Pension dilemma re allocation before taking lump sum

[baldchap]

Good Evening all.

For background I currently hold a small stable of well known, but mainly global ITs. (70% of the pf being in 1 Global, & 2 Global Income ITs)
Yield (important to me) currently 3.15% It is spread across 2 SIPPs and ISAs.

It is my intention to take the 25% lump sum from the SIPPs in approximately five years. I won't be dissuaded from this.

Question. Bearing in mind that a significant part of these contributions over the next 5 years will be sold to fund the lump sum, do I plough this into my current ITs until that date, or at an appropriate point, put the pension contributions into a suitable ETF (VEVE/VWRL) to cut down on Stamp duty and management fees, or even at the very late stages leave in cash?

I would be grateful to hear any opinions and also what others did.

Thanks
BC

[moorfield]

Question. Bearing in mind that a significant part of these contributions over the next 5 years will be sold to fund the lump sum, do I plough this into my current ITs until that date, or at an appropriate point, put the pension contributions into a suitable ETF (VEVE/VWRL) to cut down on Stamp duty and management fees, or even at the very late stages leave in cash?

I would be grateful to hear any opinions and also what others did.

I am about 10 years away and have started to think already about the mechanics of drawing down a 25% lump sum from my SIPP/HYP(ish) portfolio. It seems to me there are 3 strategies, which can be mixed: (1) begin letting (dividend) income cash accumulate and reduce the amount reinvested, (2) per (1) but park the cash into a money market/cash IT that might glean a small return eg. JPEC and sell when the time comes. But I think I will plump with (3) just carry on reinvesting dividends and sell down 25% of every holding. That would cost me about £300 in trading commissions today.

[EthicsGradient]

Does selling 25% of your SIPPs at one predefined time worry you? If it happens to be at a low point on the market, you could lose out. If the SIPPs aren't too much of your total portfolio, it might not be a big deal - we don't know the relative amounts in SIPPs and ISAs. If taking a chance on that sudden liquidation feels like a big risk, perhap's moorfield's earlier ideas would help reduce the risk. This is the point that's been made for decades about gradually increasing funds held in bonds, rather than a sudden switch out of equities at retirement (when drawdown wasn't available).

[baldchap]

Does selling 25% of your SIPPs at one predefined time worry you? If it happens to be at a low point on the market, you could lose out.

A valid point thanks.
2 x full annual ISA allowance would be immediately reinvested, but of course the bulk of it would be languishing in cash.
I suppose in the worse case the options are to delay...., or repurchase at those low prices in the ISA's, and a trading account. Not tax efficient granted.
(I should point out that I will continue to work for a year or so and then run down my business accounts for a few more, so the 25% is not immediately required. I just wish to remove it from Pension interference).

The case for holding Bonds could fill an entire thread, so I will just say that I don't have confidence in Govt Bonds but can see the reasoning behind switching funds to Personal Assets, Capital Gearing, or similar.

[swill453]

You could crystallise it in "tranches", reinvesting simultaneously outside the SIPP, if you have some spare cash. This would keep you fully invested, and remove the risk of liquidating when the market is low.

This is what I did with a £50,000 float. Sell £50k of anything in the SIPP, and at the same time buy the same amount in a normal broker account. Then crystallise £200k of the SIPP, and extract the £50k tax free lump sump.

Then repeat until the whole SIPP is crystallised.

Each iteration I found took 2 or 3 weeks with AJBell. You can use more or less than £50k, and it will be a shorter or longer process.

You end up with your lump sum outside the SIPP, but at no time have you risked the market moving the wrong way when you were in cash.

Obviously you can tune this process to use ISA capacity if you have it.

It's then easy to liquidate the investments as you wish, or take an income from them, or whatever.

Scott.

[TUK020]

I did something similar at the first opportunity to pull the tax free lump sum from my SIPP. I feared that this would be closed, or more likely limited by a chancellor looking for easy targets.
I re- bought in ISAs & General Investment Account.
As I was also using this as an opportunity to fund a 'house deposit' fund in each of my kids' ISAs, it didn't take very long to siphon everything out of the GIA.

[baldchap]

Thanks Gents, helpful to know what others have done, and good call on property deposits TUK as my daughter will be reaching that sort of age.

[baldchap]

It's then easy to liquidate the investments as you wish, or take an income from them, or whatever.

Scott.

That would be my next dilemma Scott, Growth and Income as I am now, or switching to a more income focused pf.
Always a keen reader of Mickeypops updates and of course Luniversals work.

[moorfield]

Does selling 25% of your SIPPs at one predefined time worry you? If it happens to be at a low point on the market, you could lose out.

SIPP pot size doesn't worry me particularly provided that the overall income it yields is on my target - specifically that is currently £67027 = 4/3 * £50270 pa (you can see what I've done there I hope) - which could be a pot size yielding anywhere between 3-6%. I expect I will likely exceed the LTA under which the maximum lump sum one can take currently is £268,275. The rules and thresholds can and probably will all change again of course.

[EthicsGradient]

Does selling 25% of your SIPPs at one predefined time worry you? If it happens to be at a low point on the market, you could lose out.

SIPP pot size doesn't worry me particularly provided that the overall income it yields is on my target - specifically that is currently £67027 = 4/3 * £50270 pa (you can see what I've done there I hope) - which could be a pot size yielding anywhere between 3-6%. I expect I will likely exceed the LTA under which the maximum lump sum one can take currently is £268,275. The rules and thresholds can and probably will all change again of course.

The "4/3 * £50270 pa" sounds more like taking a yearly 25% tax-free sum (with the rest being the maximum basic rate income), rather than 25% of the whole SIPP - which is what the OP is proposing. Though they also say they'll reinvest at least some of it outside their SIPP, so the risk of bad market timing isn't so significant.

[Kantwebefriends]

Yield (important to me) currently 3.15% It is spread across 2 SIPPs and ISAs.

I can see why yield is important in your ISAs but why is it important in your SIPPs?