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Old 2 Apr 20, 10:21 AM  
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#21
Cannavar
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Originally Posted by tspill View Post
This isnt relevant. The the issue isnt the type of pension vehicle, it is the investment risk being carried within that, and trying to avoid the risk go being forced to sell when you need the money after a bad time (like we are seeing right now).
This is happening across the globe right now - people retiring this month and starting to draw on defined contributions pensions (pension pot). Their salary has stopped and they are being forced to sell right now and in the coming months (crystallising massive losses) to get cash to live on. They had no plan and hadn't been derisking their holdings (to say cash on deposit). This has been one of the huge issues with pensions in recent years - many people are have become huge investors without their knowledge. Those that know this, dont understand it and refuse (or dont know) to get professional help from a good IFA who would work through all this with them.
The derisking of holdings relates to the actual underlying investments and is nothing to do with the mechanism of with drawing (e.g. drawdown). It is a standard and well documented pattern for anyone coming towards retirement (pithing 7-10 years).

All drawdown is is one way of actually extracting money (in whatever holdings) from a pension. You cant just take it out like you can from a bank account. For example, an alternative would be to transfer to an annuity where you take all your money out none go and buy a monthly amount.
I believe Barry understood quite well. It is relevant if you plan to draw down as your option is to remain in investment for continued growth. Something that should be built into your draw down calculations.
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Old 2 Apr 20, 10:30 AM  
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#22
tspill
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Originally Posted by Cannavar View Post
I believe Barry understood quite well. It is relevant if you plan to draw down as your option is to remain in investment for continued growth. Something that should be built into your draw down calculations.
But that isnt what I was saying.

I was talking about the derisking as you approach the time when you need the money. Yes, drawdown can facilitate this - but is just the mechanism for taking the money out of the pension. But it doesn't make up for a bad plan or being in high risk investments. Drawdown helps no one right now if they need the money after the market has collapsed as they still have to fire sale their investments.

People retiring say this month can go into drawdown - that's fine. But if they need some of the money, they have to sell some of their investments right now - when the market has collapsed. If they were in high risk investments - they will crystallise a huge loss and that at the start of their "sequence of returns" could be catastrophic for the rest of their lives (as many are finding out). Especially if they need to continue to drawdown over the coming months when prices might continue to be so low.
What you are saying might be fine - delaying withdrawing - if the person has other means to support them. This is the OP's main pension. How many year will it take for the market to recover to where it was a few weeks ago? No one knows. Those retiring - what will they survive on if they were dependent on drawing their pension that was stuck in high risk investments? This is destroying people right now. People should learn from this and plan accordingly - the vast majority aren't doing this.

A sensible plan is to sell investments when they are higher and at a time of your choosing - in the years up to retirement. If someone retiring had been doing this, moving funds to cash (still in the pension), they would have been able to choose to sell high and not have to sell now when prices are rock bottom. This is a standard pattern that any advisor will plan for anyone approaching retirement.

Drawdown is only the mechanism to het money out of a pension and has nothing to do with the contents within the pension wrapper. And it is this which is absolutely critical here.

Edited at 10:41 AM.
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Old 2 Apr 20, 10:39 AM  
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#23
barryp1
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Originally Posted by tspill View Post
This isnt relevant. The the issue isnt the type of pension vehicle, it is the investment risk being carried within that, and trying to avoid the risk go being forced to sell when you need the money after a bad time (like we are seeing right now).
This is happening across the globe right now - people retiring this month and starting to draw on defined contributions pensions (pension pot). Their salary has stopped and they are being forced to sell right now and in the coming months (crystallising massive losses) to get cash to live on. They had no plan and hadn't been derisking their holdings (to say cash on deposit). This has been one of the huge issues with pensions in recent years - many people are have become huge investors without their knowledge. Those that know this, dont understand it and refuse (or dont know) to get professional help from a good IFA who would work through all this with them.
The derisking of holdings relates to the actual underlying investments and is nothing to do with the mechanism of with drawing (e.g. drawdown). It is a standard and well documented pattern for anyone coming towards retirement (pithing 7-10 years).

All drawdown is is one way of actually extracting money (in whatever holdings) from a pension. You cant just take it out like you can from a bank account. For example, an alternative would be to transfer to an annuity where you take all your money out none go and buy a monthly amount.
You can draw it out on demand.

If you need extra in an emergency you can draw accordingly. The remaining fund continues much the same way as any pension fund before it is drawn.

The point is you don't have to switch to safe investments in the years leading up to retirement.
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Old 2 Apr 20, 10:46 AM  
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#24
tspill
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Originally Posted by barryp1 View Post
You can draw it out on demand.

