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Weekend reading: Vanguard is ready to let you SIPP

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What caught my eye this week.

Hard to make this sound anything like a (not paid for) plug, but I’m sure our many readers who’ve been waiting for it will all want to know that Vanguard is finally ready to take your money into its Personal Pension (SIPP).

I covered the main features of Vanguard’s SIPP back in December, so won’t repeat that again. Instead here’s a couple of other articles that have run to mark the launch.

From ThisIsMoney:

Jeremy Fawcett, head of Platforum, said the Vanguard Personal Pension’s competitiveness compared with Sipps offered by 14 other leading platforms across a range of investment scenarios, makes it ‘one of the lowest-cost options on the market, especially for those at the beginning of their journey’.

The research consultancy found that a typical investor would pay £172 per year to invest a £40,000 annual Sipp contribution, compared to an average of £238 on competitor platforms, with the most expensive charging £396.

And from the Financial Times [Search result]:

The Vanguard SIPP is initially only available to savers who are still building their pensions, or in accumulation, but is expected to open to retirees drawing on their pensions from the start of the 2020/21 tax year. This is a significant market.

There were 984,583 pension drawdown policies in existence at the end of March 2019, according to the results of a Freedom of Information request submitted by Hargreaves Lansdown to the Financial Conduct Authority.

It’s worth noting the Vanguard SIPP option may not be the cheapest in every case. Depending on how you want to construct your pension, it could not even have all the building blocks you need either, as it’s limited to Vanguard’s own funds.

Still, I think it’s probably going to Vanguard-ize the UK personal pensions industry in pretty short order. We can discuss what ‘Vanguard-ize’ means in the comments!

Have a great weekend.

From Monevator

Oops. One of those weeks. For starters The Accumulator was doing sums for his next SWR article. For my part, I had all sorts on. We must try harder!

From the archive-ator: Do great investors live longer? – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Growing numbers of British firms say coronavirus outbreak is hitting their supply chains – ThisIsMoney

The huge AirBnB scam that’s taking over London – WIRED

Secretive UK tax unit homes in on rich families [On Family Investment Companies; search result]FT

Housing market looks set for spring surge, as January sees highest level of property sales for two years – ThisIsMoney

UK’s cash economy ‘close to collapse’ – Guardian

The dangerous democratization of alternative assets – Institutional Investor

Products and services

How to ‘do the splits’ on your mortgage [Search result]FT

New polymer £20 featuring painter Turner enters circulation – BBC

Premium Bond prize rate to be cut to 1.3%… – MoneySavingExpert

…while Nationwide launches a lottery-style savings account – ThisIsMoney

You can still claim your free share from Freetrade [and I get one, too]Freetrade

How to invest in rare books – ThisIsMoney

Price of first class stamps to rise 6p to 76p – BBC

RateSetter will give you £20 [and me a cash bonus] within 30 days of you putting in your first £10 – RateSetter

Shared ownership homes for sale [Gallery]Guardian

Comment and opinion

Avoid the zeroes – Of Dollars and Data

Garbage time – Humble Dollar

Picking bad stocks – XKCD

Merryn Somerset-Webb: Pensions tax relief is on a slippery slope [Search result]FT

Event horizon: The safe withdrawal rate, annuities, and the brutal reality of low interest rates – Finimus

The value of advice: Improving portfolio diversification [Research paper, PDF]Vanguard

When does investing become speculation? – Morningstar

One portfolio risk to rule them all – Movement Capital

Bobby Seagull: The puzzle of managing money [Search result]FT

Resigned to my fate – The FIREStarter

The biggest truth in personal finance – Get Rich Slowly

Your cheating’ wallet: On financial infidelity – New York Times

This one change can improve your retirement wealth by 50% [US wrappers, but relevant]MarketWatch

Dow 100,000 – Klement on Investing

Day-trading déjà vu

Small investors on epic buying spree fueled by free trades; drove up price of Apple and Tesla – Bloomberg

More Reddit: bull attack [Search result; Stock pumping retail day traders are back, this time using options]FT

Naughty corner: Active antics

Hunting for sustainable dividend growth [PDF]UK Value Investor

Larry Swedroe: Value investors should follow their heads, not their stomachs – Evidence-based Investor

