SIPP Drawdown - Year 9 Update

It's June, another 12 months has rolled by so it must be time to review my SIPP drawdown portfolio at the end of its 9th anniversary. Here’s a link to the previous update of June 2020.

The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income which I calculated should be sustainable over the longer term without depleting the capital. This would bridge the 10 year gap between early retirement at age 55 yrs and state pension.

Three years back and my state pension kicked in - currently £9,300 p.a. - so I am no longer so reliant on income from my SIPP which means I have more flexibility on investment choices.

Portfolio Changes

My efforts to move towards a more climate-friendly portfolio are well documented and this includes my SIPP drawdown portfolio so there have been a quite few changes since last June. My main focus over the past year has been to continue the move to fossil-free investments - and therefore the additions of the likes of Plug Power, Enphase and NIBE, a top up of the iShares Clean Energy ETF and the addition of the iShares fossil-free global index ETF which was flagged up by a reader this time last year.

The government bonds have been sold as well as the more cautious funds, Personal Assets and Trojan Ethical. I have also reduced my holding in the renewable infrastructure sector as I am not convinced the model is as robust as I thought last year, especially in relation to future power prices. Therefore NextEnergy, Greencoat UK Wind and Octopus have been sold and TRIG reduced.

My portfolio basically consists of a mix of green investments and technology. In the past year I also added the Allianz Technology Trust (recent 10:1 share split) to complement Polar Cap Technology.

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Performance

The big story over the past year has obviously been the coronavirus pandemic which has impacted the global economy and people's lives in a most profound way. I think this will obviously take some time yet to fully unravel but with the vaccine roll out starting earlier this year, we can see the prospect of things starting to open up.

Over the past 12 months, the FTSE 100 has moved ahead by 11.5% (plus dividends) from 6,292 last June to currently 7,017.

I have seen some spectacular returns from some of my clean energy holdings over the year. For the year to December 2020 my green portfolio returned over 50% but the sector has reversed in recent months and the SIPP portfolio is showing a gain of 21% since last June. Much of this is from £8,000 profits on the sale of 6,000 ITM shares.

Plug Power is up 75% since purchase, NIBE 33% and Enphase 35%. My iShares Clean Energy ETF is showing a share price gain of 60% over the past 12 months however my top-up was at a higher level than today.

Here is the portfolio

 

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Comparisons

In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,017 - a gain of just 27.5%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 62%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £223.50 - a gain of 113% or CAGR annualised average of 8.8% p.a.

My self-managed SIPP portfolio including income has risen from £62,000 to £154,500. Taking account of the income withdrawn in the early years of £19,400, the total return is 149% which is very satisfactory and works out at an average annualised CAGR of 12% p.a.

State Pension

I relied upon income from my SIPP to supplement my ISA income and bridge the 10 year gap between early retirement at age 55 yrs and state pension. This part of the journey became 'mission accomplished' in 2018.

My state pension has now been in payment for just over three year which is long enough for me to know that I do not need to continue with drawdown from my SIPP. As it is a flexi-drawdown arrangement, I can always dip in at any time for a lump sum withdrawal if required. I will therefore be less reliant on the income from my SIPP for essential living costs and it will become more for discretionary spending but more likely remain invested. I recently took a look at inheritance tax and realised it would be more tax efficient to take money from my ISA in future as the SIPP value does not currently count towards the £325,000 tax-free allowance for IHT.

Also, unlike an annuity which, once purchased means the capital lump sum is lost forever, any residue in my SIPP will pass on to my children and grandkids...tax free if I go before the age of 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

Obviously I am really happy with almost a decade of self-managing a flexi-drawdown sipp portfolio. For the first few years, the dividend income predictably rolled in much as planned. During the next three years I withdrew significant lump sums tax free and placed the excess which I did not require for income in my ISA.

Since 2018 I have needed little or no income from my SIPP and will therefore continue to focus on longer term growth combined with environmentally responsible options. As I am no longer depleting the capital, this should hopefully grow much the same as during the accumulation phase before drawdown and in the knowledge the pot can be inherited by children and grandchildren possibly tax-free at some point in the future if not needed for care home fees!

For me, the big advantage of the SIPP is the flexibility it offers. I started off with a portfolio of income-generating investment trusts. I then introduced the multi-asset, globally diverse index funds such as Lifestrategy and now I can focus on more climate-friendly options and do my bit for the planet. It certainly feels much better to have aligned my investments with my values and lifestyle and know I am no longer investing in fossil fuels which are continuing to add to global warming and undermine efforts to tackle the climate crisis.

If you are managing your SIPP accumulation or drawdown or you are planning to do this, feel free to share your experience in the comments below.