Considerations for Post Retirement DC Fund: Please Help

BennyBrownBoy

Hi All,

Appreciate advice is not possible on this forum, so instead I am looking for considered opinions on a suitable post-retirement fund in which to invest my current DC pension, after having taken the 25% tax free element.

In summary, my situation is as follows:

62, recently retired through redundancy and living comfortably from redundancy payment. Will commence DB pension at 63 in June 2027. Together with my wife’s DB pension (already in payment), we are in the fortunate position of having around 90-95% of our monthly requirements covered by our DB pensions. In addition, we have around £250K in ISAs (cash and S&S).

I also have a DC pension with Scottish Widows currently of £628K. After taking 25% tax free, this will leave around £470K. It is currently invested in their Scottish Widows Lifetime Investment Growth Path product. 

A brief conversation with SW suggests I will need to choose another fund to leave the balance once I take the tax-free cash for flexi-access drawdown. They are pointing me towards their pre-prepared retirement funds such as “Pension Portfolio 4” and similar, as a possible consideration. However, for this particular product I can see that equity exposure is only around the 35%’ish mark.

Given our financial needs are largely covered by DB pensions, I feel comfortable with slightly more risk for this remaining DC pot. The main objectives for this pot are limited occasional withdrawals together with reasonable growth to provide a legacy for family. It’s unlikely we will withdraw anything from here for at least 5 years.

Our S&S ISAs are in Vanguard Lifestrategy 60:40 and I am comfortable with this mix of equity/bonds.

Questions: 

1. If I was going DIY and looking for a “fire and forget” fund in which to invest this £470K, what other SW products might be worth considering to suit my risk profile/objectives - I’m comfortable remaining with SW, but if I’m honest this is more due to laziness/simplicity.

2. What funds from other providers might also be worth considering and why?

3. Does my proposal for the £470K make sense, given my DB position, and what other factors should I consider (should I consider higher equity exposure e.g. 70% etc)

Thanks so much in advance for your thoughts and comments.

LHW99

Can't answer on Scottish Widows etc, but in relation to other factors (in no order):

Are you planning to withdraw / spend any of that taxable money in the next 5 years? If so, a MMF rather than equity fund may be best for that part of it.

What are your plans for succession - is there family that you want to pass things on to after you both pass on?

Is IHT likely to be an issue? Are you thinking of making gifts from regular income / one off PETs?

Are you both in good health with low likelihood of needing to fund care at home / residential in a few years?

Would your wife be happy managing an investment if you were first to pass (there's always that bus!)? If not, how would you cater for that?

Have you up to date wills and LPAs in place?

QrizB

If you're looking for a 60:40 fund similar to VLS60, does your SW plan offer "Scottish Widows Passive Multi Asset III"?

That fund is available to me as an option for my SW pension, although I'm currently in the "V" version which is 100% equities.

https://www.trustnet.com/factsheets/p/n9cx/sw-passive-multi-asset-iii-pn-cs3

bolwin1

If you are planning on most of the funds in the DC pot being used as an inheritance, which could hopefully (looking at your ages) be well over 20 years away, I don't see why you aren't considering 100% equities.

Personally, I'm a fan of global index trackers. The nearest one Scottish Widows have (at least on my works SW pension) is probably Scottish Widows Global Equity CS8 & the costs aren't too bad. There are loads of cheap global index trackers available to other suppliers (& indeed via a SW SIPP). Something like HSBC FTSE All World Index is regularly recommended. There are lots of others that are very similar.

