Edging towards retirement
Posted: December 17th, 2019, 8:21 pm
Back in August, I posted that I was thinking about early retirement after work became stressful https://www.lemonfool.co.uk/viewtopic.p ... 13#p243413. I had sought advice from an IFA but was concerned at their charges and went off to read and research about doing myself. One thing I did was to approach Royal London who provide the Personal Pension that I and my employers contribute to currently. In August this was worth about £320k but had grown to nearly £330k by the time Royal London replied. Their suggestions included flexi-drawdown, which would give £11,600 p.a. until the age of 89, or a lifetime annuity of £11,300 p.a. - neither option came with a TFLS. It left me feeling that a SIPP would be better.
I also have a small deferred DB scheme with USS which I can take when I am 65 (just over 6 years’ from now). Last February, I obtained a quote from USS which said that taking my DB pension at that time would have paid out a maximum of £7060 p.a. Now, USS also have a members’ website with a tool for modelling the increases in deferred pension. That modeller indicates that if I wait until 65, then my estimated benefits would be around £9200 p.a. Since I have a slow-growing form of cancer that spurred me to request early payment with no actuarial reduction by completing some forms and providing them with reports from my G.P. and two consultants. Their politely worded refusal arrived last Thursday and said that my lymphoma appears stable and I do not meet the early repayment criteria. Luckily, the general election result arrived later on that day which cheered me up immensely and removed any trace of disappointment.
Since I have to give 3 months’ notice (I intend to resign in early January) I went back to USS and asked for a quote to show what my benefits would be if I were to start taking my pension next April. The answer arrived today and was more than I had expected: a maximum of almost £7700 p.a. with no TFLS, or nearly £6700 plus a £20k TFLS. So, the modelling tool on the website would appear to be rather conservative.
Anyway, in terms of my objectives, I had been thinking along the lines of what TUK20 suggested last August: aim to generate an income of £2k per month by taking £7k from the DB scheme, transferring the PP into a SIPP and using that to make up the difference to the £12.5k personal allowance and then either running down my cash pile, or investing it to generate income. One benefit of this is that the investments within the SIPP could aim to give some growth aw well as income as I would only need around £5k p.a. However, the fact that the DB scheme is increasing by about £600 p.a. is now making me wonder if I should perhaps hold off on this for a year or two. The Royal London PP is still ticking upwards and is now nearing £340k – could well head downwards once Boris's Bounce wears off. What I am thinking of, is transfer the PP to a SIPP and invest £300k, then take whatever is left over as part of the TFLS and add to my cash pile.
I have used up this year’s ISA allowance and have around £230k left in unprotected assets. Of these, £60K is invested in a nominee account, £50K is in premium bonds and the rest is in the bank. For now, I am inclined to keep the £50K in premium bonds, plus say £10k in cash and am thinking about using the remaining £110k to generate income – if I get another £30k to £40k from the PP then I could also invest that. Like this, I should be able to generate £12.5k from the SIPP plus what I need , or close to it, from the unprotected investments. It would be a gamble and leave me exposed to any market downturns. Or I could just leave a fair chunk of cash in the bank and run it down whilst topping up the ISA for the next few years. The DB pension would be there untouched, and I have a stocks and shares ISA into which I have now put this year's £20k plus all the cash that had built up and is now probably yielding around £18k p.a. maybe a bit more, so there is something to fall back on.
At the back of my mind is that is the nature of the cancer – which is slowing growing and treatable but incurable. You can treat it, but then it comes back and so you treat it again and so on. It is quite annoying, especially when trying to make long-term plans. If it comes back before I take the DB, then I could apply to USS again to take the DB without reduction – should be harder for them to say ‘condition is stable’ if I’m in the middle of chemo. It’s hard to say when that might happen. After being diagnosed in 2011 it took five and a half years for it to spread throughout my torso, get into the bone marrow and cause problems. Who knows how active it will be from now on. But one thing I have decided is that I don’t want to keep on working up until the next time it makes a nuisance of itself.
