I have not posted in quite some time since me and Mrs Quint Left our full time employment in Feb 2018. How the world has changed.
Here is a link to the last thread when the SIPP was initially constructed - https://www.lemonfool.co.uk/viewtopic.php?f=30&t=14313
The initial plan was to leave the SIPP to re-invest dividends and then when she reached 60 (March 2022) take 25% and then take income from the natural yield combined with a small DB pension (also taken at 60) to provide an income to cover normal living costs and spending money (with a bit extra) until state pension age. At this point the DB pension will reduce by 50% but will be more than compensated for by the state pension, about a 50% increase in income.
She had enough cash to cover her income between finishing work and drawing pension but potentially planned to do some work in the meantime to coincide with time when I was working and also to make up the remaining two years NI contributions she still needed for full state pension.
Happy to say this was done a year early with three short term temporary assignments over three years. She earned enough income to bridge the remaining years so the cash we had put by was put in to her Shares ISA and invested. The ISA exists to provide for holidays, leisure and larger one off expenses (it is now actually larger than her SIPP).
When the SIPP was constructed I had three capital targets in mind, really needs to be, would be nice to be and hope to be. Income needed to be covered by the remaining 75% of the SIPP after taking the 25% tax free lump sum. By August this year capital value had exceeded the hope to be figure by a decent margin and income was sufficiently covered by the natural yield.
Due to her deciding then to finish work in 2020 she was not going to use her tax allowance this year so we decided to take 25% from the Final salary and start taking the income nine months early and to put the SIPP in to drawdown taking 25% and a monthly income from September.
Since I posted the last table showing the holdings in the SIPP dividends were re-invested to top up existing holdings to broadly maintain original weightings. Two major changes were made, BT was sold after a fall in capital and cancellation of the dividend (should have listened to DOD), also Witan was sold due to poor performance and me becoming generally unhappy with the multi manager style of the trust. With this capital some holdings were increased slightly and a new investment in Allianz Technology Trust (ATT) was added.
Due to the performance of the holding in Scottish Mortgage (180% gain) and Allianz (over 50% gain) and the fact that between them they had a negligible yield I sold ATT and most of my SMT to provide the funds to both support the 25% tax free lump sum and leave approximately six months worth of income in cash.
The remaining portfolio was moved in to drawdown, the process was very easy with Hargreaves Lansdown, all done online, 25% delivered to her Fund account within three days then sent a secure message via her account to tell them how much to pay monthly direct to her current account. SIPP fees fixed at £200 PA with no extra charges for drawdown.
The combined income she is getting from her pensions is about 10% more than I had forecast for and this is by taking approximately 90% of the natural yield after charges (£200). This does not include any income from the 25% which by next tax year will be mostly recycled back in to her ISA due to having a relatively large amount of cash (to cover the next three years of holiday) which now sits as cash in the holiday account. The cash was mostly put back in to Scottish Mortgage and a Vanguard developed world ETF (VEVE) as she already has a fair sized holding in ATT in her ISA. A holding of VEVE was also added to the Fund account which will be moved in to the ISA in the next tax year and the remainder currently in a Vanguard S&P500 ETF (VUSA) will be moved the following year. All investments will then be in the ISA, only cash and a full holding of premium bonds will be held outside of the SIPP\ISA.
This is how the SIPP looked when it was moved in to drawdown with regards to capital allocation and income generated. The running yield is approximately 3.7%.
Code: Select all
Stock | % Capital | % Income
City Of London Investment Trust Ordinary 25p Shares | 10 | 13
CQS New City High Yield Fund Ltd Ord NPV | 5 | 10
European Assets Trust plc GBP0.10 | 3 | 4
F&C Investment Trust plc Ordinary 25p *1 | 10 | 4
Finsbury Growth & Income Trust plc Ordinary 25p Shares | 12 | 6
Henderson Far East Income Ltd Ordinary NPV | 5 | 10
Henderson Smaller Cos Investment Trust plc Ordinary 25p Shares *1 | 12 | 6
Imperial Brands Group Ordinary 10p | 2 | 5
Lowland Investment Company plc Ordinary 25p Shares *2 | 6 | 7
Murray International Trust plc Ordinary 25p Shares | 6 | 7
National Grid Ord 12, 204/473p | 3 | 4
North American Income Trust plc ORD GBP0.05 *1 | 7 | 6
Regional REIT Ltd NPV | 2 | 5
Scottish American Investment Co plc Ordinary 25p Shares *1 | 7 | 4
Scottish Mortgage Investment Trust plc Ordinary Shares 5p | 1 | 0
Standard Life Private Equity Trust plc Ordinary 0.002 | 7 | 6
Vodafone Group plc USD0.20 20/21 | 2 | 4
Cash | 2 | 0
Totals | 100 | 100
The SIPP is now in a hands off situation but will be monitored on a regular basis and any changes will only be made if something changes drastically.
As I am only taking 90% of the generated income in the first year my crude calculations suggest that if the yield from this portfolio increases by 2.5% each year then I can increase the monthly payment at 5% for the following seven years until Mrs Quint reaches state pension age at which point I will do a full review of where we are, where the portfolio is and decide what changes are needed for the next phase of our retirement.
I have provided this for reference and hope it will be of interest. Happy for comments and observations but please do not hijack to start alternate discussions on different strategies. This portfolio has done what it was set up to do, yes some choices could have been better but overall the main objectives have been met.
Best Regards
Quint