It is worth looking at the relative costs of other platform providers like ii, AJB, Fidelity etc. Have you been moved to a 'standard' Scottish Widows SIPP, or are you on an old work scheme. If you are on an old works scheme, you may find the costs have increased significantly as you are no longer working & the employer isn't subsidising them. The standard SW SIPP charges aren't too bad, but you can get cheaper. You should definitely have a wider range of options available if you are on / move to a SIPP.

kermchem

Noting that you are living on your redundancy payment, and OH is drawing a DB pension, most of the recent discussions on this forum have recommended that you withdraw income from DC pensions to take you up to the next tax threshold, and invest the income in ISAs, where it can be in fundamentally the same investment but accessible without paying further tax. Do this before you get to state pension age when you probably will be in the next tax bracket. In summary, manage how you withdraw money from pensions over several years without paying unnecessary tax.

mrklaw

I’ve been toying with this recently. When your state pensions kick in in only a few years - you’ll have more than you need covered by guaranteed sources. We should be similar although tighter - it’ll just cover our needs (we are timing the DB pension to do that)

so on the one hand you could put excess in anything you like - under the mattress or all on black. Its irrelevant for retirement income purposes. it pivots more towards additional discretionary and into legacy/estate planning - gifting while you can and leaving what you can’t.

I was considering just leaving everything 100% VWRP for maximum growth potential - then if/when we want to dip into it for gifting or one-off purchases it should be in good shape. and in theory unless we need money at short notice we could ride out a bumpy period for a while before drawing.

but I’m starting to think a little more defensively. perhaps the equivalent of an 80/20 or 70/30 fire and forget Lifestrategy fund that automatically rebalances? trading lower growth for hopefully more stability. Although I’d need to check costs as most of these seem to be OEICs and don’t take advantage of fixed ETF platform fees.

mrklaw

do you plan on taking anything from the pension in the short term? my guess is you have enough in the ISAs to cover you until state pension age and then you don’t need anything for income? Curious if you’d prefer to draw from pension and keep the ISAs for more flexiblity without tax - eg for larger lump sum gifts/purchases without tax spikes.

I’d also consider buying a small fixed term level annuity to nail your income needs

mrklaw

btw - why are you assuming to take the 25% tax free from the SW? you already have a lot in ISAs, and you’ll have £100k+ landing on your mat with no tax protection readily available so you’ll start to pay tax on any interest gains. Why not leave it in the pension where it can continue to grow tax free and still accessible if/when needed?

gm0

As others have said. You have a lot of freedom to treat this "extra" money as you like if untouched for the long haul and so bearing a very long term investment horizon. With needs met by guaranteed income (DB,SP)

So anyway you choose. If 60% is your risk appetite. Then why not. If preserving its current value in a rolling index linked gilt ladder was the vibe. That would be a valid choice. As would a fire and forget 100% global equities fund. A volatile random outcome with by far the most potential upside. It won't go to zero with no drawdown. But it might drop 80% along the way. Or a protected real value of today and no risk beyond sovereign default. Your call.

There is no concept of safety in drawdown for an investment left untouched. If you might want to touch it and pay income tax and extract some. Then that should guide your hand so the desired option is continuously available regardless of markets. But be sure you want to pay for that option before tilting the portfolio down. You already have non-volatiles outside your pensions.

A good way to think about your overall portfolio is to take your DB and SP and treat that income stream as "non-volatiles" i.e. create a capital multiplier and treat that as portfolio value in the bonds/cash/linkers column.
And your S&S ISA, shares and DC investments as the "other investible bit". That's the total portfolio. 100% in the DC part likely doesn't seem so extreme now? (c.f Bernstein - Rational Asset allocation)

The existing calculation - needs met by guaranteed income - which in the "widows and orphans" view should be hedged away from speculation (for "essential" income at least). Is 90% of the way there.

Sequence pre DB creates a specific risk to assess based on your other buffers. An ill timed mega crash shouldn't leave you beached or forced to do something you don't want to. Mapping out cashflow to 67 makes sense.

Through my personal lens. A desire to be able to sell units - anytime - and cash something out. Suggests separate holdings of equities and other things, bonds, linkers, mmf etc. Not a multi-asset unit - which may be in a sharp dip at an inconvenient timing. In the mix you want. So equities are - basically - never sold. Two funds can do that as a starting point. The "option" to have a given scale of money continuously available from a non-volatile asset - tilts your portfolio down away from all long term speculative investment to a mix. If comes at a cost of loss of potential long term return. It bears examination whether, or how much of it - you really need. And if you can handle "wanting it" at what may (risk) prove to be a less favourable timing. In which case. Do it less. Dial it up. The tax man and your heirs - in most scenarios will do well. And you don't have to do this. A multi-asset unit - will - most of the time in most scenarios be absolutely fine. And it has the "low maintenance" advantage of a single fund solution There is no concept of rebalancing to even consider bothering about. Not that rebalancing 50k of just in case short ish duration bonds and 400k of global equities need keep you up at night.

