SIPP help please
Discussion
Good morning all,
I have a SIPP with HL which I self manage.
It is fairly close to the lifetime allowance which I increased by applying for something called Fixed Protection 2015 which I think increases the Lifetime Allowance to £1.25m .
I have about 40% in cash as I am very wary about current market levels and current political imbecility.
The other 60% I have invested in relatively high yielding UK equities ( the likes of BP, Shell, RIO, Aviva, L&G, Imperial Brands etc).
Basically what I do is look at the holdings of what I consider to be the top UK Income fund managers ( not Woodford thank the Lord !), add any research input from myself ,and then try and time my entry points into the stocks to coincide with at least a 5% yield.
The dividends then get re-invested.
The upshot of that is that the dividends from ~ £600k worth of equities will amount to about £50k this calendar year which equates to a yield of 8.3% ( a combination of high yielding stocks plus reinvesting the dividends).
I am fully aware of the dividend risk associated with high yielding stocks but generally, with the exception of M&S and a really stupid investment in Interserve , the dividends have been at least as I expected.
What I would like to do is:
take £100k out in cash
take the dividend income out as income rather than re-investing.
leave the rest invested to provide that income.
I am 58 with no other pension.
I don't think I am allowed to do this with my SIPP but is there an expert here who could clarify please ?
I did speak to HL but they weren't very clear.
Many thanks in advance.
I have a SIPP with HL which I self manage.
It is fairly close to the lifetime allowance which I increased by applying for something called Fixed Protection 2015 which I think increases the Lifetime Allowance to £1.25m .
I have about 40% in cash as I am very wary about current market levels and current political imbecility.
The other 60% I have invested in relatively high yielding UK equities ( the likes of BP, Shell, RIO, Aviva, L&G, Imperial Brands etc).
Basically what I do is look at the holdings of what I consider to be the top UK Income fund managers ( not Woodford thank the Lord !), add any research input from myself ,and then try and time my entry points into the stocks to coincide with at least a 5% yield.
The dividends then get re-invested.
The upshot of that is that the dividends from ~ £600k worth of equities will amount to about £50k this calendar year which equates to a yield of 8.3% ( a combination of high yielding stocks plus reinvesting the dividends).
I am fully aware of the dividend risk associated with high yielding stocks but generally, with the exception of M&S and a really stupid investment in Interserve , the dividends have been at least as I expected.
What I would like to do is:
take £100k out in cash
take the dividend income out as income rather than re-investing.
leave the rest invested to provide that income.
I am 58 with no other pension.
I don't think I am allowed to do this with my SIPP but is there an expert here who could clarify please ?
I did speak to HL but they weren't very clear.
Many thanks in advance.
Redchaz said:
dividends from ~ £600k worth of equities will amount to about £50k this calendar year which equates to a yield of 8.3%
Envy alert!!! Where can I invest to get a dividend yield of 8.3% without taking humungous risk??IMO this looks as though OP might benefit from some one-off Financial Advice on the overall situation. Could be a few £,000 well spent.
Rockin,
the current yield on the sum invested is achieved by buying the names mentioned above when the share prices fell to a level where the yields, in many cases , were 6-7%. This was the case with BP, L&G, Aviva, Royal Dutch, Rio, Regional REIT and a few others. Then when you reinvest the dividends your yield effectively goes up.
I am aware of the risks ( I work in the derivatives field !). Obviously BP could have another oil spill disaster and be forced to curtail the dividend but I am not really doing anything different from the big High Income fund managers and I am not paying a fund fee, just the H-L platform fee and execution fees which are relatively low.
It could turn out to be a massive error of judgement but I hope not !
And I have a 40% cash cushion at the moment.
the current yield on the sum invested is achieved by buying the names mentioned above when the share prices fell to a level where the yields, in many cases , were 6-7%. This was the case with BP, L&G, Aviva, Royal Dutch, Rio, Regional REIT and a few others. Then when you reinvest the dividends your yield effectively goes up.
I am aware of the risks ( I work in the derivatives field !). Obviously BP could have another oil spill disaster and be forced to curtail the dividend but I am not really doing anything different from the big High Income fund managers and I am not paying a fund fee, just the H-L platform fee and execution fees which are relatively low.