Avalanche accidents and investment risk – Behavioural Investment

Manchester and London Trust: Long the future – IT Investor

Venture capital: Worth venturing into? – Factor Research

Politics and Brexit

[Click to enlarge]

Why is the UK arguing about a Brexit matter that is already agreed? [Search result]FT

UK to close doors to non-English speakers and unskilled workers – Guardian

The end of free movement: This is a nation dismantling itself over nonsense – Politics.co.uk

Kindle book bargains

Lab Rats: Why Modern Work Makes Us Miserable by Dan Lyons – £2.99 on Kindle

Secrets of Sand Hill Road: Venture Capital—and How to Get It by Scott Kupor – £1.99 on Kindle

Hit Refresh: A Memoir by Microsoft’s CEO by Satya Nadella – £1.99 on Kindle

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker – £0.99 on Kindle

Off our beat

What’s in your jar of awesome? – RAD Reads

JP Morgan economists warn climate crisis is a threat to human race – Guardian

100 little [big] ideas – Morgan Housel

How NOT to run a business – Charles Sizemore

Can a shorter workweek make people happier? [Graphic]Visual Capitalist

SpaceX has plans to fly tourists twice as high as the International Space Station – New Scientist

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{ 71 comments… add one }
  • 1 Matthew February 22, 2020, 6:29 am

    Does not do in specie transfers yet, not worth moving old money to save 0.1% with the risk from being out of the market

  • 2 JimJim February 22, 2020, 8:41 am

    the 100 little ideas article… Pure gold, I’m saving that one, just wish I could remember them all.

  • 3 Gentlemans Family Finances February 22, 2020, 8:54 am

    On sipps and pensions it is worth pointing out that if you have a company stakeholder pension then you can transfer it to another provider – even if you are still contributing.
    Anyone can do this and all it takes is a for from the new provider.
    You won’t hear this advice from your current (over priced and inflexible ) provider but the savings can be substantial.
    I for one swapped my Aegon pension charging 1% to my youinvest sipp charging a marginal 0.2% meaning an annual £800 on the size of the fund. I did occasional transfers every few months with money still being paid into Aegon each month.
    (Money now in vanguard ets – where else? )

  • 4 David February 22, 2020, 8:54 am

    Matthew – I am moving my money across a bit at a time. That way I expect ill win a bit and lose a bit from being out of the market for those few days.

    I am also keeping my HL SIPP for the funds not available on Vanguard (ishares gold), and also a small portion of my Vanguard funds and then using my vanguard SIPP for the significant proportion of my vanguard funds. That way I can still do some quick rebalancing in the HL SIPP. I don’t know how long it will take (if necessary) for transfer from HL to Vanguard and vice versa though – well see on the practicalities of it…

  • 5 Stefan February 22, 2020, 9:05 am

    Vanguard SIPP – too little, too late. Fidelity SIPP is cheaper if you only hold ETFs. The yearly flat fee is £45 and trades cost £10 (regular savings and reinvestment is £1.50). The ETF range available is limited but does include low-cost Vanguard and iShares Core ETFS.

  • 6 L February 22, 2020, 9:13 am

    The Vanguard SIPP will no doubt prove popular. It was an ideal fire and forget home for £45k left from my pre-defined benefit pension and will no doubt serve me well. Finally opted for a target retirement fund as well after TI’s recent reminders on the end of bull markets. May try and create a more global version of the same product after transfer, but will do for now.

  • 7 Vanguardfan February 22, 2020, 9:29 am

    Good for beginners is my verdict.
    Interesting set of links this week, I was hoping you’d pick up the FIC article!

  • 8 Neil Richardson February 22, 2020, 9:30 am

    Finally the Vanguard SIPP has arrived! I’ve just helped to set up a sipp in minutes,including a transfer in from an old personal pension, and using lifestrategy funds. This was ideal for this purpose but the flat rate providers like Interactive Investor with their wider choice of funds are better value for large value SIPPs like my own (£120 per annum vs capped £375). I would like to see Vanguard introduce a gold fund (or etc). As it stands you can’t build a gold based classic asset allocation e.g. permanent portfolio which is a major weakness in my view but I’m not holding my breath for a change in their position.
    Now I await news off their drawdown terms in 2020-21. It may still prove to be very expensive (in percentage terms) to place small sums into drawdown.

