The charges on this product are low considering how much I expect to hold in there (only 0.35%) and "switching" funds (ie dealing) is free. So this all seems good. The only slight fly in the ointment is that the documentation talks about needing to take (paid) advice before you can start to draw down the money but hopefully this requirement will be something that is either dealt with when the budget changes are formalised next year, or it will disappear naturally over time as the new ways of working for pension funds becomes embedded.
I set the fund up with a £1000 lump sum and initial monthly contributions of £200. The money is sitting there as cash at the moment waiting for me to decide how to invest it. This is my task for the weekend.
What I Have and What I Want.
I must admit I'm struggling a little to make a decision. I know that I have a very "unbalanced" pot at the moment. The bulk of my money is in my S&S ISA (which, btw, still shows no sign of landing in my iii account - in fact I received a Manager's Annual Report from CIS this week so they still obviously have me on their books) which is invested entirely in a UK Equities Growth Fund (apart from a tiny bit in a US Fund which is a legacy from when I sold that fund off as part of a mis-selling dispute (long story).
I have started to spread my investments around a little since I set up my account on iii, but I will only be able to grow any of these new holdings very slowly with my monthly drip feeds unless I sell some of the CIS fund (when it arrives). I'm still not sure how to go with this.
However I ran my current holdings through Trustnet's portfolio tools and this is what came out:
|UK Corporate Fixed Interest||6.6|
|Europe ex UK Equities||1.6|
|Global Corporate Fixed Interest||0.2|
|North American Equities||0.1|
|Asia Pacific Equities||0.1|
Therefore I have a fair amount of rebalancing to do given that I would ideally like to follow the asset allocation given in the the example by Monevator (Slow and Steady Passive)
- UK equity: 20%
- Developed World ex UK equity: 50% (North American equity: 27.5%, European equity ex UK: 12.5%, Japanese equity: 5%, Pacific equity ex Japan: 5%)
- Emerging market equity: 10%
- UK gilts: 20%
However I have to admit that I do not plan to stick to passive funds only. The reasons for this are complex, not very scientific and mostly down to my personality and how I approach "projects" (which is how I see my goal of retiring when I want to). However full discussion of this is something for a future post I think.
In the meantime I have the problem of how to position my SIPP in all this. Added into the mix is the fact that I have a specific time-frame and amount requirement for the fund. I want to use it to help fund the 6 years between 60 and 66 at a level just below the tax threshold (ie somewhere just below £10,500 on today's figures). Given that I will have a very small pension from an old job, plus some rental income from our studio flat, this means that I ideally want to draw a further £8,000 a year from the my personal pensions. I will then use the ISA to top up to the £15,000 per year I've calculated we will need as a household until my LGPS and state pensions kick in.
My existing CIS FSAVC should see me safely through 60-63 as it should total around £24,000 by the time I need it, but the SIPP has to work quite hard to cover the years 63-66. Given the tax advantage, I would still need to put in at least £250 a month and gain a 6% return to reach my goal. This is within what I can afford (just) but ideally I don't want to have to resort to funding the ISA much less than I originally intended, so I'm not quite sure how things will balance out. I may need to make a judgement call on this at some point but for the moment I'm just going to see how things pan out.
In addition, and from the point of view that the SIPP has a specific job to do in a very tight time scale, I'm wondering whether to treat the pension as a different pot altogether rather than try to balance it in line with the rest of my stuff.