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Retirement Fund- Drawdown Advise
Vector 7354
Posted: 20 April 2018 21:20:07(UTC)
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Dear Members.

I am presently 64 years of age and looking to retire next year.I have my state pension and 1 other DB pension to come so these will cover my fixed outgoings and daily variable spends. But I also have 4 ex company pension policies (Aviva (2),Fidelity & Zurich) and I pay an AMC of 0.66% for the four policies, which are currently valued at £146K .They have also returned an average of 8% PA after charges over the last five years from what I can see. I also know they can be transferred to another provide if needed.

My decision dilemma (or that's what it feels like) on what the next step should be centres around the following findings so far:

Having held meetings with 2 separate and well known 'Wealth Manager Organisations' regarding consolidation of the 4 Policies into 1 Plan for ''Drawdown Purposes'' They have advised me (verbally and since formally) on the following:

Company A Proposition:

As a Balanced Investor ( and I am ok with that level of risk) I should use my combined funds to invest in one of their own '' Balanced Growth Portfolios'' -this is made up of 7 separate Funds from reasonably well known Independent Fund Managers and is classed as a 'Defensive Portfolio' expected to yield around 5.57% PA.- this return would seem reasonable to me over a 20 Year Plan term. Their Fees and Charges would be 1.64% PA+ a 2% allowance for Inflation..The Portfolio itself was only launched in Dec 15 and has returned an average 11.0% PA over that period and up to Dec 17. My plan would be in a 'Flexi Drawdown'' and the costs for this are included; as is the Platform and Ongoing Advice service charges. There is also no early Withdrawal Penalty Charges.

Company B Proposition:

Similarly to company A, I was advised to fund my 'Drawdown Plan' through a ' 'Managed Funds Portfolio' which was made up of 7 of their own ''In House Funds'', which equated to a spread of roughly 15% into each one. The cumulative fund performance over the last 5 years has been 67%, and for that they are looking at Charges and Fees of 1.7% PA + 2% Inflation Allowance. They also advised that taking '' Uncrystallised Fund Lump Sums'' would be the most tax efficient - I also believe there would be an additional separate charge for this. Platform and Ongoing Advise was also included in the 1.7% AMC. They also operate a Withdrawal Penalty over the first 4 years of 4-3-2-1% of the fund total value.

In summary, I would be happy with a yearly drawdown of 4.0 % PA but to do that both Company A & B would need to yield 4.0 +1.64/1.7 + 2.0 for inflation, so say circa 7.7% min PA to make it work - Is this realistic for Company A give the fund has a minimal performance track record of only 2 full years? Or would Company B be better at 5 years? If not what other options do I have? Also which would be better Flexi Drawdown or taking the Uncrystallised Funds route?

I am reasonably informed were investing is concerned but don't believe I have the required skills and time to construct and monitor a ''Defensive Balanced Portfolio'' - but equally I am concerned the AMC charges + Inflation allowance for both companies could leave me not making my minimum return of 4.0 % PA.

I am sure many have of you have faced the same quandary when coming to retirement so any feedback/opinions/suggestions would be greatly appreciated as I feel I have spent far to many hours trying to rationalise the best way forward and would welcome any help.

Many thanks.









Money Spider
Posted: 20 April 2018 22:04:16(UTC)
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Firstly, you will find that most people on this forum are wary of 'Wealth Managers'.
Second, I am surprised that your current fees are 0.66% p.a. I suspect that is the 'pension manager's' fee and, in practice, you are paying a lot more (e.g. the fees of the underlying funds too).

Let's break it down:
1. You say that you have sufficient other income, so you should have some extra flexibility.
2. You can consolidate 4 separate DC pensions on any one of several platforms, you don't 'need' a wealth manager unless you want one.
3. Each time you crystallise (part of) a DC pension you can take 25% as tax-free cash. This is the same as the 'uncrystallised funds' route. This is not mutually exclusive to a Flexi-drawdown pension - the other 75% of your fund after crystallisation will be in 'Flexi-drawdown'.
4. Some platforms do not charge for drawdown payments and do not levy penalties. I would accept neither.