It could turn out to be a massive error of judgement but I hope not !
And I have a 40% cash cushion at the moment.
rockin said:
Redchaz said:
dividends from ~ £600k worth of equities will amount to about £50k this calendar year which equates to a yield of 8.3%
Envy alert!!! Where can I invest to get a dividend yield of 8.3% without taking humungous risk??IMO this looks as though OP might benefit from some one-off Financial Advice on the overall situation. Could be a few £,000 well spent.
Evraz is currently paying 15.3% if you fancy a punt on a Russian steel and mining company (it is multinational and listed on the FTSE 100 amongst other international markets). Roman Abramovich likes it (he own s31%), but it is down 40% over the last 3 months!
One thing I failed to mention Julian was that the SIPP was created out of the transfer of 3 Final Salary pensions.
Now I know that most people would view this as sheer lunacy but the forecast annual pension payable out of these 3 pensions ( at age 65) was about 30% lower than the yield I am getting at the moment.
Also, and far more importantly, I had a life changing head injury in 2011. A combination of that and 30 years of diabetes give me a life expectancy of 72 according to the "experts".
With a SIPP your spouse receives 100% of the value when you snuff it; not the case with a Final Salary pension.
Anyway, I'm boring myself now !!
Now I know that most people would view this as sheer lunacy but the forecast annual pension payable out of these 3 pensions ( at age 65) was about 30% lower than the yield I am getting at the moment.
Also, and far more importantly, I had a life changing head injury in 2011. A combination of that and 30 years of diabetes give me a life expectancy of 72 according to the "experts".
With a SIPP your spouse receives 100% of the value when you snuff it; not the case with a Final Salary pension.
Anyway, I'm boring myself now !!
Redchaz said:
Good morning all,
I have a SIPP with HL which I self manage.
It is fairly close to the lifetime allowance which I increased by applying for something called Fixed Protection 2015 which I think increases the Lifetime Allowance to £1.25m.
<snip>
Nice problems to have, eh! Sounds like you have the answer.....I have a SIPP with HL which I self manage.
It is fairly close to the lifetime allowance which I increased by applying for something called Fixed Protection 2015 which I think increases the Lifetime Allowance to £1.25m.
<snip>
....however - a quickie on the LTA extension, if you don't mind!
I've read https://www.gov.uk/guidance/pension-schemes-protec... & it looked to me you could only apply for that if your pension savings were worth more than £1 million at 5 April 2016. Presumably yours were (& you meant 2016 - don't see a 2015 protection!!)
Just checking!
Redchaz said:
Then when you reinvest the dividends your yield effectively goes up.
To my mind "yield" means "running yield", i.e.the annual income on an investment divided by its current market value.It's not my business but to my eye your approach to investment and financial planning looks unusual - high risk at one end, zero risk at the other and nothing in between.
Julian - I understand those specific stocks. An entire equity portfolio yielding at those sorts of levels would be far beyond any level of risk that I would contemplate, hence my "alert" at 8.3% mentioned above. My understanding is that, for instance, FTSE 100 is yielding an average c.4.5% at the moment.
What I am trying to do Rockin, is build up a portfolio of shares where my entry price into each is at a point where they are yielding, as I mentioned, 6-7%. So, L&G, for instance, I bought around the 220p mark. This does not always work. I screwed up large with Imperial Brands where the share price has tanked a further 20% from my entry level.
I also look pretty closely at dividend cover so I have been avoiding the likes of Vodafone.
My portfolio looks pretty similar to some well known High Income funds.
If I can get an annual income ~£50k from these holdings then it gives me more leeway in terms of not necessarily flogging up to London everyday from Hampshire at 6am !!
The alternative was keeping my 3 former Final Salary pensions, waiting until I am 65 and taking a guaranteed income from them of around £32k which was the estimate. Then snuffing it (see life expectancy comment above) and expecting my wife to live off 50% of that.
I could have it all wrong but if I have it is my fault, nobody else's !
I also look pretty closely at dividend cover so I have been avoiding the likes of Vodafone.
My portfolio looks pretty similar to some well known High Income funds.
If I can get an annual income ~£50k from these holdings then it gives me more leeway in terms of not necessarily flogging up to London everyday from Hampshire at 6am !!
