Creating Wife's SIPP

[NapoleonD]

Hi all

Investing newbie here. I'e 'hummed and hawed' about this foir a while, and time to take the plunge. I have 3 DC pensions which I may move in due course, but need to address Mrs NDs pension situation.

She became self-employed last year, and of course needs some pension provision. A SIPP seems the ideal way to go, and she is likely to be a lower-rate taxpayer (her business will not need to be VAT registered, and her turnover is £1500 - £2000 per month).

The investments should run for 13-16 years before she needs to drawdown (she's currently 49).

My plan for this was an 80% / 20% split along the following lines:

40% S&P 500 UCITS ETF (VUSA) Accumulation
40% FTSE All-World UCITS ETF (VWRL) Accumulation
20% USD Treasury Bond UCITS ETF (VUTY) Accumulation

I could transfer a prior DC she has with BMI which has a value of approx 25k.

Over time I'd look to veering towards bonds as she approaches retirement.

I'm also contemplating taking one of my DCs and performing the same actions, though I am on course for retirement at 62 in 8 years.

Does this sound like a reasonable plan?

[EthicsGradient]

That's heavily concentrated in the USA - FTSE All World is about 62% USA, but you're increasing that with the others (and your bonds are only American). Is there a reason for this, eg balancing your own pensions which you think aren't American enough?

[tjh290633]

First you need to choose your SIPP provider with care. Look at their charges and the available range of investments.

Secondly, although conventional thinking is to increase the proportion of bonds as retirement nears, it is not very helpful if you are hoping to increase income ahead of inflation. Having retired towards the end of the last century, bonds have never got on my radar as a worthwhile investment. There is a difference between bonds and bond funds.

TJH

[Dod101]

The principal of setting up a SIPP for your wife seems a good one but I would question your choice of investments. They are probably too U S oriented. And I would have a minimal exposure at the moment to bonds or bond funds. I have been retired for nearly 30 years and have only ever had about 5/7% in bond funds. I live off my dividends. Your wife is different though and needs growth not income at the moment. Using ETFs is straightforward but I think you need a wider exposure than the US oriented holdings bias that you are suggesting.

Dod

[GeoffF100]

80% equities is very risky. An all-world tracker has enough US exposure. She would be betting on the continued out-performance of the US market, despite the current high price of US equities. Bonds are usually added to a portfolio to reduce portfolio volatility. Bonds denominated in a foreign currency will not do that effectively. That further increases the risk. You could consider a packaged retirement fund, e.g.:

https://www.vanguardinvestor.co.uk/inve ... ment-funds

[Dod101]

80% equities is very risky. An all-world tracker has enough US exposure. She would be betting on the continued out-performance of the US market, despite the current high price of US equities. Bonds are usually added to a portfolio to reduce portfolio volatility. Bonds denominated in a foreign currency will not do that effectively. That further increases the risk. You could consider a packaged retirement fund, e.g.:

https://www.vanguardinvestor.co.uk/inve ... ment-funds

As I have said, my portfolio has survived for more than 30 years with more than 90% in equities and that of course includes the tech boom and bust of 2000 and the financial crisis of 2008/9 but each to their own. Personally I would buy a selection of generalist ITs and reinvest the dividends.

Dod

[GeoffF100]

80% equities is very risky. An all-world tracker has enough US exposure. She would be betting on the continued out-performance of the US market, despite the current high price of US equities. Bonds are usually added to a portfolio to reduce portfolio volatility. Bonds denominated in a foreign currency will not do that effectively. That further increases the risk. You could consider a packaged retirement fund, e.g.:

https://www.vanguardinvestor.co.uk/inve ... ment-funds

As I have said, my portfolio has survived for more than 30 years with more than 90% in equities and that of course includes the tech boom and bust of 2000 and the financial crisis of 2008/9 but each to their own. Personally I would buy a selection of generalist ITs and reinvest the dividends.

That was a very favourable 30 years. The outcome of 30 good years is high prices. The higher the prices the lower the likely future returns.

I seem to know a lot more than some people here. I know that I do not know what will happen over the next 30 years, so I spread my risk.

[Dod101]

As I have said, my portfolio has survived for more than 30 years with more than 90% in equities and that of course includes the tech boom and bust of 2000 and the financial crisis of 2008/9 but each to their own. Personally I would buy a selection of generalist ITs and reinvest the dividends.

That was a very favourable 30 years. The outcome of 30 good years is high prices. The higher the prices the lower the likely future returns.

I seem to know a lot more than some people here. I know that I do not know what will happen over the next 30 years, so I spread my risk.

I would not have called that a very favourable 30 years what with the tech bubble and particularly with the financial crisis. We have of course avoided the recession of the 1930s but that is about all we are missing. I have no idea and I do not much care what happens in the next 30 years because I am most unlikely to be around but I do know that I have been able to live off my dividends without touching capital for my day to day living expenses for the last 30 years.
If you know a lot more than some people here well that can be the result of experience. You cannot know any more than anyone else about the future unless you are a Nostradamus but I doubt that many of us would claim to so that seems a very strange thing to say.

Dod

[GeoffF100]

That was a very favourable 30 years. The outcome of 30 good years is high prices. The higher the prices the lower the likely future returns.

I seem to know a lot more than some people here. I know that I do not know what will happen over the next 30 years, so I spread my risk.

I would not have called that a very favourable 30 years what with the tech bubble and particularly with the financial crisis. We have of course avoided the recession of the 1930s but that is about all we are missing. I have no idea and I do not much care what happens in the next 30 years because I am most unlikely to be around but I do know that I have been able to live off my dividends without touching capital for my day to day living expenses for the last 30 years.
If you know a lot more than some people here well that can be the result of experience. You cannot know any more than anyone else about the future unless you are a Nostradamus but I doubt that many of us would claim to so that seems a very strange thing to say.

