We've looked at why you want to keep things simple and flexible, and why you shouldn't move money just for the sake of it. Now, we're going to look in more detail at getting everything in the right place.
Pensions First
When it comes to pensions, given that you are going to be retiring before too long, you ought to be looking for a plan which provides Flexi Access Drawdown or FAD. FAD allows you to draw what you want when you want from your pension plan, subject to income tax, of course, once the initial tax-free cash has been taken.
A prospective home for your pension funds should also allow phasing into FAD in tranches, rather than all at once in one big lump. The first thing we need to do is establish whether any of your existing pension pots will allow you to do this – a simple yes or no will suffice for now.
Each plan which is a no is a candidate for being moved into a plan that is a yes. Of the ‘yes’ plans, we need to establish the cost of entering drawdown. Often there is a one-off charge for the transition, and you need to check if that applies more than once if you phase into drawdown in tranches. Quite likely there will be an annual drawdown charge too, as there are obligations that a pension provider has, such as reporting to HMRC.
Once you have identified which, if any, of your pots offers full Flexi-access drawdown at the lowest price, you need to see if there are any providers out there which are cheaper, and which offer better underlying investment options.
There’s a comparison page on the Which? site which isn’t paywalled. It’s fairly simplistic, but it is reasonably up to date, as of June 2019. Remember, you’re looking for lowest cost, as long as the platform still does what you need it to do. Cost isn’t everything, but it is important.
I really don’t see why anyone would have more than one pension pot, unless they have old plans with unusual benefits like enhanced tax-free cash or guaranteed annuities or similar. You will have identified any such plans during the exercise in the previous few posts, so apart from any plans like that, you should feel OK about consolidating into the most cost-effective plan which does everything you need it to.
Investments Next
Next, we need to look at your investment pots. Chances are, for most of us, these will be ISAs, but there may be General Investment Accounts (GIAs) or even perhaps some more esoteric plans like VCTs and EISs.
By now, you should have established what they all are, how much is in them, the investment approach and charging structure. But what should you do now? The thinking here is that we need to be able to access this money at different times and in different ways, either ad-hoc, or by taking regular withdrawals.
Later in this blog series, I’ll be discussing the way to optimise your retirement income sources, but for now, we want flexibility above almost everything else. Fortunately, most investment accounts are easily accessible. You want to make sure there are never any exit fees for taking your own money out.
Now if you have investment with time constraints like fixed term bonds, or reducing exit penalties for the first five years, then don’t seek to get out of these – let them run their course and make a note of when you can take your money out without costs, so you shift it around then.
If you have a bunch of ISAs dotted around, consider tidying them up onto one platform where you can maybe hold different sub-accounts within your ISA. If not, just make sure the platform is cost-effective with a decent investment selection, and where you can dial up regular or ad hoc withdrawals without charge.
If you have any ISA allowance left – use it up! If you have a GIA kicking around while at the same time having unused ISA allowance, that’s madness – just top up the ISA with the GIA money.
If you have investment bonds, don’t be hasty in selling these. They have a useful facility whereby you can withdraw 5% of the original investment per year without tax implications and this may be useful for our purposes down the line. Just make sure you are not overpaying.
The chances are you won't have a massive investment list to choose from within the bond, but the tax deferred withdrawals facility probably outweighs that. Also, there may be tax implications if you dump the whole thing in one go, so tread carefully.
If you do have EISs or VCTs then there are probably reasons for doing so. Maybe you’re a high-earner and have already maxed your ISA and pension allowances. Once you retire this is likely not to be the case, so you may no longer have the need for these investments.
But if you do, consider seeking advice about whether to dispose of them and when, or if you should keep them in light of the pending changes to your circumstances. Again, simple is best. Get things tidy, down to the simplest form they can be, but not so simple as to cause yourself problems either now or down the line.
Right, let's keep moving!
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