The alternative was keeping my 3 former Final Salary pensions, waiting until I am 65 and taking a guaranteed income from them of around £32k which was the estimate. Then snuffing it (see life expectancy comment above) and expecting my wife to live off 50% of that.
I could have it all wrong but if I have it is my fault, nobody else's !
rockin said:
IMO this looks as though OP might benefit from some one-off Financial Advice on the overall situation. Could be a few £,000 well spent.
This.You should find a trusted advisor / financial planner who can crunch your numbers to assess whether you will meet your objectives.
I am currently undertaking this exact process myself, and hopefully the advisor can confirm if my current investments/assets matches my retirement plan. PM me if you wish to chat offline / more details.
Redchaz said:
One thing I failed to mention Julian was that the SIPP was created out of the transfer of 3 Final Salary pensions.
Now I know that most people would view this as sheer lunacy but the forecast annual pension payable out of these 3 pensions ( at age 65) was about 30% lower than the yield I am getting at the moment.
Also, and far more importantly, I had a life changing head injury in 2011. A combination of that and 30 years of diabetes give me a life expectancy of 72 according to the "experts".
With a SIPP your spouse receives 100% of the value when you snuff it; not the case with a Final Salary pension.
Anyway, I'm boring myself now !!
It doesn't really matter how you got to the the point you are at now, what is important is how you manage this going forward. Now I know that most people would view this as sheer lunacy but the forecast annual pension payable out of these 3 pensions ( at age 65) was about 30% lower than the yield I am getting at the moment.
Also, and far more importantly, I had a life changing head injury in 2011. A combination of that and 30 years of diabetes give me a life expectancy of 72 according to the "experts".
With a SIPP your spouse receives 100% of the value when you snuff it; not the case with a Final Salary pension.
Anyway, I'm boring myself now !!
It sounds to me that you have done all the right things for all the right reasons.
rockin said:
To my mind "yield" means "running yield", i.e.the annual income on an investment divided by its current market value.
It's not my business but to my eye your approach to investment and financial planning looks unusual - high risk at one end, zero risk at the other and nothing in between.
Julian - I understand those specific stocks. An entire equity portfolio yielding at those sorts of levels would be far beyond any level of risk that I would contemplate, hence my "alert" at 8.3% mentioned above. My understanding is that, for instance, FTSE 100 is yielding an average c.4.5% at the moment.
Equity dividends are, as you correctly state, always running yields - with an exception for certain preference shares or convertible stocks.It's not my business but to my eye your approach to investment and financial planning looks unusual - high risk at one end, zero risk at the other and nothing in between.
Julian - I understand those specific stocks. An entire equity portfolio yielding at those sorts of levels would be far beyond any level of risk that I would contemplate, hence my "alert" at 8.3% mentioned above. My understanding is that, for instance, FTSE 100 is yielding an average c.4.5% at the moment.
These can have redemption yields (just as with bonds).
I would agree with you also on the inherent risks involved with very high yielding stocks. This is no different to high yielding bonds.
Redchaz said:
What I am trying to do Rockin, is build up a portfolio of shares where my entry price into each is at a point where they are yielding, as I mentioned, 6-7%. So, L&G, for instance, I bought around the 220p mark. This does not always work. I screwed up large with Imperial Brands where the share price has tanked a further 20% from my entry level.
I also look pretty closely at dividend cover so I have been avoiding the likes of Vodafone.
My portfolio looks pretty similar to some well known High Income funds.
If I can get an annual income ~£50k from these holdings then it gives me more leeway in terms of not necessarily flogging up to London everyday from Hampshire at 6am !!
The alternative was keeping my 3 former Final Salary pensions, waiting until I am 65 and taking a guaranteed income from them of around £32k which was the estimate. Then snuffing it (see life expectancy comment above) and expecting my wife to live off 50% of that.
I could have it all wrong but if I have it is my fault, nobody else's !
I think you need to be mindful of the capital risk you are taking to achieve such high dividend yields. If you can purchase undervalued stocks that are compensating by paying a high yield - and have the discipline to sell these stocks when the share price has risen and the yield has correspondingly fallen (and plough this money back to stage 1 again) then you are effectively running your own Equity Income fund.I also look pretty closely at dividend cover so I have been avoiding the likes of Vodafone.