  • 9 Vanguardfan February 22, 2020, 9:36 am

    II SIPP is £240 (£120 plus choice of plan). There are a few others that offer capped/flat rate providers if invested in ETFs/shares only. These will be better value for the larger accounts

  • 10 E&G February 22, 2020, 10:06 am

    The Merryn Somerset Webb article in the FT is perhaps fairly instructive of where pensions are headed, particularly given the large Tory majority for the next five (and foreseeably far longer) years. Anyone with a DB pension should get thinking about supplementing it asap and otherwise making the most of reliefs currently available.

  • 11 Far_wide February 22, 2020, 10:12 am

    Ref: the event horizon piece, the idea that annuity rates = SWR is an interesting one. Does anyone know of a site that explains what sort of asset mix annuity firms actually hold? I haven’t immediately been able to find one, but it’d be interesting to see how it compares to a ‘normal’ investment portfolio. i.e. is this a valid comparison?

  • 12 Amit February 22, 2020, 10:13 am

    For what its worth, the Vanguard SIPP does not allow regular employer contributions. You can do an one off employer contribution though. The reply back on my query suggested that there are no plans to set up this feature – a little disappointing given that the product is aimed at the self employed and contractors, at least the latter do employer contributions mainly. Nonetheless, I initiated my transfer to them.

  • 13 ZXSpectrum48k February 22, 2020, 10:42 am

    @Far_wide. It’s hard to generalize about a typical UK annuity provider. They don’t actually hold a ladder of Gilts against the liabilties. Instead they will attempt to earn spread pickup above the Gilt curve using fixed income credit products. So writing annuities is effectively a leveraged spread business. They have regulatory requirements that force them to hold some Gilts and they will attempt to match the duration and convexity of their liability profile.

    So typically the asset portoflio is a mix of Govt bonds and Supras, corporate bonds (typically highly rated since lower rated corps require higher PRA requirements) and property loans. There is also a residual of other assets, such as direct property, infrastructure, equities etc, plus things like equity release which act as an asset.

    As examples and only roughly:
    Aviva: 15% government/supra, 25% corporate bonds, 35% property loans, 25% other.
    L&G: 10% government/supra, 75% corporate bonds, 5% other.
    Canada Life: 20% government/supra, 55% corporate bonds, 15% property loans, 10% other

  • 14 Neil Richardson February 22, 2020, 10:48 am

    I don’t always agree with Merryn but I do enjoy her particular brand of financial journalism and the tax relief article is a cracker. It really underlines how lucky we have been to enjoy lifetime allowances above £1m particularly if achieved at 40% relief. Actually, it’s obscene isn’t it! Make hay while the sun shines.
    (perhaps 300k for 10k us a little low though given the level of index linked annuities)

  • 15 Neil Richardson February 22, 2020, 10:58 am

    Vanguardfan, so if Vanguard double their charges in drawdown, like II, to 0.30% then the breakeven figure compared to II is 80k. However they’re both expensive for someone drawing 4% pa and you’re probably better off exhausting it tax efficiently as soon as possible.

  • 16 Marco February 22, 2020, 11:04 am

    Merryn like most others seems to miss the point that it is deferred tax.

    If they cut higher rate relief, then current pensions are pointless for higher rate payers

  • 17 The Investor February 22, 2020, 11:11 am

    @ZXSpectrum48k — very interesting as always, cheers for the insight. I knew they were diversified but didn’t realise how much. As an aside this does make me wonder re: financial repression how far along the curve the big pension firms have been having a more direct impact, as opposed to just pushing marketing participants to move to riskier assets / out of bonds.

  • 18 William February 22, 2020, 11:15 am

    Vanguard have a competitive platform/admin charge @ 0.15%. Their index fund/etf TERs are low (and have over time been lowered as AUM have increased/or subject to competition). Their active funds/etfs have competitive TERs. There are no charges for buying/selling/switching of funds and this also applies to etfs if individuals are happy to let Vanguard action instructions in bulk at set times, otherwise their £7.50 “live” trading price charge is reasonable. The capped annual £375 charge across all accounts is clear and reasonable. At the end of the day Vanguard have to cover their costs and maintain a viable business model. Their entry to the UK marketplace is on balance beneficial to the UK retail investor (which should be acknowledged). Other providers either have not changed their business models or only reluctantly do so when forced to do so through competition or regulation. Overall the Vanguard proposition has longevity in mind.