If you need extra in an emergency you can draw accordingly. The remaining fund continues much the same way as any pension fund before it is drawn.

The point is you don't have to switch to safe investments in the years leading up to retirement.

Yes you can do this. But it is very bad plan.

So if that demand is needed now and in the coming months (as for people retiring) - then you have to fire sale your investments at rock bottom prices. This means you have to sell more units in whatever investments you have to get the same money. Leaving fewer units remaining. If you do this month on month, you destroy your pension. Read up on "sequence of returns"
The standard way to mitigate this is to move to lower risk assets (e.g. cash) do you aren't forced to sell high risk investments at low cost - you have time to allow recovery. And this is how any IFA will advise you to go. And in fact, as I mention above, pension firms are now selling products that do exactly this.

Edited at 10:49 AM.
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Old 2 Apr 20, 11:09 AM  
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#25
tspill
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Originally Posted by tspill View Post
Yes you can do this. But it is very bad plan.

So if that demand is needed now and in the coming months (as for people retiring) - then you have to fire sale your investments at rock bottom prices. This means you have to sell more units in whatever investments you have to get the same money. Leaving fewer units remaining. If you do this month on month, you destroy your pension. Read up on "sequence of returns"
The standard way to mitigate this is to move to lower risk assets (e.g. cash) do you aren't forced to sell high risk investments at low cost - you have time to allow recovery. And this is how any IFA will advise you to go. And in fact, as I mention above, pension firms are now selling products that do exactly this.

Let’s take a very simplistic example to illustrate the point.

The numbers are chose to rry and make the maths easier.

Let’s say you have a pension pot of £100,000 (value in December 2019 before the crash – no de-risking) and this has to last a retirement of 10 years (no one knows how long they will live but have to make a guess for planning). And the need to survive is £10,000 per year (ignoring inflation). And that they were planning to retire now (or soon).
Let’s say that was invested in something that was £1 per unit – so you have 100,000 units.
So, the plan is £10,000 for 10 years = £100,000.

If they retire in March 2020, the unit price is now 70p – drop of 30% which is what we are seeing in equities (which are considered high risk in investing terms).
So, to get £10,000 – they now need to sell 14,285 units at 70p
This leaves them with 85,715 units.
Year 2 – Need another £10,000. Lets say the unit value is still 70p. They need to sell another 14,285 units to get their £10,000. Leaving 71428 units.

So, the expectation (and need) was that in 2 years, their pension pot reduced by 20% in 2 years, when in fact it has reduced by 29%. They will run out of money. And this compounds.

Had they de-risked and converted part of their pot to a low risk asset such as cash – say £30,000 of that – leaving £70000 in the investments – they could survive 3 years without having to sell at the low prices. Equities have been shown to recover generally in 3-5 years.
This shows how a derisking strategy works.

I personally use 5 years as I am very risk averse. This means I can choose when to sell higher risk investments in a rolling 5 year window – never having to sell low. I retired last year - sold enough to do me five years so wont have to sell until the market recovers - as long as that is in the next 4 years (I am one year in).
If I hadn't done this and had to dip into my investments (via drawdown) now then I would be selling at a loss for the foreseeable future - haemorrhaging my pension.

The point of this is to be in a position where you can choose when to sell rather than being forces into a position where you have to sell.

Mechanisms such as drawdown can facilitate this, but has nothing to do with the plan.
Also the above ignores income (dividends), though few of us have an investment pot large enough to provide the income needed to survive.

If interested, this is a very good book on exactly this - amazon/gp/product/...?ie=UTF8&psc=1

Edited at 11:37 AM.
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Old 2 Apr 20, 11:46 AM  
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barryp1
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Originally Posted by tspill View Post
Let’s take a very simplistic example to illustrate the point.

The numbers are chose to rry and make the maths easier.

Let’s say you have a pension pot of £100,000 (value in December 2019 before the crash – no de-risking) and this has to last a retirement of 10 years (no one knows how long they will live but have to make a guess for planning). And the need to survive is £10,000 per year (ignoring inflation). And that they were planning to retire now (or soon).
Let’s say that was invested in something that was £1 per unit – so you have 100,000 units.
So, the plan is £10,000 for 10 years = £100,000.

If they retire in March 2020, the unit price is now 70p – drop of 30% which is what we are seeing in equities (which are considered high risk in investing terms).
So, to get £10,000 – they now need to sell 14,285 units at 70p
This leaves them with 85,715 units.
Year 2 – Need another £10,000. Lets say the unit value is still 70p. They need to sell another 14,285 units to get their £10,000. Leaving 71428 units.

