb.  If anything that low point viewed in the clarity of hindsight - ie after recovery begins was the buying opportunity of a decade.  Transfer of wealth from forced sellers to those lucky buyers.

So the investing setup needs to provide a way to guarantee that income you can't live without can be extracted in most conditions short of global catastrophe.  

And that the capital (the pot getting sold off plus a guess at additional assumed income from long term returns covers the total income needs with inflation indexation applied to some level.  An investment risk which doesn't do that - isn't risk embracing enough to deliver the plan. One that goes far beyond that - is taking more speculative risk - deliberately than is needed.  Which you can choose to do or not.

Want 3000 pound income. 3% inflation for 20 years. Add and compound the 3% on 3000 25 times say
3000 x 1.03^25 or long hand - can do this with a pencil and GCSE maths skills.  That's the amount of money needed.  You can do the same thing with long term average asset class returns. And the two numbers match or they don't. You can use this very simplistic approach to ask questions like - how much indexed income can I have from this pot. How big does my pot need to be for income X.   How risky do my investments need to be. to possibly generate income X.  This is SUPER basic. And designed not to generate correct predictions of the future but for you to think about the relationship between the various decisions - how much to draw. And what to invest in. Balance of risks taken.  A UK investor - investing globally.  Income in sterling. For a rule of thumb has around 3.0% to 3.5% of pot as an inflation indexed amount which is fairly safe.  In almost all conditions - this based on looking for failure scenarios in history. So not predicting the future - which could fall within the envelope of WW2, the 1920s, the 1970s.  Or it could not.

Unsurprisingly there is a lot of web material on drawdown.  EarlyRetirementNow has a blog which goes into exhaustive technical analysis of many options to approach it.  PensionCraft has some good videos on it also. All PensionCraft are selling is a paywall community around Ramin.  So there is no particular product bias.  A lot of other video content is chasing advertising clicks as pay - and so maximally sensationalist and tedious as a result.  Themed around some particular investing snake oil.  Major life changing crisis. Magic Beans. Click here. Now. Like and subcribe and comment etc.  All that rubbish.

You can model this to help understanding. Not predict the exact future. IFA's have fairly swish (paid) software. 

You can play tunes on it with historical returns, simulation of many paths of  random returns (so called montecarlo sim), a simple spreadsheet based on average CPI (for inflation), average returns by asset class (for your chosen mix - say 60% equities, 40% bonds - a classic). So many paid and free tools exist for this.  

Which apply different levels of mathematical rigour.   Measuring it more precisely doesn't beat the odds as nobody actually knows the future and it's roll through into financial markets.  AI, Bitcoin (Stable coins), regulation of private equity avoiding public markets via linked stake coins hollowing out what we think of as public markets.  Many existential threats exist to the way it all looks today.  For 40 years out.

But putting precision aside for a moment.  You can do a version of it with a pencil and some basic arithmetic at the simplest level. 

Your income plan, an inflation assumption.  Your pot. A long term returns assumption based on the mix.  Both compounded forward over 20 years say. 

Does it look remotely feasible in "average" world.  Is this what will happen. Of course not.  But first pass order of magnitude feasability - sure.  Adjust something - income down. Riskier asset mix (80% equities, 20% bonds). 

Until you get something you find plausible.  You have six years to watch your portfolio (a short run series) coming up - before you draw any.  Web sites provide fund history information - only short term - 5 years say.  And there is plenty of web content on long term returns.  Major fund houses issue predictions about it (usually wrong short run). All free. All on the web.

You want to be invested to your taste and income desires vs pot - in riskier stuff.  This is needed to attempt to manage how inflation erodes your buying power.   You need income (adjusted up for inflation) for >26 years.  You have a pot.  That income comes from the fund (capital) and the returns - over that long period.  After wobbling has blown through.  Wobbling can be severe - in my lifetime saving up - my DC pot annual statement turned up one year >50% down.  Good for me then - buying more units at half price - but it did not feel good at the time.  Counterintuitive.  2007/8 crisis. Would not be great (when not if it happens again) for me now as a "seller" of assets for income - if I had to sell equities in the pit for several years when it became a slump. But I won't have to. I control what I sell. I hold equities separately from other things (separate funds).  And I hold some other assets as income support for a while in a short term crisis.  This reduces the total "possible" income I could take from a riskier stance and dilutes my inflation hedging. And it's more complex to setup and implement. But it insulates me from a downside risk of being faced with being a forced seller (at twice the pace) of my "stocks" in a 50% correction BECAUSE I NEED THE CASH TO LIVE.  Because once sold the stocks are gone. And if the wobble returns to the upside.  I don't benefit.  This is called Sequence of Return (risk - SORR). It affects drawdown people. Not people who buy annuities and opt out of the whole investing in retirement thing.   The simple rubric to think about it is that BAD things happening early in retirement are very bad. Things which happen later - matter less.  None of this is rocket science it all flows from the basic arithmetic of the thing and compounding.  But it is not intuitive for most. And not taught at school.

We'll ignore the whole IHT furore today. But if you own a significant proportion of a house you probably need to understand it as well. 

The key theme is that after all the shouting and market cycles. If you look at long term series - on the LSE or fund trakcer websites - trustnet, morningstar.  Bottom left to top right. massive wobbles sometimes for 5-10 years sometimes within the year.  The tilt up is the long term average.  The sinusoid is what I mean by wobbles. Volatility.

Many people take TOO little risk with their pension pots.  A concern of the government and regulators is too much cash is being held.  (Eroding by inflation).  Drawdown people need some cashlike things around - cash, money market funds, short duration government bonds, or outside pensions - premium bonds, deposit savings account emergency fund etc. It's all money.  Some not tied to the stockmarket wobbles (correlated in the jargon) - to provide essential income. Which provides time - for things to recover - or to make other lifestyle change arrangements - in a future crisis.  Recently we have had tiny dips which the media report excessively.  It's noise.  Stock market falls on - blah blah blah. Look up fund price.  1%. Normal daily variation. Nothing to see.  Just a coke fueled child stood by a roulette wheel shouting digitally somewhere in birmingham (bbc website as example).

Getting practical.  For somewhere to look to learn - in a world of thousands of options.

The "middle of the road" portfolios - VLS60 as example - 60% stocks, 40% bonds.  Are called that for a reason. 

Whatever you do carries risks of being suboptimal later.  And we all can have a view on the politics and economics and technology futurology and how a particular thing would be better.   

I know I don't know.  So what do I do. I don't put all my eggs in one basket.  I DIY. I have several pots with several providers. In different funds with different characteristics and tax wrappers.  I chose to learn to do this -books and asking questions here.  

Others pay 0.5% pot each year for someone to "not know either" but to implement something competently i,e, safely.  They do it a lot for hundreds of customers. The DIY pensioner does it once.  Both choices are valid.  What suits you - suits you.   And if it all seems too much then an annuity opts you out.  Residue for early death to life company not heirs (and chancellor).  Or an IFA to help setup.  All are places to look at as well.

Getting better informed before talking to people selling something - is NEVER - a bad idea.  Rushing into things for DIY before you understand what you are doing.  Can be a bad idea - or just unlucky in timing.

Finally just avoid tied to product advice "financial advisors" / "wealth managers".  They usually have an expensive product and fit you to it. Not it to you. And overcharge.  The first question to be firmly asked and checked up on - is "are you independent - do you assess whole of market or just one provider".  Any dissembling. Stroll on.