SIPP & Pension guidance - IM Private Clients

[Carbon Sasquatch]

LeoSayer said:

Hi guys. A bucketing question.

My wife and I have between us 2 DC pensions, a SIPP and an ISA. Currently they're all invested in equity index funds but I'm looking to shift a % into bond funds as we get closer to retirement.

I'm struggling to understand whether I can achieve the reallocation via just one pot or will I should do it across all four.

Also in the mix, I have a DB pension which allows the pension commencement lump sum to be taken from the linked DC pot.

Do I need to work out the sequence of drawdowns from each pot individually AND work out whether I should take the DB early?

There's a couple of different questions in there, but similar to my own circumstances. So FWIW this was my process.

How much do you want/need at different ages ? I used 5 year intervals from 55 through to 85 with a declining 'requirement' as I get older.
From 85 I expect the DB + state pensions to be sufficient even if I took the DB early - so that's what I did. This somewhat mitigates longevity risk.

I somewhat surprised myself with the conclusion that we had enough in the DC & ISA's so that I could actually afford to retire at 55 and ultimately that's what I decided to do. My wife had already stopped working.

Taking the DB PCLS from the DC pot was a nice boost as it kept the DB intact and increased the tax free cash - but you can only do it at the point of initiating the DB and you need enough uncrystallised left in the DC pot at that point. Easy for me as that was the very first thing I did. I also took the 25% from the remaining DC pots.

As a result, I have a base level DB income and my first 10 years extra spending will come from ISA's & the various PCLS so that is the only place I would hold bonds - the remaining DC pots shouldn't get touched for 10+ years and so my choice was 100% equity for those.

That is based on my DB using up my tax free allowance. Slightly different scenario for my wife who has no DB or other income - so for her we take 12,570 from her SIPP per year. We chose to use that as monthly income, so her SIPP has a different mix with some cash & bonds - but we could have taken a different approach I guess and done a once per year withdrawal and topped up the ISA. The plan is to reduce her withdrawals once her state pension kicks in, but keep her overall income a the tax free level.

[mikeiow]

Carbon Sasquatch said:

There's a couple of different questions in there, but similar to my own circumstances. So FWIW this was my process.

How much do you want/need at different ages ? I used 5 year intervals from 55 through to 85 with a declining 'requirement' as I get older.
From 85 I expect the DB + state pensions to be sufficient even if I took the DB early - so that's what I did. This somewhat mitigates longevity risk.

I somewhat surprised myself with the conclusion that we had enough in the DC & ISA's so that I could actually afford to retire at 55 and ultimately that's what I decided to do. My wife had already stopped working.

Taking the DB PCLS from the DC pot was a nice boost as it kept the DB intact and increased the tax free cash - but you can only do it at the point of initiating the DB and you need enough uncrystallised left in the DC pot at that point. Easy for me as that was the very first thing I did. I also took the 25% from the remaining DC pots.

As a result, I have a base level DB income and my first 10 years extra spending will come from ISA's & the various PCLS so that is the only place I would hold bonds - the remaining DC pots shouldn't get touched for 10+ years and so my choice was 100% equity for those.

That is based on my DB using up my tax free allowance. Slightly different scenario for my wife who has no DB or other income - so for her we take 12,570 from her SIPP per year. We chose to use that as monthly income, so her SIPP has a different mix with some cash & bonds - but we could have taken a different approach I guess and done a once per year withdrawal and topped up the ISA. The plan is to reduce her withdrawals once her state pension kicks in, but keep her overall income a the tax free level.

What did you use for your “declining requirement”?
I model a small (10%) reduction at 65 and 75….but curious what others do.
On a similar fiscal note….how do you account for inflation?

[Carbon Sasquatch]

I'm in year 1 so very much still a plan - and we all know nothing goes to plan.....

Mine's about a 7.5% reduction every 5 years - but I don't know whether I will actually do that and start accumulating or not.

As for the rest, these are the rules I wrote for myself, although broadly copied from elsewhere on the internet.

Withdrawal - Annual inflation increases - but only if portfolio increases sufficiently
Portfolio - Take gains from best performing assets - move excess gains to low risk
Prosperity - If current withdrawal 20% below initial rate - increase spending by 10%
Preservation - If the current withdrawal rate rises above 20% of initial rate, reduce spending by 10%

[NorthDave]

Carbon Sasquatch said:

I'm in year 1 so very much still a plan - and we all know nothing goes to plan.....

Mine's about a 7.5% reduction every 5 years - but I don't know whether I will actually do that and start accumulating or not.

As for the rest, these are the rules I wrote for myself, although broadly copied from elsewhere on the internet.

Withdrawal - Annual inflation increases - but only if portfolio increases sufficiently
Portfolio - Take gains from best performing assets - move excess gains to low risk
Prosperity - If current withdrawal 20% below initial rate - increase spending by 10%
Preservation - If the current withdrawal rate rises above 20% of initial rate, reduce spending by 10%

Why would you take from your best performing assets? I had in mind I would take from the worst to allow the best to keep growing?

