Monday, 1 June 2015

May 2015 Update

I have decided to change the format of my portfolio update this month due to the fact I'm probably going to shift some of it down into cash in the next 2 years rather than leave our ISAs fully invested and use them to draw income. This means that the "big picture" is what is important so I am going to be recording our portfolio as a whole, which includes my LGPS AVC's (but not my DB pension itself) and our cash accounts.

I have done a "best guess" on what might need to happen over the next 6 - 9 months due to the fact that we might need to pay around £7,500 in tuition fees and gift both sons £5,000  each; the eldest to help with living expenses for the period and the youngest to add to his savings. The younger one is quite happy to leave the remainder of his gift with us as at the moment.

I am hoping to limit the move to cash to what we will actually need, as it's looking more and more hopeful that VR next April is on the cards. A little investigation into the pension rules and asking a few questions has revealed that giving access to my pension unreduced could well be part of the deal. The most likely scenario seems to be that I would be let go on "efficiency" grounds which would mean that I would have access to the pension but no redundancy money. Although that would reduce my cash "hand out" it would be a far superior long term result from my point of view and I would still receive cash in the form of my LGPS TFLS (£13,600), my LGPS AVCs (around £4,500) and a TFLS from my SIPP (£8,500) which gives me £26,600. This should be more than enough cash to gift a further £5,000 to the eldest son and put the £12,500 away in an ISA for the youngest (or whatever he thinks best).

I should know by the Autumn if VR is going to happen so at the moment I'm trying to do as little as possible, but as much as possible, to secure the cash and avoid having to sell equities at a low point. As there are two legacy funds in our ISA's that I would not buy if I were starting with a clean slate this is where I intend to start selling. The funds are CIS UK Growth and CIS UK Income and Growth. Both have actually done quite well over the last year or so and are currently near (or in) the top quartile for funds of their type. Although the fees are high at 1.5% Interactive Investor has been refunding half of this so I have been happy to hang onto them as part of our UK exposure. But, as we now need cash I think it's time, or very close to time, to sell. The likelihood of a wobbly UK market due to the prospect of an EU referendum only strengthens my feeling that this is the best move to make. Between them the two funds will raise just over £10,000 and so, along with the cash in our Santander account, should give us the cash buffer we (might) need for the next 9 months.

I know selling a big chunk of our UK stock like this will completely skew my asset allocations but I will have to think about rebalancing once there is a clearer picture of our whole financial situation. At the moment there are far too many unknowns, so doing what seems best at the time is as good a plan as any. :-)


14 comments:

  1. An advantage of the old penny (1d) was that it could so easily be spun when a difficult decision was required.

    ReplyDelete
  2. More seriously, it isn't a difficult decision. If you were in the position of having cash and knowing that it would be needed within a year, you wouldn't invest it in equities, would you? So sell in the morning.

    ReplyDelete
    Replies
    1. You're quite right, and I just have :-)

      Delete
  3. Hi. I've just discovered your blog and I'm enjoying reading the posts very much. One thing confused me here, though. What does TFLS stand for? Thanks!

    ReplyDelete
    Replies
    1. Many thanks for reading and my apologies - TFLS is Tax Free Lump Sum - which may be the 25% tax free portion of a defined contribution pension pot, or, as in the case of my defined benefit pension, an automatic lump sum attached to the pension which can often be increased by commuting the pension itself.

      Delete
    2. Mr Brown (boo! hiss! geroff!) retitled it the Pension Commencement Lump Sum, so it's pretty obvious what his intentions towards it were.

      Gather ye rosebuds while ye may,
      Old time is still a-flying;
      And this same flower that smiles today
      Tomorrow will be dying.

      D'ye think we could persuade the world to refer to the TFLS as "the rosebud"?

      Delete
    3. Well maybe, :-) but there are plenty of far more precious things in danger of disappearing I fear.

      Delete
  4. All sounds like a good idea to me, Cerridwen! The VR situation--even without a larger redundancy payout--sounds like it could leave you in a very healthy long-term position which is good.

    As dearieme says, if you have a need for the money fairly soon it all seems a good idea to liquidate some of your equities (especially high charge ones) in readiness!

    ReplyDelete
    Replies
    1. I'm on the case DD. Thanks for the good wishes :-)

      Delete
  5. Sounds like a good plan you have there, Cerridwen - it makes sense to start switching to cash when you will have need of it in the short term.

    As I've said before, hope the VR thing goes your way (or you find out soon either way) so you can start making more concrete plans.

    ReplyDelete
    Replies
    1. Thanks weenie. I know you're waiting for news too so here's hoping we both get some soon :-)

      Delete
  6. A sobering read.
    http://www.fa-mag.com/news/why-clients-fail-at-retirement-21922.html?section=47

    ReplyDelete
  7. I got voluntary redundancy last year and as a consequence immediate unreduced payment of LGPS pension. I had an LGPS AVC and because I had started it before Nov 2001 I had the option to convert the fund into a top-up LGPS pension (which is index-linked like the main pension), rather than take the fund as part of my 25% TFLS. The conversion rate was generous compared with an open-market index-linked annuity, however the LGPS is very reticent to give out information on this. OK, so I will pay more income tax each year, but viewed as an investment I have the certainty of an index-linked return. Anyone who started their LGPS AVC before Nov 2001 and getting voluntary redundancy may want to think about this - I boosted my AVC contributions in my last few months just to boost my LGPS pension.

    ReplyDelete
    Replies
    1. Many thanks for this. Unfortunately I only started paying AVCs in 2013 so using them to increase my lump sum is the best option for me. Still a very good deal though :-)

      Delete