I'm a little younger than you. I consolidated several DC pensions in a SIPP. I take 25% tax-free in tranches and have the 75% in Flexi-Drawdown. It is not hugely difficult to construct a diversified, balanced portfolio according to your perceived level of risk using ITs or UTs/OEICs (I'll avoid suggesting discrete shares) and get around 4% yield. You say that the 'wealth managers' construct a portfolio of 7 well-known funds. There is nothing to stop you buying those funds direct if you're happy with them. BTW, the wealth manager's 1.64%(or whatever) will be their fee and will not include the fund managers' fees. 'In-house funds' may well be a 'fund of funds' so possibly an extra layer of cost there too. Examine ALL the costs very carefully.

Yes, there is risk, but there is risk in whatever you do. At least this way you have control. A few years ago I had a %age of my DC pension with Equitable Life - I'm glad I got it out when I did, others were not as lucky. My wealth manager is 100% focused on me - that person is me!

So-called professionals (in many fields) will say that they have unique knowledge that takes years to learn and is beyond the ken of mortals like us. It's call a false barrier-to-entry/job security. Don't be taken in too readily. However, the choice is obviously yours. Good luck whatever you decide.
7 users thanked Money Spider for this post.
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Tim D
Posted: 21 April 2018 21:46:40(UTC)
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Vector 7354;60988 wrote:
I am reasonably informed were investing is concerned but don't believe I have the required skills and time to construct and monitor a ''Defensive Balanced Portfolio'' - but equally I am concerned the AMC charges + Inflation allowance for both companies could leave me not making my minimum return of 4.0 % PA.


But there are funds/trusts which offer a "defensive balanced portfolio" in a simple one-stop-shop wrapper. All that "construct and monitor" stuff is done for you by the fund's manager. You might say "but I still have to choose which fund(s) to use and monitor their performance"... I'd say that's no different to choosing an IFA/wealth manager and monitoring their performance (and it's considerably easier to research funds and trusts than it is to research IFAs, where all you usually have is the adviser's word for it how good they are).

What might charges might look like for an unadvised DIY-er going down such a path?

Scenario A: rabid cost maven:

Get a SIPP on a low-cost flat-fee platform. Put the lot in a multiasset passive like VanguardLifestrategy and/or a L&G Multi-Index (or there are some other equivalents) at the risk level you're comfortable with. Buy acc units but once a year you sell 4% to take as income, plus enough to pay the platform fees typically around ~£250 for a SIPP in drawdown on a flat-fee platform? Multi-asset passives charge 0.2%-0.3% OCF; the platform fee works out at ~0.17% of a £150K ... total ~0.4%-0.5%.

Scenario B: laid-back no-hassle managed monthly income (this isn't a million miles away from what I helped a relative set up a few years ago):

Get a SIPP on a low-cost flat-fee platform and spread the cash around some managed multi-asset funds. The stars of my relative's portfolio have been Kames Diversified Monthly Income (yields 5%) & Artemis Monthly Distribution (yields 4%) but there are others out there e.g Fidelity Moneybuilder Balanced (but that seems to have gone off the rails recently). Charges for these is more like 0.7-0.8% OCF, and with the platform fee ~0.17% you'd be up around 1% total charges at the max. My relative has been completely hands off with this since it was set up... a fairly smooth stream of monthly income payments just rolls in; we may review it more formally at the 5 year mark.

There's no guarantee any of these things are going to provide a rising inflation-resistant income or that a bear market won't severely erode the capital and income or indeed that the 4% rate is sustainable in the long run... but only you can decide what you're comfortable with.

Not advice, just some random musings from someone who expects to face similar choices one day.
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Vector 7354
Posted: 22 April 2018 14:27:56(UTC)
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Thanks guys for your valued feedback and thoughts. Certainly more food for thought!

Not sure if ''Wealth Managers'' is the correct title -maybe ''Financial Products Salesmen'' would be more fitting!

As it is I could see added value at an AMC + Platform Charge of circa 1% PA ( I have been paying 0.66% PA for some time, so must have been happy at that rate ) but then I struggle seeing further additional value above that (i.e.: the 0.64% or 0.7% respectively for Company A or B). But I understand this covers their Admin/Platform Charges and Ongoing Advise, and would equate to an additional £935-£1000 PA year 1 withdrawal on my fund of £146K.

I think it comes back to whether I want to do the'' leap of faith'' and start to be an DIY Investor (which I don't want to really if I'm honest). My wife is not interested in anything to do with Retirement Investments so would be at sea if left on her own.- that being the case then I could then see a need for ongoing rounded financial advise.