[mikeiow]

Carbon Sasquatch said:

I'm in year 1 so very much still a plan - and we all know nothing goes to plan.....

Mine's about a 7.5% reduction every 5 years - but I don't know whether I will actually do that and start accumulating or not.

As for the rest, these are the rules I wrote for myself, although broadly copied from elsewhere on the internet.

Withdrawal - Annual inflation increases - but only if portfolio increases sufficiently
Portfolio - Take gains from best performing assets - move excess gains to low risk
Prosperity - If current withdrawal 20% below initial rate - increase spending by 10%
Preservation - If the current withdrawal rate rises above 20% of initial rate, reduce spending by 10%

Seems fair.
Sort of “Guyton-Klinger” style.
One hard part I find is precisely when to measure and check these things. 1st Jan? Start of tax year? It can all be a bit nebulous & arbitrary, and with markets bouncing about a bit, that can lead to either complacency or overconfidence, I suspect!!

I’m a little over 1 year in…..& the “sequence of returns risk” feels like our biggest challenge.
We have tried to address it by pausing drawdown at the start of this year and working off cash assets for now….& I can see that continuing a little while longer.

That said, as you say, nothing goes according to plank who knows what tomorrow brings!

[Carbon Sasquatch]

NorthDave said:

Why would you take from your best performing assets? I had in mind I would take from the worst to allow the best to keep growing?

You can either take the view that the best in a given year will remain the best, or you can take the view that different things perform better over time.
I'm sure there are cases where I'd be wrong, but I've chosen the latter - and written it down to ensure that I stick to it rather than second guess myself every year.

It's somewhat the same with fresh investment - do you just pile into whatever did the best last year ? Or do you 'buy the dip' somewhere else ?

Clearly there's no universally right answer - I just wanted a set of easy & consistent rules to apply.

[Carbon Sasquatch]

mikeiow said:

Seems fair.
Sort of “Guyton-Klinger” style.
One hard part I find is precisely when to measure and check these things. 1st Jan? Start of tax year? It can all be a bit nebulous & arbitrary, and with markets bouncing about a bit, that can lead to either complacency or overconfidence, I suspect!!

I’m a little over 1 year in…..& the “sequence of returns risk” feels like our biggest challenge.
We have tried to address it by pausing drawdown at the start of this year and working off cash assets for now….& I can see that continuing a little while longer.

That said, as you say, nothing goes according to plank who knows what tomorrow brings!

Yes, that's the one, G-K guardrails - though that article is the first one I've read that details the negatives quite as clearly, so who knows whether I'll be able to stick to it....

Sequence of returns is indeed scary. I've also gone with a 'bucket' type approach of 2 years in cash, 3 years in 'low risk' and 5 years in 'medium' then 100% equity for the rest. So now I just need inflation to drop below investment returns and all will be good

[SS9]

Great to see a dedicated Pensions thread!

I've just started a new job (having come from a civil service role where I needn't worry about pension decisions!) and I'm looking for some help with the best route to take based on what my new employer offers.

I'm tied into 'http://smartpension.co.uk' as their default pension provision. The contribution is a bit naff - 5% employer contributions against pensionable earnings with I think is ~£50k. Last month the total contribution was £366.90 which includes both mine and the employers.

I've typically invested any long term savings in a Vanguard fund (lifestrategy 80) and was hoping to do something similar for my pension (although perhaps go with LS100 as I have ~30 years until retirement).

The options I have to chose from on smartpension are:
- Smart Growth Fund - Higher Risk
- Smart Growth Fund - Moderate Risk
- Smart Growth Fund - Lower Risk
- Smart De-risking Fund
- Smart Lower Risk Fund
- Smart Ethical Global Equity Index Fund
- Smart UK FTSE 100 Equity Index Fund
- Smart World (ex UK) Developed Equity Index Fund
- Smart North America Equity Index Fund
- Smart World Emerging Markets Equity Index Fund
- Smart All Stocks Index-Linked Gilts Index Fund
- Smart Cash Fund
- Smart Income Fund
- Smart Annuity Fund
- Smart Sharia Fund
- Smart Overseas Bond Index Fund - GBP Hedged
- Smart Future Fund

The question I think I need help with is:

a) Do I just stick the money into Cash with smart pension with the aim to transfer the balance out on a regular basis and stick the money in a SIPP with a better range of funds? Is this even a thing?

b) If I'm stuck with smart pensions - how do I get a close as possible to a Vanguard LS100 fund?

What else should I be thinking about (other than probably starting my own SIPP because a 5% contribution won't make for a great retirement plan!).

Cheers!

[Craikeybaby]

I have no idea on funds, but I recently also moved to a new employer with a very basic pension provision. I ended up setting up a SIPP, to top up to the contributions at my previous employer. For that I used Vanguard and one of their target retirement funds, which are a bit like Life Strategy, but tapering down to safer investments towards your retirement date.