  • 19 JimJim February 22, 2020, 11:15 am

    @ Marco… The deferred tax thing is an argument, but as it assumes that you will be paying the same marginal rate both in and out, which is highly unlikely as the tax free allowance forms part of it, as does the tax free lump sum… These two things together probably mean that if you are still paying a higher rate of tax, you can afford it.

  • 20 Tony Edgecombe February 22, 2020, 12:07 pm

    I think I’d be inclined to give Vanguard six months to a year to settle down. New systems are always riddled with problems no matter how hard they try.

  • 21 Far_wide February 22, 2020, 12:30 pm

    @ZXSpectrum48k – Thanks for the insight, much appreciated. That does make me wonder about the premise of the article then. It seems a stretch to say (I quote) “…But none of this really matters, because there’s a market price for the SWR, it’s called an annuity” given that we’re clearly comparing apples and pears.

    The above said, there’s clearly going to be a correlation there – I’m not saying it’s irrelevant to SWR’s that annuity rates are so low by any means. Just a bit of jump to say “same/same”.

  • 22 Finumus February 22, 2020, 12:52 pm

    @far_wide, @ZXSpectrum48k Someone kindly posted a link to a very good PDF:


    It’s from 2014, but describes asset mix insurers use in Chapter 8. It’s actually quite a bit more varied than I thought it would be.

  • 23 JimJim February 22, 2020, 12:58 pm

    @ Finumus,
    Thought provoking article… I wonder, however, if the SWR quoted and thought about by many here, and in countless other retirement forums, which varies around a theme of 3% in the U.K. may not be a bit nearer the mark than you could get by just comparing it to the annuity rate achievable.
    Surely all the brains, infrastructure, legislative processing, paperwork and company profits must drag somewhat on annuities?

  • 24 Tony February 22, 2020, 1:28 pm

    I’d been thinking about this recently. On a £100,000 pot, let’s assume Vanguard global FTSE all cap. Total charge 0.15 platform +0.23OCF=380.
    £200,000 = 760 (platform cap of £375 only applies after 250K)
    Compare to say Fidelity in similar investment, but using an ETF for more favourable platform cap of £45. VWRL. 0.22% OCF. Say 6 purchases in SIPP pa. No sales.
    On costs alone (excluding platform risk, service quality differences and no UK or Irish investor protection AFAIK for Irish domiciled ETFs like VWRL), if an investor is wanting to keep costs to the minimum, whilst the Vanguard SIPP is cheaper than many alternatives, there are even more cost effective ones during accumulation. Also noted at posts 5 and 9.

  • 25 Pinkney February 22, 2020, 1:44 pm

    Well the finumus article is an absolutely brilliant thought provoking read. Not pleasant to come across after I have been there thinking I’m in a good position and could stop working if I wanted. It might not be one more year but one more decade now . Interesting times and looking forward to the article on negative rates which certainly means gold is perhaps not such a bad asset.

  • 26 Al Cam February 22, 2020, 2:00 pm

    @TI, Far_wide, JimJim
    According to Ned Cazalet (see page 64 at link given above by finumus):
    “The days when life offices mostly backed their individual level annuities by gilts are long gone. Despite this, there appears to be a popular misconception among some advisers that, currently, individual pension annuities are predominantly underpinned by investment in gilts.”

  • 27 ZXSpectrum48k February 22, 2020, 2:19 pm

    @far_wide. I haven’t read the article but a premise that “SWR=annuity rate” sounds a very reasonable starting position. An effective principle in finance is to say that the price of anything is the price of the replicating hedge. Well, if your liability is an inflation-adjusted income distribution until you die, then an annuity is about as an effective replicating hedge as you can buy. Of course, that annuity incorporates fees and we can argue over their magnitude.

    Now, it’s true that an equity heavy portfolio has, historically at least, generated an SWR that is greater than current annuity rates. That fact, however, doesn’t change the fact that you take significant replication risk running an equity heavy asset portfolio vs. the liability in question. History may not repeat.

