ILG to provide for basic needs

Veloflyer

I have seen various folk in these boards recommend using ILGs - ladders or singly - as a means of preserving part or all of pension pots to provide for basic requirements during retirement - council tax/food/bills/etc.  To me this sounds eminently sensible and I may dive in big time very shortly given many of my global/S&P trackers are pretty high and the vast bulk of my pot is in equities - for which I am keen to diversify from.

Is there anything to be particularly aware of here? My main aim is preservation from adverse market forces, a crash even, rather than growth. I realize annuity is an option - which could be one for later. 

Storcko14

A key thing is to be aware that you have to hold the ILGs to maturity to ensure that they do what you what you want them to, which is to provide a return that meets / slightly exceeds inflation.  Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that.

tigerspill

I have now set up our ILG ladder for years 6 to 10 from now (in ISAs).
I have actually gone for more than just basic needs - but my expected needs - as I am not totally dependent on big growth; and security and predictability are now important to me..
I have just sold some of my VLS funds to build out years 11-13/14.  And will go up to year 15 in April with ISA new contributions.
The issue for me is that I am with iWeb/SW who charge £5 for trades.  With the coupons often being quite low, the re-investment costs can end up relatively high.  What I think I may do (depending on coupon size and payment dates), is to reinvest once or twice per year - possibly when I add funds each April to my ISA - to minimise dealing costs and take the hit on any interest.  I plan to add another ILG each April.
The issue for me down the line is if ILGs are considered "cash like" and hence come under the incoming ISA limits for cash when introduced.  Just something I will have to live with at the time.
Not a definite plan, but something I will have to manage when coupons start to come in.

SVaz

I’m sure I’ve read that any Government debt will be exempt from the ISA rules.
They NEED people / companies to buy Gilts,  they would have to be very dumb indeed to discourage people to do so.  

Lowtrawler

The only thing to do before you buy is determine what cashflows you want the ILG's to generate and buy with the intention of holding to maturity. Create a spreadsheet of your required cashflows and use the excellent lategenexer tool to tell you which one's to buy: 

https://lategenxer.streamlit.app/Gilt_Ladder

MK62

Veloflyer said:

I have seen various folk in these boards recommend using ILGs - ladders or singly - as a means of preserving part or all of pension pots to provide for basic requirements during retirement - council tax/food/bills/etc.  To me this sounds eminently sensible and I may dive in big time very shortly given many of my global/S&P trackers are pretty high and the vast bulk of my pot is in equities - for which I am keen to diversify from.

Is there anything to be particularly aware of here? My main aim is preservation from adverse market forces, a crash even, rather than growth. I realize annuity is an option - which could be one for later. 

To add to the posts above, few pension platforms actually offer IL gilts to buy online........you have to phone up, so if yours is one of them, make sure they give you the online dealing price rather than the telephone dealing price, or else your IL gilt ladder might end up being more expensive than your next holiday (AFAIK, most mainstream platforms will offer the online dealing price for assets they sell, but which can't be bought online, only by phone)

Veloflyer

MK62 said:

Veloflyer said:

I have seen various folk in these boards recommend using ILGs - ladders or singly - as a means of preserving part or all of pension pots to provide for basic requirements during retirement - council tax/food/bills/etc.  To me this sounds eminently sensible and I may dive in big time very shortly given many of my global/S&P trackers are pretty high and the vast bulk of my pot is in equities - for which I am keen to diversify from.

Is there anything to be particularly aware of here? My main aim is preservation from adverse market forces, a crash even, rather than growth. I realize annuity is an option - which could be one for later. 

To add to the posts above, few pension platforms actually offer IL gilts to buy online........you have to phone up, so if yours is one of them, make sure they give you the online dealing price rather than the telephone dealing price, or else your IL gilt ladder might end up being more expensive than your next holiday (AFAIK, most mainstream platforms will offer the online dealing price for assets they sell, but which can't be bought online, only by phone)

I bought a test amount - 500 quid - via Bell. Seemed simple enough. 

Veloflyer

Storcko14 said:

A key thing is to be aware that you have to hold the ILGs to maturity to ensure that they do what you what you want them to, which is to provide a return that meets / slightly exceeds inflation.  Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that.

 I intend to hold to maturity. Can you elaborate on the last sentence?

tigerspill

Veloflyer said:

Storcko14 said:

A key thing is to be aware that you have to hold the ILGs to maturity to ensure that they do what you what you want them to, which is to provide a return that meets / slightly exceeds inflation.  Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that.

 I intend to hold to maturity. Can you elaborate on the last sentence?

Assuming this is the sentence you refer to - "Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that."

 Might it be that these funds will trade the ILGs and therefore adding potential risk and make returns less deterministic?
For me, the purpose of an ILG is to hold to maturity and therefore have a pre-determined locked in real value to me relative to inflation (currently all mine will return at least 1% above inflation) .  And it is this pre-determined real end value that is what I am after.

Storcko14

Veloflyer said:

Storcko14 said:

A key thing is to be aware that you have to hold the ILGs to maturity to ensure that they do what you what you want them to, which is to provide a return that meets / slightly exceeds inflation.  Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that.

 I intend to hold to maturity. Can you elaborate on the last sentence?

The price of an ILG fund will fluctuate depending on prevailing interest rates and inflation so you can't determine your return because you will have to sell some of your holding from time to time to meet your cashflow needs. The longer the fund's average duration the more it's price could fluctuate.  Whereas with the ladder of individual gilts you'll know what cashflows you'll get and when.

It's worth having a read of Monevator as those guys have written a few pieces about how individual ILGs vs ILG funds work. 

Veloflyer

Storcko14 said:

Veloflyer said:

Storcko14 said:

A key thing is to be aware that you have to hold the ILGs to maturity to ensure that they do what you what you want them to, which is to provide a return that meets / slightly exceeds inflation.  Also buying an ILG fund - as opposed to individual gilt(s) - won't necessarily achieve that.

 I intend to hold to maturity. Can you elaborate on the last sentence?

The price of an ILG fund will fluctuate depending on prevailing interest rates and inflation so you can't determine your return because you will have to sell some of your holding from time to time to meet your cashflow needs. The longer the fund's average duration the more it's price could fluctuate.  Whereas with the ladder of individual gilts you'll know what cashflows you'll get and when.

It's worth having a read of Monevator as those guys have written a few pieces about how individual ILGs vs ILG funds work. 

Understood and thanks. I suppose it depends on your view of what inflation will be. I am pessimistic and think inflation will rise - hence my preference for an ILG over conventional.   

To be clear, my intention was not to buy any sort of ILG fund, rather individual ILGs maturing on successive years and thus create an ILG ladder