I read in the press this morning that ''Robo-Advisers' are now Managing Portfolios/Funds'' and finding a place in the pension market. At an AMC of 1% PA is this worth considering? (I appreciate this is 'total passive' management approach) - 'Nutmeg' was one company mentioned and seems to be a one-stop-shop product solution within a SIPP wrapper ?

But I am now getting armed with more than enough information ( to much possibly!) ....I just have to make the ''judgement call'' soon.

Thanks again. Any final additional thoughts would be welcomed.

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Aminatidi on 22/04/2018(UTC)
Tim D
Posted: 22 April 2018 15:40:13(UTC)
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Robo advice is an interesting trend. Does seem to occupy an interesting niche between DIY and face-to-face services charges-wise so it might be what you're looking for.

Personally I don't see why I'd want to pay 0.75% to such a platform, plus the ETF's own OCFs (another 0.1%-0.3% say) to have a robot rebalance between a basket of ETFs when with Vanguard or L&G they're effectively doing that rebalancing within a LifeStrategy or multi-index vehicle at 0.2%-0.3% (plus a ~0.2% platform charge). But maybe the robot can somehow offer a more personalized bespoke service - more knobs and dials to twiddle? - than the single dial-a-risk-level I get with Vanguard or L&G's multi-asset offerings.

Until recently the robo advisers seemed to be more interested in capturing app-savvy millennials than those later on in wealth accumulation and SIPPs were the last "piece of the puzzle" they got around to offering. In fact even if they do offer a SIPP... I'd check whether they're actually in a position to offer any sort of drawdown facilities yet e.g Nutmeg's info seems vague and says they can't take transfer of plans already in drawdown... something HL have no problem with. Also note that Nutmeg's SIPP is actually run by an outfit called Hornbuckle and if you google Horbuckle SIPP you find quite a lot of evidence of... issues... tread carefully (oh, and apparently Hornbuckle use FNZ... same tech as Barclays Smart Investor... see another thread on this site). Pretty sure you'd be counted as one of the "early adopters" if you go down this route.

You used to be able to create a trial account on Nutmeg and see what it proposed to do with any money you put in, without actually investing anything... tried doing anything like that and seeing what it proposes and whether you'd be happy with it?
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Aminatidi
Posted: 22 April 2018 15:45:47(UTC)
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If you ever get bored spend a few minutes looking at the amount of money some of these ROBO advisers are ingesting just to keep the lights on.

It's frightening.
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Tim D on 22/04/2018(UTC), Vector 7354 on 22/04/2018(UTC)
Tim D
Posted: 22 April 2018 15:52:04(UTC)
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Yup SCMDirect put out a nice report a couple of years ago basically saying the business models just don't make sense:

https://scmdirect.com/wp...Report-06-July-2016.pdf

More at https://www.scmdirect.co...tech-financial-fantasy/

(Bear in mind SCMDirect have an interest in rubbishing loss-leading competitors of course).
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Vector 7354 on 22/04/2018(UTC)
Vector 7354
Posted: 22 April 2018 18:38:53(UTC)
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Thanks Guys.

Tim D ~ Thanks for insight. Having read the SCM Report I think I will take a miss on the Robo option.
At 64 I am a bit to old to take on the risk. But I think this model with time will develop and become a serious alternative option.

At least it’s helped me reduce my options to either an Advisor or DIY route.

Thanks again.

Joe 90
Posted: 22 April 2018 19:04:59(UTC)
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I’m not sure I understand what is meant by “+2% for inflation”. If the wealth manager takes a percentage of the fund then that should take care of itself.

More importantly are you comfortable that when all costs are included the professionals will probably be taking circa 50% of what you expect to earn from your own money? Furthermore they get paid even if the value of your investments goes down.

I’m quite new to investing and recently moved my Royal London pension into a low-cost SIPP with iWeb. So far so good and I’ve enjoyed the learning experience. The advice offered by other posters on this forum is usually sound in my opinion.
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Vector 7354 on 22/04/2018(UTC), laang lee on 24/04/2018(UTC)
Vector 7354
Posted: 22 April 2018 20:59:33(UTC)
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Thanks Joe90.

Yes,I shouldent have brought the 2% inflation in with fees and charges.

And you couldn't be more right~ the market stays flat or drops the Wealth Manager makes his 1.64/1.7% fees and I might loose 2% for inflation. On the upside they win by the same fee and charges but this time on a larger principle sum!

