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    • Workerbee999
    • By Workerbee999 10th Nov 18, 3:09 PM
    • 50Posts
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    Workerbee999
    SIPP for gap between 55 and DB @63
    • #1
    • 10th Nov 18, 3:09 PM
    SIPP for gap between 55 and DB @63 10th Nov 18 at 3:09 PM
    Hi

    We have 6 years to invest enough in a SIPP for my OH to build up a big enough pot to allow the max 25% tax free plus 8 years of personal allowance - currently 12.5k. So I think we need around 135k, although an element of growth over the years may help provide some of it.

    My OH is a 40% tax payer and has 15k annual allowance pa available after the annual allowance value of his DB pension, plus carry forward years. He would be able to fund all this within the 40% tax bracket, including the carry forward years.

    What I am trying to work out is the investment strategy- and therefore realistic growth assumptions- and therefore how much he needs to invest as a minimum - when the investment would be over a relatively short period but we want to make annual withdrawal of the personal allowance? If we left it all in cash there would be the inflation impact although the main purpose of this is to benefit from 40% tax relief and take it all out tax free. Or perhaps something like the lower end risk Vanguard or HSBC strategy funds? Or split it up into different buckets so that investments in the 1st 2 years are for withdrawal in the 60-63 age bracket so could be invested for 10years growth while savings when he is 53-55 stay in cash to fund the first withdrawals?

    He is investigating whether he can make salary sacrifice AVCs with his company, as long as these could be withdrawn separately to his DB which we donít want to touch until it is due at 63, but we would still need to decide on the types of funds to choose.

    I would be grateful for any views?
Page 1
    • Linton
    • By Linton 10th Nov 18, 3:56 PM
    • 10,186 Posts
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    Linton
    • #2
    • 10th Nov 18, 3:56 PM
    • #2
    • 10th Nov 18, 3:56 PM
    I think you should split up the money. If you arrange to have say 3 years in cash on retirement, the following 3 years in cautious investments, and 2 years or more in 100% equity you will end up with an allocation that matches your requirements rather than a risk level chosen just because it feels right.


    You could fill the 100% equity tranche now, then start the cautious funds, finishing off with cash savings. Once you start withdrawing the money you can rebalance the allocations keeping sufficient in cash and cautious investments to cover any market crash in the subsequent reducing number of years.
    • Dox
    • By Dox 10th Nov 18, 3:57 PM
    • 1,099 Posts
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    Dox
    • #3
    • 10th Nov 18, 3:57 PM
    • #3
    • 10th Nov 18, 3:57 PM
    The strategy depends heavily on your attitude to risk - and only you and your OH know how you feel. Which risk matters more: not meeting your 'target' in terms of cash in the pot, or the possibility of taking a big enough investment risk to hit the target but losing heavily if the market crashes....or investing in 'safe' funds with little prospect of serious growth.

    Once you've worked out which risks are the most tolerable, that should give you a clear way forward as to how you actually invest.

    Hope it works out for you.
    • frugal90
    • By frugal90 10th Nov 18, 4:30 PM
    • 249 Posts
    • 160 Thanks
    frugal90
    • #4
    • 10th Nov 18, 4:30 PM
    • #4
    • 10th Nov 18, 4:30 PM
    we have a similar strategy which is in action now. I will take my £80K sipp which is 100% in cash over the next three years before my DB pension kicks in at 60. My wife is just 50 and has at the moment £86K in a sipp which is fully invested in equities. She will take her DB pension also at 60. We plan on moving my wife's sipp to cash over the next 4 years but will be able to use my lump sum to soften any crisis situation. Good strategy I think to cover the gap. I am not a fan of the conservative party but Mr Osborne did me a favour! We also have too much cash at the moment which we need to move to income paying IT's.
    • kidmugsy
    • By kidmugsy 10th Nov 18, 4:37 PM
    • 12,404 Posts
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    kidmugsy
    • #5
    • 10th Nov 18, 4:37 PM
    • #5
    • 10th Nov 18, 4:37 PM
    We also have too much cash at the moment which we need to move to income paying IT's.
    Originally posted by frugal90
    Sometimes Cash is King. And one doesn't always know in advance.