Extra SIPP fund choice you don't use is of zero value. Lower fees has a known value. SW may well carry some cost over the cheapest options available. And that "bit extra" - you can work out. Checking what you will pay now, and upon transition to drawdown (timing of which you control to a large degree) is a vital step. Surprisingly awkward sometimes to decode regulated communications. And handle scheme specific rebates vs generic charges. They don't make it easy. Generally you can find out. And cross check in cash realisable value for exit year to year. The net ALL fees portfolio value - money you can leave with position doesn't lie. It should match what you understand the fees to be. (Bar shrapnel - funds have "non-declared" fees which add a small amount of embedded volatility but that's not the point. We are checking the scheme/product/platform charge is properly understood.

And it's material (to you) or it's not. Some of us chisel away at drag and some take advantage of switching incentives (cashback) to lower platform fees further. Some don't. Fewer institutions makes executor tasks easier - now that the government after industry self serving lobbying have made it worse in their implementation of DC IHT

Personally I think that setup at retirement is a good time to take a hard look at the full lifecycle cost (through retirement) of long term products and make a decision which is informed. Which can be consolidation towards "a simple setup" or something inbetween to suit 20 years of retirement.

Maybe not OP but some people are leaving a lot of money on the table by sticking with existing providers with "old fashioned" fees. It's hard to generalise. Some old stuff is excellent - I have an old occupational which is 0 platform and funds at 0.04 and up. It hard to beat that cost structure even with the low cost and cashback providers. But others are paying 1% - 1.5% and worse to scalpers.

The "counter case" of course is that bereaved relatives and kids as executors - will often place a high value on "simplicity". Some people are either not interested in nor capable of DIY.
And so 0.5% pa of assets under management is a deal they are more than happy with to make a lot of this stuff go away.

Yorkie1

From @kermchem

Noting that you are living on your redundancy payment, and OH is drawing a DB pension, most of the recent discussions on this forum have recommended that you withdraw income from DC pensions to take you up to the next tax threshold, and invest the income in ISAs, where it can be in fundamentally the same investment but accessible without paying further tax. Do this before you get to state pension age when you probably will be in the next tax bracket. In summary, manage how you withdraw money from pensions over several years without paying unnecessary tax.

I've been mulling this recently as will also be in HR tax territory once SP comes in.

I suppose the balancing exercise is that you can only put £20K into ISAs at present (with no immediate signs of that limit being increased, and ignoring the split from next year between cash / S&S for U65s). So if you withdraw more than £20K to take you up to the next tax threshold, you may well end up paying tax on the non-ISA interest / dividends if you go above the 0% tax allowances for those.

DT2001

I think gm0 has covered lots for you to consider. From SPA will you have excess income? Is the 90/95% covered by DBs you quote of required income including discretionary spending?

If you have £250k in cash and S&S ISAs plus the 25%TFLS how is that invested as that needs to be considered in your % split.

We are in a similar position in that we have ‘guaranteed’ income to cover necessary expenditure plus some spare. I am trying to realise a property to gift (without ties) and then gift from excess income. Excess income will be generated by drawing down up to BR threshold and getting income paid out from S&S ISAs. I am at an early stage of this plan as OH is still working and can tweak as we go into full retirement. The analysis of our investments show a very high % in equities (when excluding ultra short bonds I have allocated for a property project) but within that figure I have income focused investment trusts (whose capital value fluctuates much more than the income they produce). My goal is 60/40 Global ETF and ITs (they are a personal preference over bonds purely as I understand them better, I hope ) When our travel bug is just local we can gift more whilst still ensuring enough for any care costs later. We have been influenced by a relative who has been gifting for some time to a child and grandchildren and given them an opportunity to see the benefits of long term investments and a helping hand on to the property market or earlier retirement.