I think they call it win win and blame the markets!

Agreed, some smart guys on this forum. For me I've only ever known others to look after my pension accumulation pot and it done ok so far. But now at 64 do I become a DIY Wealth Manager. I'll have a look at iWebb.
Alan Selwood
Posted: 22 April 2018 22:43:00(UTC)
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Vector7354:

Most people who are wary of DIY investment are much more capable than they think they are.

Posts 2 & 3 should give you a near-enough guide to what you need to do, plus picking the brains of forum members - and don't forget that investment is an imprecise science, and so whatever you pick is always going to be an approximation, and there is absolutely no certainty that self-styled experts will be any better at it than you are (and will charge what the market will bear!).

'Wealth Managers' usually persuade themselves that they are God's gift to the investor, and that they are therefore entitled to be more-than-handsomely rewarded for deigning to take on clients. The reality is that the more complex the words they use, and the more persuasive the word are intended to be, the less they should be taken at face value. If they wear particularly expensive suits and drive flash cars, you can tell where their priorities lie! (Not with the welfare of their cliants).

People who keep it simple, tell it as it is, under-promise and over-deliver : these are the ones to trust, if you insist on not trusting yourself the most.
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Keith Hilton
Posted: 23 April 2018 11:58:44(UTC)
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Lots of good advice above, so I won't repeat it, but have you considered moving just one or two of the pensions for now e.g. you could transfer one of them into a DIY SIPP and see how it goes, leaving the others as they are for now. Once you're happy with the performance, you could then move the remaining pensions.

This would also give the option of withdrawing the 25% tax free element, on transferring each pension fund, which might save a little on UFPLS charges, if that's a route you wanted to take.
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Vector 7354 on 24/04/2018(UTC)
Mr J
Posted: 23 April 2018 23:43:31(UTC)
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As I approach retirement I am becoming very conscious of the need to keep management charges down. If I think of taking say 4% income then I tend to think, “Exactly why would I want to give someone say 1% in charges because that is effectively like saying they are going to get 25% of my pension income!” I am not sure what value a wealth manager is going to add on an ongoing continuous basis. I tend to think it should be possible to select a portfolio of collective investment vehicles which should almost never need changes, perhaps a review once every 3 to 5 years. Investment Trusts seem to align closely with pension objectives and a lot have been operating for many decades. Just some thoughts nothing more.
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Joe Soap
Posted: 24 April 2018 07:04:08(UTC)
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Mr J;61153 wrote:
As I approach retirement I am becoming very conscious of the need to keep management charges down. If I think of taking say 4% income then I tend to think, “Exactly why would I want to give someone say 1% in charges because that is effectively like saying they are going to get 25% of my pension income!” I am not sure what value a wealth manager is going to add on an ongoing continuous basis. I tend to think it should be possible to select a portfolio of collective investment vehicles which should almost never need changes, perhaps a review once every 3 to 5 years. Investment Trusts seem to align closely with pension objectives and a lot have been operating for many decades. Just some thoughts nothing more.

A great post. Yes, a "wealth manager" or an adviser will take more of your pension in fees than the government takes in taxes. An appalling situation, I will never let these people anywhere near my investments.
Vector 7354
Posted: 24 April 2018 08:33:47(UTC)
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Thanks Guys,

Some further useful information.

Mr J- Your view is very similar to mine. Ive also noted Investment Trusts as a potentially good vehicle to make up a Retirement Drawdown Fund. If you don't mind me asking which ones did you select or think worthy of making into a Personal SIPP and which would make it diverse and balanced. I also think there is a case for growth type trusts as well as income, given say a10/20 year period of retirement. - do you have thoughts on those aspects?

As I initially wrote a 4% PA minimum yield would likely meet my objectives, anything more would be a welcomed bonus. At the end of the day my wealth would only pass to my wife/son so I would be happy if that was just my initial capital sum + something that covered some inflation over the investment period.

Thanks.

Money Spider
Posted: 24 April 2018 09:49:24(UTC)
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Vector 7354;61163 wrote:
Thanks Guys,

"If you don't mind me asking which ones did you select or think worthy of making into a Personal SIPP and which would make it diverse and balanced. I also think there is a case for growth type trusts as well as income, given say a10/20 year period of retirement. - do you have thoughts on those aspects?"