My portfolio looks pretty similar to some well known High Income funds.
If I can get an annual income ~£50k from these holdings then it gives me more leeway in terms of not necessarily flogging up to London everyday from Hampshire at 6am !!
The alternative was keeping my 3 former Final Salary pensions, waiting until I am 65 and taking a guaranteed income from them of around £32k which was the estimate. Then snuffing it (see life expectancy comment above) and expecting my wife to live off 50% of that.
I could have it all wrong but if I have it is my fault, nobody else's !
The issue you have with this approach is a wrong call can seriously hurt you.
It has obviously been working for you recently, but markets move in very unpredictable cycles you have (as Steve has said) a very concentrated level of high risk holdings together with zero risk holdings.
I actually quite like this approach, but experience has shown me that it backfire.
So, I certainly don't want to put you off or discourage you, what you have achieved thus far is fantastic and your approach has good logic behind it.
I just wanted to add my voice in pragmatically stating the above and highlighting that yield is not everything when it come to taking an income.
Equity Income investing aside, you have investment "returns". These can be dividend income, bond (corporate of government) coupons, rental income and interest. You then have capital growth. This does not need explaining to you, but I will briefly go over this for others.
- Shares have two qualities - the potential for capital growth if the share price rises (someone will pay you more for it than you paid to buy it) and the income (dividend yield) payable per share.
- Property works on the exact same basis.
- Bonds only offer income (the coupon) and no capital growth. Bond funds (or your personal trading of bonds) can offer both though. This is achievable due to the difference between the running yield and the redemption yield impacting on the trading price of any particular bond.
- Preference shares and convertibles are able to display both characteristics.
Thank you all for very useful input.
Chip*, I did pay for quite expensive Financial advise ( I had to) when I transferred my FS schemes into a SIPP.
They agreed with what I was trying to achieve but advised me to keep 1 of the 3 FS pensions.
I decided not to follow that advise and transferred all 3 largely due to the life expectancy issue outlined above and the dreadful anticipated proposed pensions (~£32k a year starting in 7 years time).
Thank you for all those very valid points Julian.
Of course the current political situation does not help when planning future financial provisions and clearly, if our friendly little Marxist manages to win the next General Election with a majority ( unlikely) then I think I might be driving my Renault 4 to a certain steep cliff in Sussex !
Chip*, I did pay for quite expensive Financial advise ( I had to) when I transferred my FS schemes into a SIPP.
They agreed with what I was trying to achieve but advised me to keep 1 of the 3 FS pensions.
I decided not to follow that advise and transferred all 3 largely due to the life expectancy issue outlined above and the dreadful anticipated proposed pensions (~£32k a year starting in 7 years time).
Thank you for all those very valid points Julian.
Of course the current political situation does not help when planning future financial provisions and clearly, if our friendly little Marxist manages to win the next General Election with a majority ( unlikely) then I think I might be driving my Renault 4 to a certain steep cliff in Sussex !
Redchaz said:
Thank you all for very useful input.
Chip*, I did pay for quite expensive Financial advise ( I had to) when I transferred my FS schemes into a SIPP.
They agreed with what I was trying to achieve but advised me to keep 1 of the 3 FS pensions.
I decided not to follow that advise and transferred all 3 largely due to the life expectancy issue outlined above and the dreadful anticipated proposed pensions (~£32k a year starting in 7 years time).
Thank you for all those very valid points Julian.
Of course the current political situation does not help when planning future financial provisions and clearly, if our friendly little Marxist manages to win the next General Election with a majority ( unlikely) then I think I might be driving my Renault 4 to a certain steep cliff in Sussex !
If our "friendly" Marxist's were to ever get in I would be off straight away! Chip*, I did pay for quite expensive Financial advise ( I had to) when I transferred my FS schemes into a SIPP.
They agreed with what I was trying to achieve but advised me to keep 1 of the 3 FS pensions.
I decided not to follow that advise and transferred all 3 largely due to the life expectancy issue outlined above and the dreadful anticipated proposed pensions (~£32k a year starting in 7 years time).
Thank you for all those very valid points Julian.
Of course the current political situation does not help when planning future financial provisions and clearly, if our friendly little Marxist manages to win the next General Election with a majority ( unlikely) then I think I might be driving my Renault 4 to a certain steep cliff in Sussex !
