Leave DC pension untouched or do drawdown and don't draw?

waveydavey48 · 18 August 2018 at 10:50AM

Hi folks, I would welcome any observations on this.
I hit my chosen retirement age of 60 in 3.5 years time. I have a DC pension pot currently £148k in previous employer's (Direct Line) scheme which is managed by Fidelity.
Myself and wife have reasonably substantial cash savings, and I have a DB pension which we can easily live on when I hit 60 (mortgage paid off, no kids, we live pretty frugally by choice) and my question is what to do with the DC pension when I hit 60.
As I understand it the main options are to buy an annuity (but we don't need the income and rates are poor anyway), leave it invested with Fidelity, or I could do an income drawdown scheme but not make any withdrawals unless/until the situation changes and we need the money.
I can ask Fidelity what charges they will make to keep it invested but I don't know what drawdown scheme charges would be and it's apparently difficult to make comparisons between providers.
Further, is it likely the government will remove the chance to take 25% tax free? If so is there any merit in taking the 25% and investing it just in case?
Finally, the DC pension is on a lifestyle basis, so is being moved out of equities into less risky investments as my chosen retirement age of 60 approaches. As I'm unlikely to take the pension at 60 presumably I should opt for a non-lifestyle approach (but I don't have the knowledge to select an alternative strategy)
Thoughts please?

OldMusicGuy · 18 August 2018 at 11:24AM

First, educate yourself on how drawdown works, see https://www.pensionwise.gov.uk/en . If you have not yet had your Pensionwise appointment, get one booked as they will explain all the options, although they will not advise you what to do.

If Fidelity allows you to do drawdown (some schemes don't), you then need to decide if/how you want to take the money out. If you don't need the money at all, it may be best to leave it invested. It also depends on your tax status, for example I have just retired and will do UFPLS withdrawals each year up to my personal allowance and augment that with savings. That means I won't pay any tax until my SP kicks in at 66.

Taking 25% out as a lump is not generally a sensible thing to do unless you need the money for something. You are wasting the tax free allowance if, like me, you can UFPLS and get some of the money out effectively tax free outside the 25%. Yes, the government might withdraw the 25% tax free but they won't be able to do it overnight without you finding out about it, so there should be plenty of opportunity to get the 25% out before they change the rules. That's my logic anyway.

You need to decide what to do with the money if you leave it in the DC scheme. It depends on your risk profile. Many people will say put it into more equity-based investments so that it grows, others may say keep it in lower risk investments because if you do want to use the money in the next 3 to 5 years, you might see it go down (as well as up) if you put it more into equities. Maybe this will be money you would use in later life for care home fees, so it may make more sense to go for growth. Only you can decide.

232607 · 18 August 2018 at 12:14PM

It doesn't make to change to drawdown until you want to draw money out.
Lifestyle funds are largely designed to protect the value if there was to be major use of the funds on a certain date such as buying an annuity.
This isn't the case with you so it may be wise to move to other funds.
You could use a multi asset fund at whatever risk level is suitable to you.

I think it's virtually zero chance the 25% TfL's will be removed, it would be too politically damaging and as alluded to earlier, you would get plenty of warning.

Dox · 18 August 2018 at 12:21PM

waveydavey48 wrote: »

I have a DC pension pot currently £148k in previous employer's (Direct Line) scheme which is managed by Fidelity.

This is a (group) personal pension, not a SIPP, and doesn't offer drawdown. You would need to transfer out if that's the route you want to go.

See https://www.moneysavingexpert.com/savings/cheap-sipps/

OldMusicGuy · 18 August 2018 at 2:34PM

Transferring to a SIPP will likely be straightforward and free, provided your current scheme allows it and you don't have any guaranteed benefits that might make you not want to move it.

FYI I moved 5 such schemes to my HL SIPP.

waveydavey48 · 19 August 2018 at 9:41AM

Thanks folks, sounds like I have some reading/thinking to do. I followed the link in Dox's post above and will look further into SIPP's.

I've just started investing a small amount of cash monthly into Vanguard's life strategy 80% fund via an ISA as I like the idea of a ready made fund because a "hands off" solution suits my lack of knowledge/ability to make investment choices. Any recommendations of a SIPP with a similar "hands off" approach and with charges appropriate to my £148k pot?

Thanks again.

kidmugsy · 19 August 2018 at 11:29AM

waveydavey48 wrote: »

I've just started investing a small amount of cash monthly into Vanguard's life strategy 80% fund via an ISA as I like the idea of a ready made fund because a "hands off" solution suits my lack of knowledge/ability to make investment choices. Any recommendations of a SIPP with a similar "hands off" approach and with charges appropriate to my £148k pot?

You can invest in passive "trackers" at practically any platform. You might like to look at Vanguard's own SIPP when they offer it later in this tax year.

For what it's worth I would probably split that £148k across two different providers: eggs, baskets. I would also probably split my investments across two different fund houses: say Vanguard and another.

For platforms see
http://monevator.com/compare-uk-cheapest-online-brokers/

waveydavey48 · 19 August 2018 at 12:12PM

Thanks for that. I will look out for the vanguard SIPP.

A further quick question if I may, apologies in advance if it's a bit dense. Am I right in thinking drawdown involves leaving a substantial pot behind when you die? We have no kids and the ideal scenario would be to die with a balance of nil. I think an annuity is the only sure way to achieve that but are there other alternatives?

Thank you.

crv1963 · 19 August 2018 at 12:39PM

waveydavey48 wrote: »

Thanks for that. I will look out for the vanguard SIPP.

A further quick question if I may, apologies in advance if it's a bit dense. Am I right in thinking drawdown involves leaving a substantial pot behind when you die? We have no kids and the ideal scenario would be to die with a balance of nil. I think an annuity is the only sure way to achieve that but are there other alternatives?

Thank you.

Drawdown can leave a sum of money, the size depends on the rate it is taken out and if invested still market rises/ drops/ if not invested the rate of erosion by inflation. The problem is that no one knows the end date. Do you spend it all by 85 then live to 100 and need a Care Home place? Or drop down at your retirement party? What does your spouse need if you go first? Do you have no one/ charity/ cause you would want to inherit?

kidmugsy · 19 August 2018 at 1:00PM

waveydavey48 wrote: »

Am I right in thinking drawdown involves leaving a substantial pot behind when you die? We have no kids and the ideal scenario would be to die with a balance of nil. I think an annuity is the only sure way to achieve that but are there other alternatives?

I suspect that running a drawdown account might be a burden as one gets older. Buying an annuity at age, say, 80 might be a good way of simplifying one's life and buying what is partly longevity insurance.

Who knows, annuities might be better value by then?

Indeed, if you have emptied your pensions by age 80 then you could use equity release on your house to fund annuities - you can't take the house with you either.

OldMusicGuy · 19 August 2018 at 8:04PM

I plan to gradually annuitize our large DC pot over the years so that we don't leave "unspent" money and also don't have the stress of worrying about what happens to the remaining pot. Will probably start that at around age 75 and gradually shift more of the pot to annuities.

Leave DC pension untouched or do drawdown and don't draw?

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