link to the previous update of June 2022.
The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income. This was to bridge the 10 year gap between early retirement at age 55 yrs and state pension.
In 2018 my state pension kicked in - currently £10,500 p.a. after a very nice 10.1% inflation uplift in April under the triple lock provisions - so I am no longer reliant on income from my SIPP.
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 over the decade.
I have been reducing exposure to equities and moving to a more defensive mix in recent years and in the past 12 months this has continued. So, a disposal of my two technology trusts, individual shares in Orsted and ITM Power, my clean hydrogen ETF and my iShares global equity ETF. The proceeds have been reinvested in additions to my renewable energy trusts plus ‘steady Eddie’ Personal Assets Trust which currently accounts for over 25% of the total portfolio. The emphasis now is mainly on capital preservation.
The conflict in Ukraine over the past year or so has triggered a global food crisis, rising energy costs and high inflation and this has resulted in a lot of uncertaintainty and instability - especially around security of energy.
This war and the weaponisation of oil and gas by Putin should speed up the efforts to transition to clean renewable energy and the EU have announced their plans to end its reliance on Russia’s oil and gas and speed up its roll out of alternatives. However in the short term we have sharply rising inflation - CPI hit a 40 year high of 10% in April - also the cost of living increases from the likes of transport, food and rising energy bills. Also our borrowing has risen sharply and net debt is currently over 100% of GDP...the highest for over 60 years.
The Bank of England last week increased interest rates to 5.0% - the highest level since early 2008. The cost of borrowing is rising sharply so inevitably people will be prioritising essentials and cutting back on the goods and services they consider they can manage without. This will impact the wider economy and many sectors of the market have seen quite a pull-back these past few months. One positive is that savers are getting much better returns after more than a decade of rock-bottom savings rates.
The situation in Ukraine combined with all the ongoing fallout has naturally dominated the news but the climate crisis continues to throw up more and more challenges every week - more flooding, more heatwaves and more intense wildfires. Will we see 40C+ again this year in the UK? Unfortunately our political leaders and policy makers show little signs of acknowledging this crisis and acting decisively to address the issues. The momentum and promises made at COP 27 last year are soon forgotten.
I have had some excellent returns from some of my clean energy holdings in recent years. However in 2023 sentiment has turned negative for my renewable investment trusts and share prices have fallen back significantly as premiums have reversed and most now trade on big discounts to underlying NAVs. Consequently the SIPP portfolio has failed to make progress. My Gold ETF has held up well over the year but I was not prepared for the significant drop in my index-linked gilts ETF...down 40% following the Truss/Kwarteng fiasco last September but has since recovered a little. It really provides food for thought when government bonds start to behave like volatile small cap equities...the whole financial system appears to be more fragile than we are led to believe which has raised a red flag of warning for me going forward.
Overall, with the additional dividends from my renewable energy investments a small gain of just 1% since last June - in the current climate, not bad all things considered.
Here is the current portfolio
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In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,460 - a gain of 35.5%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 77%
In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £215 - up 3.9% over the past 12 months and 105% since June 2012 and CAGR annualised average of 6.8% p.a.
Taking account of the income withdrawn over the earlier years of £19,400, my self-managed SIPP total return including income is showing a gain of £103,400 which is very satisfactory and works out at an average annualised return of 9.2% p.a.
The past decade has been a relatively favourable one for investors and I am sure many will have generated some good returns...I’m not so confident
the coming decade will be so rewarding which is why my focus is on capital preservation rather than going for more growth. Obviously it helps that I no longer require income from my SIPP.
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 5 years. As the SIPP is a flexi-drawdown arrangement, I can always dip in at any time for a lump sum withdrawal if required. However, I have not withdrawn any income from my SIPP over the past 5 years and it will therefore very likely remain invested. When I took a look at inheritance tax, I 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 the past 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 few years I withdrew significant lump sums tax free and placed the excess which I did not require for income in my ISA.
The starting sum was £62,000 so the pot has more than doubled in value over the past 11 years but, as I said last year, I am not so confident that market conditions will be so favourable over the coming decade. Maybe a little more growth but I think my main focus will be trying to maintain value in real terms after taking account of rising inflation. Hopefully the pot can be inherited by children and grandchildren 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 Vanguard 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.