My current thinking about what I would put in the SIPP and the rough proportion of each is as follows:
1. Mercantile (UK All Companies) 10%
2. Henderson Far East Income (Asia Pacific Income) 10%
3. Bankers (Global) 7.5%
4. JPMorgan Global Growth & Income (Global Equity Income) 7.5%
5. HICL Infrastructure (Infrastructure) 10%
6. BlackRock World Mining (Commodities) 10%
7. Bluefield Solar Income Fund (Renewables) 5%
8. Greencoat UK Wind (Renewables) 5%
9. The Renewables Infrastructure Group (Renewables) 5%
10. JPMorgan Asian (Asia Pacific Income) 5%
11. AEW UK REIT Property (UK Commercial property) 10%
12. BlackRock Throgmorton Trust (UK Smaller Cos) 5%
13. New City High Yield (Debt) 10%
Putting so much into Renewables might not be the wisest. I like the area, but those ITs are on such high premia that I might have to think again there.
My thoughts about what I would do with the unprotected cash pile are so far less well formed. In the nominee account, I had spent about £60k on WPP, Rio Tinto, Persimmon, Johnson Matthey and Montanaro UK Smaller Cos and was about to add Mercantile for mid-cap exposure when fears of a confiscatory Marxist government made me pause. If I decide to go ahead and invest the rest of the cash pile then I might also add:
• Standard Life Aberdeen
• Vesuvius
• Babcock
• VUKE (UK focused ITs with a decent yield like CTY and Merchants don’t really seem to do much better than a tracker)
• Probably some more Montanaro UK Smaller Cos
• Acorn Income
• Invesco Perpetual Enhanced Inc
• TwentyFour Select Monthly Income
• Tritax Big Box REIT
So – is it foolish to think of leaving the DB pension for a year or two and trying to survive on the SIPP and unprotected investments? Am I being too focussed on income? Unless or until I decide to take the DB pension then I think that I will have to target a level of return that is going to get me close to £2k per month – it’s either that or run the cash pile down, which doesn’t seem terribly appealing. I had the Pension Wise free phone call a couple of weeks ago and the chap I spoke to didn’t seem to think the overall approach that I outlined to him was that daft. He certainly didn’t try to put me off or point me towards using an IFA. I didn’t discuss the details of which equities and trusts I was considering with him.
I hope it all makes sense.
I also have a small deferred DB scheme with USS which I can take when I am 65 (just over 6 years’ from now). Last February, I obtained a quote from USS which said that taking my DB pension at that time would have paid out a maximum of £7060 p.a. Now, USS also have a members’ website with a tool for modelling the increases in deferred pension. That modeller indicates that if I wait until 65, then my estimated benefits would be around £9200 p.a. Since I have a slow-growing form of cancer that spurred me to request early payment with no actuarial reduction by completing some forms and providing them with reports from my G.P. and two consultants. Their politely worded refusal arrived last Thursday and said that my lymphoma appears stable and I do not meet the early repayment criteria. Luckily, the general election result arrived later on that day which cheered me up immensely and removed any trace of disappointment.
Since I have to give 3 months’ notice (I intend to resign in early January) I went back to USS and asked for a quote to show what my benefits would be if I were to start taking my pension next April. The answer arrived today and was more than I had expected: a maximum of almost £7700 p.a. with no TFLS, or nearly £6700 plus a £20k TFLS. So, the modelling tool on the website would appear to be rather conservative.
Anyway, in terms of my objectives, I had been thinking along the lines of what TUK20 suggested last August: aim to generate an income of £2k per month by taking £7k from the DB scheme, transferring the PP into a SIPP and using that to make up the difference to the £12.5k personal allowance and then either running down my cash pile, or investing it to generate income. One benefit of this is that the investments within the SIPP could aim to give some growth aw well as income as I would only need around £5k p.a. However, the fact that the DB scheme is increasing by about £600 p.a. is now making me wonder if I should perhaps hold off on this for a year or two. The Royal London PP is still ticking upwards and is now nearing £340k – could well head downwards once Boris's Bounce wears off. What I am thinking of, is transfer the PP to a SIPP and invest £300k, then take whatever is left over as part of the TFLS and add to my cash pile.