    Moreover during even the last few decades annuity rates were far at higher multiples than current annuities and higher than SWR rates. In 1980s level annuity rates were 8-12% given much higher long-dated Gilt yields (above 10%). Are we really arguing that annuity rates collapse but SWRs somehow stay at their historical level? It sounds rather implausible to me but everyone will counter I’m being too pessimistic again!

  • 28 MrOptimistic February 22, 2020, 2:30 pm

    The swr = IL annuity rate sounds plausible to me. Given that life offices have to deal with a population, whereas as individuals we can pretend we are at the favourable edge of any distribution, and risk averseness presumably means they keep a bit of margin for reserve, 4% still looks a stretch.

  • 29 MrOptimistic February 22, 2020, 2:35 pm

    @Finumus. From the link:
    ‘To fill the annuity gap and help mitigate drawdown investment risk, providers are busying themselves preparing
    a tsunami of new accumulation and decumulation propositions, including offerings without guarantees as well
    as contracts in with profit, variable annuity and CPPI formats.’
    Question: did I blink and miss it?

  • 30 JimJim February 22, 2020, 2:38 pm

    @ ZX, pessimism is a good starting point, and yes drag may play some small part. Risk is diluted in these products with the numbers of individuals involved and it is so so nice to have some certainty in your planning. The market for these products (annuities) seems to be shrinking with pensions freedoms and falling rates. I wonder if the actuaries predicted this well enough in the past? are the rates a reflection of what is affordable or a true rate of what the market will bear? Are hangovers from previous assumptions dragging today’s rates down? Is the industry now top heavy servicing older annuities and not collecting new business, if so who pays? and how would this dynamic play out if the sums were really wrong? who underwrites them?
    As you may be able to tell, I have a lot of questions and no answers, assurances invited.

  • 31 Finumus February 22, 2020, 2:41 pm

    @ZXSpectrum48k You’ve actually made my case there more succinctly than I did in the article! I just didn’t want to start going on and Risk-Neutral-Pricing replication. Thought I’d lose everyone.

    @MrOptimistic Yeah it certainly seems there’s been a lack of innovation in this space, perhaps because you can’t actually innovate your way out of this dilemma? So any new products they come up with are perceived as ‘bad’ value and no-body buys them. And that will be because peoples expectations are too high!

  • 32 Al Cam February 22, 2020, 2:59 pm

    I do not think you are being too pessimistic; but rather just taking a cautious view.

    I suspect the argument revolves around the following two points:
    a) whose version of history are we following; and
    b) what will the future look like.

    Re, whose version of history we are following: ardent SWRers (is there such a word?) seem to believe that the last 100 or so years contains all the history that we need to know, others, such as Mr Schmelzing (see last weeks post about “Eight centuries of global real interest rates ….”), would probably disagree.

    Re the future: I know that my own crystal ball does not work terribly well, and thus the best I can do is to take a view of how things might just pan out in the full knowledge that I will almost certainly be wrong.

  • 33 Sparschwein February 22, 2020, 3:14 pm

    I think Vanguard’s SIPP is the best offer if you take customer service and platform risk/financial stability into account. Some uncertainty about drawdown conditions.

    But beware their policy for non-residents. It’s no good for anyone expecting to move abroad.

  • 34 Colin February 22, 2020, 3:47 pm

    Page 66/67 of the Royallondon link seems to say that approx 20% of the purchase price of an annuity goes on costs

    ‘The number of mouths that need to be fed from the annuity fund can be numerous, and it would not be
    unrealistic to assume that the present value of the initial and future costs and margins associated with
    a contract might such as to equate to 20% or more of the purchase price.
    Based on an 18 year payment period (i.e. assuming that a male 65 year old annuity buyer dies after 18
    years in line with life expectancy at the time of purchase), this 20%+ bite would be roughly the same
    as if the contract had an explicit annual management charge in the region of 2% to 3% per annum or
    more of the amount invested. ‘

  • 35 Prometheus February 22, 2020, 3:48 pm

    Regarding vanguard-isation – Are those customers’ yachts I see sailing into port?

  • 36 Dan February 22, 2020, 3:56 pm

    One thing to note I think about the Vanguard SIPP is that you CANNOT pay into it via salary sacrifice. I looked at moving from my current provider to Vanguard, however was told that you have to pay in personally, as a director of a company, or via a third party vanguard account.

