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Can you protect the value of a pension pot in a SIPP?
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Old Skool
Posted: 09 August 2010 12:20:31(UTC)
#2

Joined: 18/08/2009(UTC)
Posts: 40
Hi Joe

The sort of product you are looking for is a 10y 95% strike put option on the FTSE 100. Such things do exit in the OTC market, but you are unlikely to be able to deal in one given the size and nature of your investment. You can deal in shorter dated (listed) options and roll them over as they mature, but its more expensive.

As an alternative you can replicate the behaviour of this product by effectively selling out of your risky assets (units) into cash (lets say index linked gilts for example) progressively over the next 10 years. To do it properly you could use Black-Scholes's equation (the delta hedge) but it may just pay to liquidate say 10% of the portfolio each year until you retire. I assume you will then buy an annuity? - if you are thinking of going income draw down you willl need to stay invested for longer to allow the pot to grow in retirement, so pick a longer time horzion (25 years? - that's 4% per year)

By the way volatility is a good thing - use it to sell the unit near the top if you can!

Hope this helps

Old Skool
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James Wetherall
Posted: 09 August 2010 14:05:06(UTC)
#3

Joined: 16/06/2008(UTC)
Posts: 6
Not all Absolute Return funds have been poor performers - Newton Real Return and Standard Life GARS (Global Absolute Return Strategies) have provided strong performance whilst limiting volatility and both have been running long enough to have an established track record.

Newton Real Return even provided 4% return during 2008 when many equity markets fell by as much as 40%...

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r hall
Posted: 09 August 2010 14:29:59(UTC)
#4

Joined: 01/11/2009(UTC)
Posts: 2
I have been taking income out of an Sipp since 1995. Terrible drops etc. However, I cash an amount once a year ( nowadays with a charge of only £20) and leave the rest. Surprisingly, it has not lost value over this period. Admittedly a very bumby ride.

The key is the level of income. Resist taking more when the fund has done well; try to take only about 5% -6% max( of the value that year). Anymore and you will eat into capital. Of course, you could argue that retire at 65 life expectancy 85. 200,000 divided by 20 take 10000 a year capital to spend!!
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David Evershed
Posted: 09 August 2010 14:49:23(UTC)
#5

Joined: 11/06/2010(UTC)
Posts: 25
When capital values fall dividend yields rise.

So £100,000 with a yield of 3% can become £50,000 with a yield of 6% - but you still get the same income, and it is income which is important when retired..

So if you invest your pension (via draw down?) in shares you are no worse off - although there has been a missed opportunity to sell high and repurchase low.
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Neil Evans
Posted: 10 August 2010 15:28:48(UTC)
#7

Joined: 10/08/2010(UTC)
Posts: 1
Hi Joe

I’m an Independent Financial Adviser and this kind of situation is not unusual. I don’t know your full circumstances and therefore am not in a position to say whether the following would be suitable, but I do have experience of clients facing what would seem to be similar problems and where we have provided a very acceptable solution. In the past I have used a SIPP approved product where capital growth is guaranteed up until the time of retirement, and thereafter income guaranteed for life (even if there happens to be fluctuations in capital values), without the need for periodic reviews. If this is of interest I shall be happy to discuss it’s suitability with you. Simply call me on 01446 700 701.

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raul pinto
Posted: 10 August 2010 21:59:57(UTC)
#8

Joined: 10/08/2010(UTC)
Posts: 1
I have been in a SIPP drawdown arrangement for the last 5 years.
It has been a bumpy ride indeed.
First you have to get the right financial organisation to manage your SIPP.
Charges and flexibility of dealing in as wide a range of instruments at the lowest possible price are the most important factor.
Play safe and dont be too greedy.Make a steady 2-4 % whenever you can and put in firm stop losses to guard against situations like Oct 2008.
Only draw out what you will need, seeing that you will have a battle with the taxman wanting his cut up front on any income that you drawout.
Most important of all AVOID like a plague Institutions that promise 9% payouts like ABERDEEN ASSET MANAGEMENT did in 2001
with their ABERDEEN WORLDWIDE MONTHLY INCOME PLAN,where my £7000 investment turned to dust in less than a year.
Forget about any redress for losing huge chunks of cash, all the F.S.A. and F O S do is tell you that you should have read the small print.
The full page ads in the quality weekend press are also part of the same game.
And last but not least spend a lot of time nurturing your investment by keeping up with the wonderful information you get from websites such as this one.
Happy Hunting
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Anonymous Post
Posted: 19 August 2010 15:37:36(UTC)
#10
Anonymous 1 needed this 'Off the Record'

Hi Joe,

If such protection were available (i.e. protected after 10 years if the FTSE for falls in the FTSE of more than 5%), how much would you be willing to pay for it? 5% of the amount "insured"? 20% of the amount?

What feels like a reasonable premium to you?

If it were cheaper to sell your funds (within the SIPP) and buy a product (still within the SIPP) that gave you exposure to the FTSE going up while protecting you if it fell, would you be interested in this as an alternative?
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