I have used up this year’s ISA allowance and have around £230k left in unprotected assets. Of these, £60K is invested in a nominee account, £50K is in premium bonds and the rest is in the bank. For now, I am inclined to keep the £50K in premium bonds, plus say £10k in cash and am thinking about using the remaining £110k to generate income – if I get another £30k to £40k from the PP then I could also invest that. Like this, I should be able to generate £12.5k from the SIPP plus what I need , or close to it, from the unprotected investments. It would be a gamble and leave me exposed to any market downturns. Or I could just leave a fair chunk of cash in the bank and run it down whilst topping up the ISA for the next few years. The DB pension would be there untouched, and I have a stocks and shares ISA into which I have now put this year's £20k plus all the cash that had built up and is now probably yielding around £18k p.a. maybe a bit more, so there is something to fall back on.
At the back of my mind is that is the nature of the cancer – which is slowing growing and treatable but incurable. You can treat it, but then it comes back and so you treat it again and so on. It is quite annoying, especially when trying to make long-term plans. If it comes back before I take the DB, then I could apply to USS again to take the DB without reduction – should be harder for them to say ‘condition is stable’ if I’m in the middle of chemo. It’s hard to say when that might happen. After being diagnosed in 2011 it took five and a half years for it to spread throughout my torso, get into the bone marrow and cause problems. Who knows how active it will be from now on. But one thing I have decided is that I don’t want to keep on working up until the next time it makes a nuisance of itself.
My current thinking about what I would put in the SIPP and the rough proportion of each is as follows:
1. Mercantile (UK All Companies) 10%
2. Henderson Far East Income (Asia Pacific Income) 10%
3. Bankers (Global) 7.5%
4. JPMorgan Global Growth & Income (Global Equity Income) 7.5%
5. HICL Infrastructure (Infrastructure) 10%
6. BlackRock World Mining (Commodities) 10%
7. Bluefield Solar Income Fund (Renewables) 5%
8. Greencoat UK Wind (Renewables) 5%
9. The Renewables Infrastructure Group (Renewables) 5%
10. JPMorgan Asian (Asia Pacific Income) 5%
11. AEW UK REIT Property (UK Commercial property) 10%
12. BlackRock Throgmorton Trust (UK Smaller Cos) 5%
13. New City High Yield (Debt) 10%
Putting so much into Renewables might not be the wisest. I like the area, but those ITs are on such high premia that I might have to think again there.
My thoughts about what I would do with the unprotected cash pile are so far less well formed. In the nominee account, I had spent about £60k on WPP, Rio Tinto, Persimmon, Johnson Matthey and Montanaro UK Smaller Cos and was about to add Mercantile for mid-cap exposure when fears of a confiscatory Marxist government made me pause. If I decide to go ahead and invest the rest of the cash pile then I might also add:
• Standard Life Aberdeen
• Vesuvius
• Babcock
• VUKE (UK focused ITs with a decent yield like CTY and Merchants don’t really seem to do much better than a tracker)
• Probably some more Montanaro UK Smaller Cos
• Acorn Income
• Invesco Perpetual Enhanced Inc
• TwentyFour Select Monthly Income
• Tritax Big Box REIT
So – is it foolish to think of leaving the DB pension for a year or two and trying to survive on the SIPP and unprotected investments? Am I being too focussed on income? Unless or until I decide to take the DB pension then I think that I will have to target a level of return that is going to get me close to £2k per month – it’s either that or run the cash pile down, which doesn’t seem terribly appealing. I had the Pension Wise free phone call a couple of weeks ago and the chap I spoke to didn’t seem to think the overall approach that I outlined to him was that daft. He certainly didn’t try to put me off or point me towards using an IFA. I didn’t discuss the details of which equities and trusts I was considering with him.
I hope it all makes sense.