You have called everything right to date, but the future is unknown (to everyone).
If markets go against you your cash reserves will be be able to bail you out too (although this would be at the expense of your capital).
You are are basically doing the sort of thing I do (balancing high risk investments with zero risk ones), but you just structure it differently to the way I do.
I wish you the very best in this and if you ever would like my input please just get in touch here or via a PM.
A while back I used to follow a similar investment strategy (High Yield portfolio run by the Motley fool - Stephen Bland IIRC).
As an aside I also used to commute in to town at silly o'clock, singing a slightly modified version of ELO's "First train to London" and also worked in derivatives (equity and credit)
Just to clarify you are looking to realise £50k pa (net) from circa £1m of cash and that's your ticket to wave the daily commute goodbye?
As an aside I also used to commute in to town at silly o'clock, singing a slightly modified version of ELO's "First train to London" and also worked in derivatives (equity and credit)
Just to clarify you are looking to realise £50k pa (net) from circa £1m of cash and that's your ticket to wave the daily commute goodbye?
JulianPH said:
you just structure it differently
How so?My concern is that OP may have the illusion of risk management with very little risk management.
I'm not surprised that when "financial advice" was given it included keeping one of the DB pensions as baseline income for life...
If things turn inside out that 40% cash will shrink rapidly with inflation (it's already shrinking and OP has, what, 30 years life expectancy?) while the 60% high yield shares are massacred by the markets. Double-whammy.
rockin said:
JulianPH said:
you just structure it differently
How so?My concern is that OP may have the illusion of risk management with very little risk management.
I'm not surprised that when "financial advice" was given it included keeping one of the DB pensions as baseline income for life...
If things turn inside out that 40% cash will shrink rapidly with inflation (it's already shrinking and OP has, what, 30 years life expectancy?) while the 60% high yield shares are massacred by the markets. Double-whammy.
With my equities only portfolio I buy my holdings based upon the fundamentals of the individual companies, rather than their yield. This is the different structure here.
I take the view that investing is about delivering returns whilst managing volatility. Those returns may come from a mixture of capital growth and income generated, but in my eyes they are simply returns.
How I (or any of my clients) chose to treat these returns dictates whether it is income or growth, not how the returns were achieved.
Someone leaving these reinvested is therefore gaining growth and someone withdrawing them is taking income (and of course the usual is a mixture of the two).
What the OP is doing is quite literally looking to treat the yield as income and any capital return as growth. Whilst on the surface this seems completely logical in reality it is quite restrictive as it means he is having to take on board very high capital risk on his equity holding to achieve a strong running yield and keeping a very large part of his portfolio in cash to offset this risk.
So I agree with your concerns here. If it works for the OP then who am I to question him, but I am with you in that he does need to understand to understand these risks in his approach.
Redchaz - I didn't question your investment approach before as you said you were fully aware of the risks and work in derivatives, but it may (or may not!) be helpful if I highlight the following:
You are putting a huge amount of stress on 60% of your portfolio having to take big equity risks (as you say, you have been hit my this before) in order to generate 8.3% yield to cover your retirement income.
I assume you intend to keep you income (and therefore your capital) inflation linked. This means you are going to need double digit annual returns to ensure this.
Your cash element is also going to be falling in real value due to inflation. If you wanted to keep this in line you would need to be pushing further into double digit annual returns on your equity proportion - perhaps 12% to 13% a year?
A more conventional approach of an equity/bond portfolio for the whole sum would significantly reduce the stress and risk on your SIPP portfolio and leave you "only" requiring a 7% to 8% annual return to achieve exactly the same level of income and inflation linking you currently need to achieve 12% to 13% a year with your current set up.
Even just placing the cash element into such a portfolio would reduce the stress on your equity income approach, but this still wouldn't address the very high risk nature of this strategy.
Have you looked at the total return this strategy has delivered for you (not just the dividend income, but the capital impact of the share prices?
It may be the case that in chasing high dividend yields (which you have certainly been successful in!) your capital may have suffered and even wiped out your total returns.
I mention all this as you say you have no other pension and therefore if this capital is hit then this can severely impact on your retirement plans.
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