So, the expectation (and need) was that in 2 years, their pension pot reduced by 20% in 2 years, when in fact it has reduced by 29%. They will run out of money. And this compounds.

Had they de-risked and converted part of their pot to a low risk asset such as cash – say £30,000 of that – leaving £70000 in the investments – they could survive 3 years without having to sell at the low prices. Equities have been shown to recover generally in 3-5 years.
This shows how a derisking strategy works.

I personally use 5 years as I am very risk averse. This means I can choose when to sell higher risk investments in a rolling 5 year window – never having to sell low. I retired last year - sold enough to do me five years so wont have to sell until the market recovers - as long as that is in the next 4 years (I am one year in).
If I hadn't done this and had to dip into my investments (via drawdown) now then I would be selling at a loss for the foreseeable future - haemorrhaging my pension.

The point of this is to be in a position where you can choose when to sell rather than being forces into a position where you have to sell.

Mechanisms such as drawdown can facilitate this, but has nothing to do with the plan.
Also the above ignores income (dividends), though few of us have an investment pot large enough to provide the income needed to survive.

If interested, this is a very good book on exactly this - amazon/gp/product/...?ie=UTF8&psc=1
You haven't factored in that over 10 years, including hopefully the next 10, there should be growth in the unit values.

However let's not labour the point as we run the risk of giving unauthorised advice. You lost some credibility when you said originally that drawdown cash could not be withdrawn on demand.
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Old 2 Apr 20, 11:55 AM  
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Cannavar
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Tspill,

Those you are replying to on this thread fully understand drawdown and de-risking. I am not sure why you needed to write a full simplistic post.
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Old 2 Apr 20, 12:00 PM  
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OP,

I’d strongly recommend seeking advice on this. There’s a lot of good information on this thread, but some information which may confuse you or isn’t relevant.

Couple of ways you can start the process of accessing advice. You mention your husband has a workplace pension - it may be worth asking his employer if they have a Workplace Adviser/Benefit consultant that he can talk to who will be able to answer initial questions, and may offer a route to advice (just check they’re independent). If not, ask family/friends/colleagues who they use or check on Unbiased.

Reasons you need to get advice on this:

- Reassure buy up “closed book” business, from providers who don’t want to be in the market anymore. They simply keep the arrangements “ticking over”. I would have concerns about how actively they approach the investment strategy. They are unlikely to invest in their systems etc to improve the customer experience.
- Based on their business model, it’s unlikely they will be able to facilitate the full range of benefit options now available - more likely they will only offer annuity purchase. So, if your husband wants to take one of the flexible options he’ll need to move this fund to another plan.
- 1% Annual Management Charge is high in the current market.

Couple of other points to clarify:
- The “Lifestyle” de-risking process referred to is only available within a Workplace pension. The Reassure plan won’t do this.
- If taking the flexible “drawdown” approach to taking benefit, then exposure to stocks and shares within the fund will still be required, but in most cases, and based on other comments you have made in this thread, not at the level that it is currently invested.

Edited at 12:01 PM.
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Old 2 Apr 20, 12:25 PM  
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tspill
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Originally Posted by Pumba75 View Post
OP,
I’d strongly recommend seeking advice on this. There’s a lot of good information on this thread, but some information which may confuse you or isn’t relevant.
100% agree with this.
If you read some of the pension forums right now - there are a lot of people whose lives have gone into turmoil in the last month through not having a robust retirement strategy and plan.
Looking back with hindsight, I am sure they wish that had taken advice and tried to understand their pensions better and have a better plan. Yes it can cost what seems at the time, a lot of money - but it could save their retirement from ruin.

At 54, the good news is the OP has time to sort all this out.

Edited at 12:40 PM.
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Old 2 Apr 20, 12:30 PM  
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tspill
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Originally Posted by barryp1 View Post
You haven't factored in that over 10 years, including hopefully the next 10, there should be growth in the unit values.

However let's not labour the point as we run the risk of giving unauthorised advice. You lost some credibility when you said originally that drawdown cash could not be withdrawn on demand.

Correct - I didn't.
So lets say to get back to square 1 - the unit price has to go from 70p to £1. That requires nearly a 43% increase. How long is that going to take? The real answer is no one knows. But my guess is a pretty long time. And you have to make up that additional 9% loss in the portfolio. Add to this that it seems that dividends look like reducing for a while. Plus erosion of inflation. Not a good place to be.

PS I don t think I did say drawdown couldn't be withdrawn on demand. At least I dont think I did. If I did, then my mistake as that was not my intention. The demand is created by the need of the individual. For most planning retirement, that demand comes at the point of retirement.

Edited at 12:51 PM.
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