[JapanRed]

Hi Intelligent Money, and others if they can help.

I’m wondering whether there is an easy way to see if me and my wife have any long lost pensions. They won’t be worth much but we both had weekend jobs between the ages of 16 and 21 whilst we were at college/uni.

I’m specifically thinking Matalan, Halifax bank, and the Post office.

Is it worthwhile transferring these pensions (if it transpires that we have them) into our IM SIPP’s?

Thanks.
Rob

[Sheepshanks]

My work pension (defined contribution) with Aviva has been pretty battered by the current turmoil as it's been managed mainly into supposedly safer bonds/gilts as I approach retirement age.

Is it a matter of sitting it out, or should I be panicking?

[bmwmike]

Never bought bonds and don't own any, but is now a good time to buy them or start buying them?

[V8covin]

JapanRed said:

Hi Intelligent Money, and others if they can help.

I’m wondering whether there is an easy way to see if me and my wife have any long lost pensions. They won’t be worth much but we both had weekend jobs between the ages of 16 and 21 whilst we were at college/uni.

I’m specifically thinking Matalan, Halifax bank, and the Post office.

Is it worthwhile transferring these pensions (if it transpires that we have them) into our IM SIPP’s?

Thanks.
Rob

Www.pensiontracingservice.com

[CoopsIM]

JapanRed said:

Hi Intelligent Money, and others if they can help.

I’m wondering whether there is an easy way to see if me and my wife have any long lost pensions. They won’t be worth much but we both had weekend jobs between the ages of 16 and 21 whilst we were at college/uni.

I’m specifically thinking Matalan, Halifax bank, and the Post office.

Is it worthwhile transferring these pensions (if it transpires that we have them) into our IM SIPP’s?

Thanks.
Rob

Hi Rob. Drop me an email at [e-mail] and I'll be happy to help.

Kindest regards

Coops

[DibblyDobbler]

Sheepshanks said:

My work pension (defined contribution) with Aviva has been pretty battered by the current turmoil as it's been managed mainly into supposedly safer bonds/gilts as I approach retirement age.

Is it a matter of sitting it out, or should I be panicking?

Sit it out IMHO - there are likely to be several crises (or more?!) over the period of a long term investment like a pension so this is kind of ‘normal’. I’m taking my pension next year and the only thing I may do is take a bit less tax free cash until things settle down. (Ps I’m just a punter and no expert)

[DibblyDobbler]

bmwmike said:

Never bought bonds and don't own any, but is now a good time to buy them or start buying them?

I wouldn’t bother Mike unless you know something that everyone else doesn’t know…

[bmwmike]

DibblyDobbler said:

bmwmike said:

Never bought bonds and don't own any, but is now a good time to buy them or start buying them?

I wouldn’t bother Mike unless you know something that everyone else doesn’t know…

I probably know far less than everyone else tbh

I was just looking at something like the lifestrategy 20 has dropped from 180 to 140, down 15% YoY, and bonds are supposed to be safer bet. Might be worth a punt. LifeStrategy 100 otoh has not been hit as badly (yet...?).

[DibblyDobbler]

bmwmike said:

I probably know far less than everyone else tbh

I was just looking at something like the lifestrategy 20 has dropped from 180 to 140, down 15% YoY, and bonds are supposed to be safer bet. Might be worth a punt. LifeStrategy 100 otoh has not been hit as badly (yet...?).

Yeah - in theory bonds are meant to be safer but they were always to take a hit when interest rates came up. May well be worth a punt but punting in general I don’t think is a good approach as it implies knowing better than the market which I certainly don’t! Again just my 2p worth and others may not agree

[Sheepshanks]

DibblyDobbler said:

Sit it out IMHO - there are likely to be several crises (or more?!) over the period of a long term investment like a pension so this is kind of ‘normal’. I’m taking my pension next year and the only thing I may do is take a bit less tax free cash until things settle down. (Ps I’m just a punter and no expert)

The bond crash appears to be pretty abnormal, with suggestions that there's worse to come in which case just watching it go down seems mad.

I thought these things were supposed to just trundle along?

I suppose some balance is I do have quite a bit in cash which has been mithering me but now looks almost good.

[DibblyDobbler]

Sheepshanks said:

The bond crash appears to be pretty abnormal, with suggestions that there's worse to come in which case just watching it go down seems mad.

I thought these things were supposed to just trundle along?

I suppose some balance is I do have quite a bit in cash which has been mithering me but now looks almost good.

You may well be right - you could stick in all in cash for a year or two but then you'd have to time it right on the way back in again... I timed the COVID crash right (ie bailed out just before it) but then I missed most of the recovery so I ended up only slightly better off then if I'd done nothing! So for me personally I am just leaving it be and trying to play the long game. Good luck!