    I notice that King Warren of Buffet has given up investing in new companies at the moment - he's just spent a large sum of his company's money on buying back its own shares. Maybe he thinks Berkshire Hathaway is the only sure-thing investment among the sorts of businesses he understands.

    The lesson is presumably either (i) get out of US equities, or (ii) get out of US equities except Berkshire Hathaway plus the sorts of businesses he doesn't understand; and (iii) perhaps invest in equities in the countries that don't appeal to him because he doesn't understand them and their ways.

    That latter might include the UK; he blundered by investing in Tesco after all.

    His glory days are long behind him but that might simply be because his firm is now so huge - there's no sign that his skills have deserted him, is there?
    Last edited by kidmugsy; 10-11-2018 at 4:47 PM.
    Free the dunston one next time too.
    • Audaxer
    • By Audaxer 10th Nov 18, 5:50 PM
    • 1,594 Posts
    • 983 Thanks
    Audaxer
    • #6
    • 10th Nov 18, 5:50 PM
    • #6
    • 10th Nov 18, 5:50 PM
    In view of the recent long bull run, I am assuming we are due an equity crash soon, so I would put any growth estimates on the very low side for the next 6 to 10 years no matter what you invest in. Even cautious investments of say 40% equities will fall in an equity crash, just to a lesser extent, but will probably take the same time to recover their capital value as higher risk investments. However if you are investing in the SIPP just to get the benefit of the tax relief and withdraw it all within the personal allowance over 8 years, could you not just effectively 'move' £12.5k of the investments out of the SIPP each year and reinvest them in an S&S ISA? If I have misunderstood and you need to withdraw the cash to live on, that is a different matter, but if you can afford to keep it all invested with a view to drawing an income later on, I think you could still get the benefit of the tax relief that way.
    • Workerbee999
    • By Workerbee999 11th Nov 18, 10:25 AM
    • 50 Posts
    • 35 Thanks
    Workerbee999
    • #7
    • 11th Nov 18, 10:25 AM
    • #7
    • 11th Nov 18, 10:25 AM
    Hi

    Thanks all. I think I like the idea of splitting the savings up into separate buckets as suggested, mainly equities to start with, then cautious, then cash. We want to be able to withdraw the personal allowance amount every year for tax efficiency but I admit I hadnít thought about then investing it in the same funds in an ISA if itís not a great time for the market, thatís a really good idea!

    By the time we get to 55 this amount of money annually is part of the plan we will need to live on but it doesnít necessarily need to come from this source as we will also take the tax free lump sum from my DC pension (again same issue about whether it is a good tine to withdraw) but failing that we also hope to have built up some cash reserves to cover downturns in the market (2 years worth).

    In terms of risk, I would say OH is quite low (his current exposure to pensions is DB so he is not used to it) but I am medium - we would rather save a bit more for this part of ďthe planĒ to get to the amount we want rather than save less and rely on higher risk to hopefully deliver it. I think my goal would be try to match inflation so as to not lose value in real terms - assuming too that the personal allowance increases with inflation - but is it realistic to match inflation with a low to medium risk tolerance?

    Also, do any of you have opinions of the HSBC Global strategy funds?

    Thanks
    • kidmugsy
    • By kidmugsy 11th Nov 18, 10:55 AM
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    kidmugsy
    • #8
    • 11th Nov 18, 10:55 AM
    • #8
    • 11th Nov 18, 10:55 AM
    By the time we get to 55 this amount of money annually is part of the plan we will need to live on .... In terms of risk, I would say OH is quite low .... but I am medium
    Originally posted by Workerbee999
    Consider putting some of the money into an ETF of TIPS i.e. the US equivalent of index-linked gilts. They pay much more than ILGs because the price of the latter has been elevated by the need for pension funds to buy lots of them to offset their liabilities for index-linked pensions.
    Free the dunston one next time too.
    • Workerbee999
    • By Workerbee999 11th Nov 18, 1:55 PM
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    Workerbee999
    • #9
    • 11th Nov 18, 1:55 PM
    • #9
    • 11th Nov 18, 1:55 PM
    Please can you give me an example of what an ETF of TIPS is so that I can read up on it?
    • Audaxer
    • By Audaxer 11th Nov 18, 2:43 PM
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    • 983 Thanks
    Audaxer
    I think my goal would be try to match inflation so as to not lose value in real terms - assuming too that the personal allowance increases with inflation - but is it realistic to match inflation with a low to medium risk tolerance?
    Originally posted by Workerbee999
    I think in the long term, over the course of retirement it is realistic, but who knows over the next 10 years. If the sequence of investment returns is poor in the first decade of retirement that can be really bad news as to how long a portfolio will last before you run out of money. If you google 'sequence of returns' you can see some quite interesting comparisons between good and bad sequences early on in retirement.
    Also, do any of you have opinions of the HSBC Global strategy funds?
    I think if going for more than one multi asset fund, HSBC Global Strategy Balanced fund is a good medium risk fund to sit alongside Vanguard LifeStrategy 60, as it has similar returns but a lot less UK equity and a bit of property.