There have been far worse periods than the last 30 years even in the US market, which has been the most successful one. Bonds have out performed equities for very long periods. If I understand correctly, you and others are saying that you believe 100% equities will do well over say the next 30 years, which is a relevant timescale for the OP. I am saying that there is no good reason to believe that. We simply do not know. In addition to the old problems, there are clearly big unprecedented problems on the horizon (notably climate change). The philosophy of passive investing is that the market knows more than we do. If 100% equities were the go to investment, their price would rise until that was no longer the case.

[NapoleonD]

Thank you all - I've been looking at the 'notification' icon all day, not realising there were 8 replies in the thread.

I did think the 2 Eq ETFs were heavily skewed towards the US. Bonds, well, beyond knowing what they are, they remain a mystery. I guess I thought if US Bonds fail for whatever reason, major trouble looms across the board.

I'm not convinced UK Corp has that great a future, which may explain my skew towards the US, though this could just be my own bias coming to the fore.

I don't have the nous to pick individual shares (never mind the resource), which led to the ETF track.

The US outlook I think is rosy, and even if not, it's a weather vane for everyone else? This might explain my skew towards it.

I had a look at this:

https://www.vanguardinvestor.co.uk/inve ... s/overview

though multiple times on The Fool the advice seems to be managed funds are sub-optimal long term, the fee saving justifying a move to some form of tracker?

Obviously you can't give concrete advice, and buyer beware, but what would you suggest moving? Stick with the All World Eq entierly (or shift the US allocation to another vehicle) and shift the bond allocation elsewhere, or just lower it?

As I initially said, newbie.

[GeoffF100]

It would certainly make more sense to stick to and all-world tracker, and replace the US bonds with global bonds hedged into GBP, or gilts. As I have said, you should also consider a packaged retirement fund.

[kempiejon]

he investments should run for 13-16 years before she needs to drawdown (she's currently 49).

My plan for this was an 80% / 20% split along the following lines:

40% S&P 500 UCITS ETF (VUSA) Accumulation
40% FTSE All-World UCITS ETF (VWRL) Accumulation
20% USD Treasury Bond UCITS ETF (VUTY) Accumulation

Like a couple of others have said you have a USA bias, I guess the question is how strong is your commitment the USA will outperform the world for the 16 odd year duration? Or even if your wife thinks that? I think it worth her being engaged in the process.
The global tracker would re weight as other regions come in and out of favour. VUSA will not.
Looking at the idea of Vanguard global trackers a couple of thoughts strike me, VWRL is the distributing version it's VWRP for accumulating. Both have fees of 0.22%. Using Vanguard you can copy the holdings of both with VEVE global developed at 0.12% fees and VFEM emerging markets at 0.22% fees. A split of 90:10 would replicate the global holding and nigh halve the cost. However VEVE and VFEM are distributing, might be worth a bit more investigating.

[EthicsGradient]

he investments should run for 13-16 years before she needs to drawdown (she's currently 49).

My plan for this was an 80% / 20% split along the following lines:

40% S&P 500 UCITS ETF (VUSA) Accumulation
40% FTSE All-World UCITS ETF (VWRL) Accumulation
20% USD Treasury Bond UCITS ETF (VUTY) Accumulation

Like a couple of others have said you have a USA bias, I guess the question is how strong is your commitment the USA will outperform the world for the 16 odd year duration? Or even if your wife thinks that? I think it worth her being engaged in the process.
The global tracker would re weight as other regions come in and out of favour. VUSA will not.
Looking at the idea of Vanguard global trackers a couple of thoughts strike me, VWRL is the distributing version it's VWRP for accumulating. Both have fees of 0.22%. Using Vanguard you can copy the holdings of both with VEVE global developed at 0.12% fees and VFEM emerging markets at 0.22% fees. A split of 90:10 would replicate the global holding and nigh halve the cost. However VEVE and VFEM are distributing, might be worth a bit more investigating.

VEVE and VFEM have accumulating versions - VHVG and VFEG (same fees as their counterparts).

[AJC5001]

VWRL is the distributing version it's VWRP for accumulating.

VEVE and VFEM have accumulating versions - VHVG and VFEG (same fees as their counterparts).

And for completion, VUSA has VUAG accumulating and VUTY has VUTA accumulating.

Adrian

[NapoleonD]

Thanks all, a fair bit to consider here, thanks for the search on the low fee accumulation funds.

I have tried to engage the Mrs on this topic, she just rolls her eyes at me.

Her previous partner for their entire relationship prevented her from paying into a pension because "we need the money now". Within a week of meeting her I had her enrolled in her employers pension scheme which, even having worked part time, currently stands at approx £30k (2013-2019). She has 3 years NHS pension, but she needs to be putting more away for retirement from her self employed earnings. It won't be massive, but it will help. I currently have a pot of 236k, with approx 15k contributions p/a so should be in a comfortable position in the next 8 to 10 years (also have 2 DB schemes to pick up).

[ukmtk]

I have a SIPP at Hargreaves. If you choose carefully you'll only pay £200 per year.
As far as I can tell they have no charges for drawdown. They also offer no cost monthly savings.
The single ETF I would recommend for a newbie is V3AB (I buy it monthly).
The nice thing about it is that it has a low unit cost (~ £4.50) so monthly savings work well.
A lot of the Vanguard ETFs have high unit costs.

Check your wife's NI contributions.
My wife only had 3 full years from school.
In our case this was the best investment I could make for her - topping up her NIC3s (you can do it by monthly DD).
There are no comparable returns!
You have until next year to make up missing years for the last 20 odd.

Hope this helps.