  • 37 Can’t see the wood for the trees February 22, 2020, 4:03 pm

    Merryns FT article is an interesting one. If £16 – £17k is what the government deem adequate for retirement then one way to make significant government savings is to means test current pension incomes and immediately stop the state pension for anyone earning over that value.

    Potential further changes to pension tax relief against the generous relief & packages that the baby boomer generation received, combined with untaxed property wealth are a further demonstration of how the social contract between generations is broken in the UK. Why should the boomer generation continue to benefit without also making a contribution to the mess that they have helped create?

    Of course this won’t happen because we are not all in this together.

  • 38 Matthew February 22, 2020, 5:05 pm

    @david – good idea moving a chunk at a time, i think on the whole it will move against me (markets generally rising…) and probably by more than 0.1%, and that this will compound, I’ll put new money in the new sipp for sure but I think I’ll wait until it supports in specie, or if not then just diversify my fscs protection

  • 39 Simon February 22, 2020, 5:19 pm

    Yes, that was my thought. Being taxed in the way in and the way out doesn’t work for me, and many others I would expect. It needs to be one or the other, anything else is a mess and will very likely be subject to the Law of Unintended Consequences – see taxation on Pension Fund Surpluses as an example.

  • 40 Simon February 22, 2020, 5:28 pm

    Maybe, but you are putting money into a very inflexible vehicle, locking it up for up to thirty plus years and all the while it is subject to the whim of the current government. That’s got to attract a premium compared to an ISA where you can grab the cash back whenever you want. That’s why you need the tax relief on the way in, cos I wouldn’t trust the government to let me take it out tax free over that timescale.
    By the way, it does seem quite easy to take a view that others can afford tax rises – apologies if this comment was tongue-in-cheek and I missed the subtlety.

  • 41 Gentlemans Family Finances February 22, 2020, 6:34 pm

    @Dan – just make periodic transfers across to. Vanguard. Possibly taking advantage of occasional transfer bonuses

  • 42 Marco February 22, 2020, 9:56 pm

    State pension is only a benefit to those who haven’t paid for it. The rest of us pay NI to get the state pension. Stopping state pension would be theft.

    Also, state pension is already means tested in that it is taxable income so higher earners in retirement only get 60% of it despite paying the most towards it.

  • 43 Marco February 22, 2020, 9:57 pm

    State pension is only a benefit to those who haven’t paid for it. The rest of us pay NI to get the state pension. Stopping state pension would be theft.

    Also, state pension is already means tested in that it is taxable income so higher earners in retirement only get 60% of it despite paying the most towards it.

  • 44 AVB February 22, 2020, 10:15 pm

    Annuity providers have more certainty as their model assumptions are applied to a large cohort, so where you or I might materially deviate from average expected future lifetime (and so need a more prudent SWR) this is less likely (though still possible) to occur to a large cohort – especially as they will already have baked in an assumption of improving mortality over time. Another consideration is annuity providers also often sell term assurance which is a good hedge against longevity, so they get product-diversification benefit which again reduces uncertainty.

    What they do need is a decent profit as well as covering expenses, i’d Imagine most would be targeting a 10-20% return on income (just a guess) and that will be a major drag on the rate offered, as will the capital requirements they’ll need to adhere to – the regulator will make them hold more in reserves than they need on average in case of a worse than average outcome, I.e. everyone lives longer than expected or their returns are lower. Regulatory capital rules are more stringent than they were 20 years ago (thanks to solvency II) and this costs money that will be a drag on the rate offered. For these reasons, I think annuity rates are more prudent than SWR despite some of the aforementioned advantages that companies have over an individual.

  • 45 The Borderer February 23, 2020, 1:09 am

    @Marco (42)
    “…state pension is already means tested in that it is taxable income so higher earners in retirement only get 60% of it despite paying the most towards it.”

    Very true, but if someone in retirement is receiving an income that is so high that they are classified as a high rate taxpayer, it is likely that their life expectancy would far exceed someone “who haven’t paid for it ” because they are poor. https://www.theactuary.com/features/2019/04/deprivation-and-life-expectancy-in-the-uk/.
    Logically, the higher rate tax payer in retirement enjoys better health during retirement with the added bonus that they are likely to receive their pension for some 10 years longer than the poorest.
    A little extra tax seems a low price to pay.

