Sipp (retirement)

[Tweety1]

Originally Posted by disney332

You only derisk, if you plan to purchase an annuity at retirement, or have a zero risk tolerance at retirement,...because at retirement your equity content is 0%.

Disney332

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It’s all just so complex ha - no one teaches you this in school

[Tweety1]

Originally Posted by disney332

You only derisk, if you plan to purchase an annuity at retirement, or have a zero risk tolerance at retirement,...because at retirement your equity content is 0%.

Disney332

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So the lifestyle one you can still take 25% lump sum tax free, take cash when you want (would this be classed as a drawdown) and keep it invested say in the 80/20 split fund?

[disney332]

And to add insult to injury, the pension rules could change at any time, in terms of what you can do and cant do, which for some pension savers is 50 years of potential for change.

Happy days - not

Disney332

[disney332]

Originally Posted by Tweety1

So the lifestyle one you can still take 25% lump sum tax free, take cash when you want (would this be classed as a drawdown) and keep it invested say in the 80/20 split fund?

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Currently, anyone aged 55 or over can take 25% tax free cash and remain invested with the 75% left under flexi rules.

Disney332

Edit - up to 25%

[HFJohnson]

Originally Posted by Tweety1

So the lifestyle one you can still take 25% lump sum tax free, take cash when you want (would this be classed as a drawdown) and keep it invested say in the 80/20 split fund?

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It depends on the structure of the pension plan you've chosen but in theory yes, although as mentioned before it doesn't make sense to have a lifestyling option if you're going to keep most of the fund invested. As with all investment recommendations though it's driven by your tolerance for risk and what you want from your pension.

It's also worth noting that you don't have to take all of the tax free cash up front. Depending on your circumstances it may be better to hold on to and use it to provide you with some of your income. There are lots of options!

[tspill]

Originally Posted by disney332

You only derisk, if you plan to purchase an annuity at retirement, or have a zero risk tolerance at retirement,...because at retirement your equity content is 0%.

Disney332

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Not necessarily. You de-risk toward the point you need the cash (for whatever reason).

Let's take an extreme case to make the point.
you retire on a particular day - say 30 June 2030.
On that day - you need say £20K to live for the following 12 months; and the year after etc.
If you are for example all in high risk investments (equities) in June 2030 and the market collapsed (drops 50%). And you have to sell to get your needed 20K. you have to sell twice as many assets to get your 20K.

What you really want to do in the years leading up to retirement is try to get to the point where a market drop like this won't have as big an impact.

Investment is a long term thing (10+ years).

What I have done is ensure I have derisked to the point I have 5 years spending in cash (savings accounts and Premium Bonds). I accept the inflation risk. I always want to have 5 years in cash. So next year, assuming I have investments that have done well, I will sell some to to make sure I am u to 5 years cash. If they are low, I will wait. The hope is that in a 5 year period, there will be a time when investments are high enough to sell without losing. But I have derisked to the point where I will never have to (hopefully) fire sale investments.

My investments are split into different risk funds. When equities have done well, I can sell my developed world equity fund. When equities have done badly I can sell my VLS 40 (hoping the bonds in this will inversely correlate dropping equity prices by increasing).

TBH. I see my equity only funds as long term and in reality I will sell VLS 80 or 40 depending on market conditions.
But my fundamental plan is for all short term spending (5 years) will be from cash.

Not sure if this makes sense.

PS. My tolerance to risk would be considered "low". But I have a DB pension in payment which satisfies much of this. My OH will have a DB pension in 4 years time - so this again helps feed my low tolerance to risk.

There are some that would disagree totally with what I am doing - stating that a 100% equities portfolio will win out over the long term. They have maths and historical models that show this to be true. However, it would scare me to death and I wouldnt be able to sleep at night. I would be so nervous about a bad sequence of returns in the short term. So it isn't for me.

[HFJohnson]

Depending on the size of your pension pot there's a lot of merit in using a financial adviser to give you guidance. I work for one so I would say that but there are various ways you can use your pension pot to minimise tax etc and ensure you are getting the risk/return balance based on your level of risk. We are also often able to negotiate lower charges with some of the providers we recommend.

[disney332]

Originally Posted by tspill

Not necessarily. You de-risk toward the point you need the cash (for whatever reason).

Let's take an extreme case to make the point.
you retire on a particular day - say 30 June 2030.
On that day - you need say £20K to live for the following 12 months; and the year after etc.
If you are for example all in high risk investments (equities) in June 2030 and the market collapsed (drops 50%). And you have to sell to get your needed 20K. you have to sell twice as many assets to get your 20K.

What you really want to do in the years leading up to retirement is try to get to the point where a market drop like this won't have as big an impact.

Investment is a long term thing (10+ years).

What I have done is ensure I have derisked to the point I have 5 years spending in cash (savings accounts and Premium Bonds). I accept the inflation risk. I always want to have 5 years in cash. So next year, assuming I have investments that have done well, I will sell some to to make sure I am u to 5 years cash. If they are low, I will wait. The hope is that in a 5 year period, there will be a time when investments are high enough to sell without losing. But I have derisked to the point where I will never have to (hopefully) fire sale investments.

My investments are split into different risk funds. When equities have done well, I can sell my developed world equity fund. When equities have done badly I can sell my VLS 40 (hoping the bonds in this will inversely correlate dropping equity prices by increasing).

TBH. I see my equity only funds as long term and in reality I will sell VLS 80 or 40 depending on market conditions.
But my fundamental plan is for all short term spending (5 years) will be from cash.

Not sure if this makes sense.

PS. My tolerance to risk would be considered "low". But I have a DB pension in payment which satisfies much of this. My OH will have a DB pension in 4 years time - so this again helps feed my low tolerance to risk.

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Yes I agree, and mine was the extreme 100% annuity example.

Most ‘balanced risk investors 5 or 6 /10) would only have up to 60% - 70% equity content so de-risking would not be necessary.

Disney332

[tspill]

Originally Posted by HFJohnson

Depending on the size of your pension pot there's a lot of merit in using a financial adviser to give you guidance. I work for one so I would say that but there are various ways you can use your pension pot to minimise tax etc and ensure you are getting the risk/return balance based on your level of risk. We are also often able to negotiate lower charges with some of the providers we recommend.

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I agree, an IFA (INDEPENDENT) can be a good option for those that don't want to learn anything about this.
However, my experience is that fees can be quite high. Up to 3% up front and up to 1% per year.
In year 1, you need to make up to 4% plus inflation to break even. And you have to make over 1% plus inflation to do better.
That is a big ask. And advisors dont know what the markets will do better than anyone else (or they would be millionaires).

Where a good IFA can help a lot is understanding holistically a person's financial position and define a strategy.

It is like anything - you can pay someone to do a job; or you can learn and do it yourself.

[tspill]

Originally Posted by disney332

Yes I agree, and mine was the extreme 100% annuity example.

Most ‘balanced risk investors 5 or 6 /10) would only have up to 60% - 70% equity content so de-risking would not be necessary.

Disney332

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They are just two different strategies. For me, even with a 60% equities portfolio - a 50% drop still loses you 30%.
So for me, a de-risking strategy wins out by a mile.
However, some may have a higher risk tolerance to me. To some and 30% drop might not worry them.
And this drop will happen. There is no doubt on this. It is just that we don't know when. Many say that we are long overdue a "crash". But who knows.

You should always stress test any strategy and common wisdom suggests a sensible worst case test of halving your equity portfolio on day one and see what this does to your financial plan.