    Also to help reduce the tax liability, it might be worth your OH considering taking a tax free lump sum from his DB pension when he takes it, especially if it has a good commutation factor.
    • kidmugsy
    • By kidmugsy 11th Nov 18, 5:29 PM
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    kidmugsy
    Please can you give me an example of what an ETF of TIPS is so that I can read up on it?
    Originally posted by Workerbee999
    https://www.hl.co.uk/shares/exchange-traded-funds-etfs/list-of-etfs?etf_search_input=TIPS&x=31&y=13&companyid=&se ctorid=&tab=prices
    Free the dunston one next time too.
    • Workerbee999
    • By Workerbee999 25th Nov 18, 11:51 AM
    • 50 Posts
    • 35 Thanks
    Workerbee999
    We finally got round to opening a SIPP today. We have gone with Hargreaves Lansdowne at the moment because this is where I have one and it is easy to use. When we get to around 50k we will see if there is a cheaper platform, but I think the % fee will be ok for now. We decided against AVCs with the company as it would need transferring to access and wasn’t salary sacrifice after all so there isn’t any NI saving, so we will just have to manage the reclaiming of the other 20% tax.

    Over the next 2-3 years we are aiming to build up 45k in HSBC Global Strategy Balanced earmarked for age 60-63 so we can leave it for 12-15 years - then 45k in the Cautious fund over the following 2 years for age 57-59 that we can leave for 4-7 years, then the rest in cash over the last couple of years that we would take out first. We will rebalance and review the returns as we get closer.

    Does this seem diversified enough or should we look at supplementing the HSBC funds with anything else? I think we are comfortable with the risk level of the approach with these funds.

    Now we just need to get on with the savings and ignore any stock market wobbles.

    Thanks all
    • Thrugelmir
    • By Thrugelmir 25th Nov 18, 12:11 PM
    • 61,620 Posts
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    Thrugelmir
    Markets are unlikely to remain placid as they have been for the past decade. Statistically there's a 1 in 6 possibility of markets falling by 10% in a year. Your planning needs to include a contingency allowance for the unexpected. All you really can do is to to save until you reach your objective. With a relatively short window there's no certainty as to what investment returns will be. Even allowing for the reinvestment of income generated.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • frugal90
    • By frugal90 25th Nov 18, 3:20 PM
    • 249 Posts
    • 160 Thanks
    frugal90
    If you invest in IT's or shares with HL, then there is a cap on the annual charge at £200. That's is what we have done. I start drawing my Sipp next April ( all in cash)and will empty it completely over 3 years until DB kicks in. My wife's is full invested and she will do the same in just under 5 years time. We will gradually move it to cash over that time.
    • TBC15
    • By TBC15 25th Nov 18, 3:59 PM
    • 715 Posts
    • 368 Thanks
    TBC15
    Markets are unlikely to remain placid as they have been for the past decade. Statistically there's a 1 in 6 possibility of markets falling by 10% in a year. Your planning needs to include a contingency allowance for the unexpected. All you really can do is to to save until you reach your objective. With a relatively short window there's no certainty as to what investment returns will be. Even allowing for the reinvestment of income generated.
    Originally posted by Thrugelmir
    Is this an old post?
    • Thrugelmir
    • By Thrugelmir 25th Nov 18, 6:32 PM
    • 61,620 Posts
    • 54,846 Thanks
    Thrugelmir
    Is this an old post?
    Originally posted by TBC15
    Nope....
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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