  • 46 Fremantle February 23, 2020, 2:05 am

    @Neil Richardson

    Interactive have two fees for a SIPP, a platform fee based on a pricing plan for trades, and a SIPP fee, both charged monthly. My wife’s II SIPP is £19.99 a month

  • 47 Fremantle February 23, 2020, 2:10 am


    They still have a use in capturing any employer contribution and reducing NI.

  • 48 Marco February 23, 2020, 8:41 am

    I agree with that. Do you not think 40% is enough extra tax though?

  • 49 cat793 February 23, 2020, 9:31 am

    The Institutional Investor article on alternative investments is an interesting one. I have been concerned about these for a while because here in Oz the superannuation funds seem to be relying on them very heavily. The headline rate of return on these funds is highly publicised which means there is obviously enormous pressure on the funds to juice the returns. My suspicion is that they are exploiting the fact that these alternative investments are difficult to value so they can lean towards the optimistic end of the range making themselves look better than they might really be. These investment are highly illiquid too I would imagine. The biggest fund over here is Australian Super and their Balanced Fund is invested 25% at the moment in direct property, infrastructure and private equity. Only 20% in fixed interest, cash and credit (whatever that is) and 55% equities.

    Unfortunately we don’t have low cost, simple to invest in SIPPS here. Self managed super funds are possible but much more complicated and expensive than SIPPS. Most people are forced to invest in either pre mixed funds or a very limited selection of asset funds – active and passive index. Come on Vanguard get your arse in gear and get over to Oz!!

  • 50 C-strong February 23, 2020, 10:12 am

    On the annuities/SWR issue, while I think the article makes a good point, there are a couple of things it doesn’t address:

    – SWR calculations usually build in a probability of failure. Annuity providers are effectively forced (rightly) by regulation to adopt a miniscule probability of failure – very close to zero. If an individual is willing to accept a probability of failure that is low but not negligible (e.g. 5%) this is likely to make a significant difference.

    – Linked to that, modern sensible SWR considerations recognise that having a flexible WR is essential, so if your portfolio performs worse than expected you have to downsize your spending until it recovers (if it does). Incorporating this flexibility allows a higher starting SWR. Annuity providers obviously have to guarantee the rate on purchase. (Note this relates to drawdown rates when the individual is alive, so is a different issue than the pooling of longevity risk.)

  • 51 Far_wide February 23, 2020, 10:25 am

    @ZXSpectrum48k @finumus

    I can’t deny it’s certainly food for thought. This said, annuity rates would always have been substantially higher in the past anyway though with the effect that rising life expectancies have had, surely? Not to say that the current economic situation also hasn’t had a similar/greater effect to reducing them.

    Hope I’m not coming across as some 4% fixed SWR acolyte btw. I believe 4% is totally inadequate at the present time in all but the very shortest timeframes. In my personal case, whilst the economic times are good, I’m trying to drive down my required WR as far as possible each year.
    As with everyone else, the big problem is that when we’re so off the beaten track on all manner of financial indices, my crystal ball is looking even murkier than it usually does.
    We’ll know all the answers as to what we should have done in 50 years (and it’ll be have been ‘obvious’!).

  • 52 Rob February 23, 2020, 11:11 am

    Sorry I just had to share this.

    Run for the hills!


  • 53 ZXSpectrum48k February 23, 2020, 11:40 am

    @cat973. My better half has a Super. I’ve been impressed by their asset allocation approach. The Super targets CPI+4.5% and has a well diversified portfolio (cash 5%, fixed income 27%, direct real estate 8%, infrastructure 16%, equities 33%, private equity 7%, hedge funds 3%, commodities 1%). It’s return is about 10%/annum over the last decade. Platform + fund charges at 80bp are arguably higher than necessary but Australia just doesn’t have the competition the UK or US has.

    The’ve used a pseudo risk-parity approach since 2009, reducing equities in favour of long duration bonds and infrastructure assets. These have outperformed equities (producing around 15%/annum) but almost halved volatility. Yes, one day the whole risk parity approach will fall but it’s been working like a charm for three decades. Moreover, equities will likely get slaughtered when that time happens anyway.

    Infrastructure and direct property aren’t alts. Infrastructure is exactly the sort of long-duration asset a Super should be buying. More illiquid but ideal for duration matching liabilities. Rather like endowments, Supers have exactly the right framework to get the best out of investments in infrastructure, private equity and hedge funds.

