These changes took effect from April 2015. I have completed the forms and converted my pension from income drawdown to flexi drawdown which basically means I am now free to take ad hoc payments from my pension for whatever sum I decide as and when needed.
Under these new freedoms, I am now able to drawdown as much or as little as required. As my pension is my main source of taxable income, I can withdraw up to £10,600 tax free this year. As I have little taxable income, it appears to be a no-brainer to siphon off some of my taxable sipp over the coming few years and reinvest in my ISA as the income in the future will be tax free.
When I reviewed my sipp earlier in the year, I was a little surprised to note how favourably the Vanguard Lifestrategy60 fund would have compared over the corresponding 3 yr period since June 2012.
At the end of my 3 yr review period in June, the average annualised returns (adjusted for platform fees of 0.20%) for the Vanguard fund have been ~10.5% p.a. Assuming I sold some of units at the end of each year to provide an equivalent income, my starting sum of £62,000 would now be worth ~£74,000 had I adopted this route to manage my sipp drawdown.
Obviously, the investment trusts have delivered a steadily rising income stream which means I do not need to touch the capital. The overall CAGR at the 3 years review point was 12.9%p.a. - without the boost from smaller companies specialist Aberforth, I suspect this figure would have been nearer to the 10% offered by the Lifestrategy 60 fund.
This revised strategy to remove the value from my sipp up to my personal allowance each year was more or less the decision I reached following the announcement 18 months back. I have mulled over the decision in the intervening period and can see no real downside. My recent walking holiday break in Pembrokeshire gave me some quality time away to reflect on things and I came back with a settled decision to go ahead with this changes to my sipp.
The main consideration therefore was merely to decide which investments to sell.
In the end, I decided to dispose of some of the investment trusts which are duplicated in my ISA. Also, I wanted to keep the Aberforth smaller companies trust and also the more globally diversified Law Debenture trust.
I have therefore sold the following :
New City High Yield
As the LS index fund can provide the balance and diversity I need with lower costs and a comparable, if not better, returns than the investments sold, I have decided to stick with it moving forward rather than the investment trusts. It just seems very simple.
Although the proceeds will be withdrawn and then reinvested in the Vanguard LS outside of my sipp, for the purposes of maintaining continuity of a demonstration drawdown, I will retain the investment within the sipp. The proceeds are therefore shown to purchase 79.7 units in Vanguard LifeStrategy60 (acc).
The next drawdown decision will be next July following the anticipated redemption of my Coventry BS pibs which currently account for ~ 1/3rd of the portfolio value.
Here is an updated portfolio.
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