If you're looking to 'buy and hold", which I think you will likely do, then I suggest you first start with an idea of sector allocation (e.g. asset class, geography). You can then drill down on particular IT's, if that is the route that you choose. Of course you could choose to mix-and-match with funds like Vanguard LifeStrategy and/or Its/OEICs. You did mention that you like the 7 UTs proposed by a wealth manager.

Depending upon your expectations and decisions on income you can choose both income and growth ITs. However, you can also re-invest some of your income rather than taking it out as cash. Remember that you don't pay any tax on the income until you draw it down from your SIPP. If you want 4%+ yield, then you will likely be looking at income trusts, rather than growth although total return (yield + growth) may exceed 4% but you will then need to sell some shares to achieve 4% income.

Which ITs? There will be many suggestions, but with ~£146k you probably want no more than 10, or so.

Some that I like include the following, although their relative attractiveness will also depend upon when you buy them (price, discount). If you choose 10 ITs, you are probably better choosing a global IT, rather than many geographic-specific ones. I haven't mentioned any USA, Japan, Fixed Income or Resources.

UK large cap: CTY, MRCH, SLET
UK Mid Cap: JMF
UK Small Cap: HSL, IPU

Europe large: JETI
Europe small: EAT
Europe growth: JEO

Asia-Pac: HFEL, JAI

Property: FCRE, RGL, TRY

That's some reading for you to start with. Others will have different and possibly better ideas.
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Mike L on 26/05/2018(UTC)
Keith Hilton
Posted: 24 April 2018 11:52:15(UTC)
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You might also like to consider FGT, HINT & JEMI. Also, to add diversification perhaps some infrastructure/renewables, such as, 3IN, EGL, HICL, TRIG, UEM.
Tim D
Posted: 24 April 2018 13:05:03(UTC)
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Hmmm.... given how this thread started - trying to avoid the "but it's so complicated" sentiments which have people running into the arms of high-charging advisers - are there really no one-stop-shop IT's which are the equivalent of the sort of multiasset balanced funds mentioned previously? Why hold 5-10 ITs specialising in particular niches when you could buy one diversified trust and let the manager worry about rebalancing and tactical asset allocation etc?

MATE was an obvious recent entrant, although it looked expensive (vs fund alternatives) to me, doesn't have any track record yet, and I think there was some news about it didn't get the manager it originally wanted. (Seems to be increasing in discount though, so will be keeping an eye on it).

There must be some others though? (Ah, yes there are... I checked AIC "Flexible Investment" category and - besides MATE that has some things like F&C Managed Portfolio Income yielding 4%+... however that looks like a trust-of-trusts so probably as expensive as the OP's original advised route).
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Vector 7354 on 24/04/2018(UTC)
xcity
Posted: 24 April 2018 15:01:13(UTC)
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Tim D;61176 wrote:
Why hold 5-10 ITs specialising in particular niches when you could buy one diversified trust and let the manager worry about rebalancing and tactical asset allocation etc?

There must be some others though? (Ah, yes there are...some things like F&C Managed Portfolio Income yielding 4%+... however that looks like a trust-of-trusts so probably as expensive as the OP's original advised route).

If you want to be in all market areas
and
if you want specialist managers for each area
you will, by definition, end up with a trust-of-trusts arrangement
Tim D
Posted: 24 April 2018 16:08:34(UTC)
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xcity;61183 wrote:
Tim D;61176 wrote:
Why hold 5-10 ITs specialising in particular niches when you could buy one diversified trust and let the manager worry about rebalancing and tactical asset allocation etc?

There must be some others though? (Ah, yes there are...some things like F&C Managed Portfolio Income yielding 4%+... however that looks like a trust-of-trusts so probably as expensive as the OP's original advised route).

If you want to be in all market areas
and
if you want specialist managers for each area
you will, by definition, end up with a trust-of-trusts arrangement


There do seem to be multiasset *funds* which avoid being collectives-of-collectives though. If I look at Artemis Monthly Distribution's top holdings, it's all direct companies and bonds. Kames Diversified Monthly Income similarly, albeit with some use of REITs and infrastructure trusts. Presumably why their OCFs are more 0.7-0.8% rather than >1% for trust-of-trusts. Ah, but I just noticed your "*if* you want specialist managers for each area" qualifier. Good point... would have to do some looking at historic returns to see if it's been worth paying for...
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