  • 54 jim February 23, 2020, 12:07 pm

    My god, that air bnb article – goes on forever! Surely that could’ve been condensed a bit!?

  • 55 cat793 February 23, 2020, 2:19 pm

    @ZXSpectrum48k. Thank you for your comment. An interesting and helpful explanation that makes sense. I was (vaguely) aware of the role matching long term liabilities might play in reducing the risk of assets such as infrastructure but was not really sure. One of the problems over here is that there seems to be very little accessible information or discussion about super investment, FIRE etc. Nothing like the US or UK.

  • 56 cat793 February 23, 2020, 2:32 pm

    @ Rob. Yeah that is scary! I remember a similar story back in the late 80s I think it was about a teenage schoolboy who somehow managed to borrow a lot of money fraudulently and then bunked off school so he could spend all his time in a local phone box on the line to his stockbroker. He ended up getting in trouble but was held up in the media as the epitome of Thatcherite go-getting entrepreneurial spirit and even promised a job by a bank when he finished school.

  • 57 Lee February 23, 2020, 4:54 pm

    @Can’t see the wood for the trees

    I saw a very interesting video called “Have the Boomers Pinched Their Children’s Future?” from the RI that explains the politcal and economic power boomers have wrought due to their generation being a large cohort compared to others. This has allowed them to distort things in their favour.


  • 58 MrOptimistic February 23, 2020, 11:41 pm

    It’s odd but in all honesty I have never once thought it was someone else’s fault. I never even blamed ‘ history’, and can’t say anyonen stole my birthright.
    I suppose if I had been born in say 1896, so I turned 18 in 1914 I might just have blamed the Victorians, or in 1430 perhaps I would have blamed the rats. But, can’t see me ever condemning a generation because house prices are a bit of a stretch and the course of my life to retirement is uncertain.

  • 59 The Borderer February 24, 2020, 12:35 am

    @Mr O (58)
    Yes, let’s blame anyone, and we can calibrate the ‘anyone’ by being those whom we perceive as in some way achieving what we want by some means that we are ourselves can’t achieve.

  • 60 The Borderer February 24, 2020, 12:54 am

    I’m so off topic – philosophy unit 1 on my OU degree might be distorting my reality

  • 61 MrOptimistic February 24, 2020, 1:06 am

    The point is we all live in a world created by others, and the future is uncertain. That has always been true, but you are special and demand certainty?

  • 62 The Investor February 24, 2020, 10:01 am

    @Guys, we are drifting into personal polemic territory here. I accept there’s a wider point about who blames what for what, but if we can try to stick to the facts in these discussions where possible rather than alluding to history from 500 years ago then we have the best chance of keep the conversation on-point.

    (Happy Monday all! Sorry I’ve been a bit quiet this weekend. Normal service should resume soon.)

  • 63 MrOptimistic February 24, 2020, 2:57 pm

    @ZX. There are repeated discussions on another forum about asset allocation and the potential benefits of ‘alts’. There they deem property and infrastructure as ALTs. TA has mused about the characteristics of reits, wondering if their supposed diversification benefits are borne out in practice. Can I ask how you define alts. ?
    @TI. Sorry (again) :). reductio ad absurdum and all that ( UK spelling).

  • 64 C-strong February 24, 2020, 6:41 pm

    @ZXSpectrum48k @cat793 @MrOptimistic
    There’s an interesting article in today’s FT about infrastructure as the antidote to the “new normal” of low interest rates, low yields, flat yield curves etc. Not aimed at the individual investor but worth a look if you subscribe:

  • 65 ZXSpectrum48k February 24, 2020, 10:23 pm

    @MrOptimistic. I’m not be the best person to ask since I have a dim view of the name ‘alternative investments’ despite the fact I work in that industry as a portfolio manager.

    ‘Alts’ can be defined as anything that isn’t a traditional investment (cash, bonds, equities). People argue property, private equity, venture capital, distressed debt, hedge funds, commodities etc are all ‘alts’. They also argue these are ‘alts’ because they have properties, like having a low correlation with traditional asset returns, being illiquid or hard to value.

    I think this is often (but not always) nonsense. I see land and property as a traditional asset class. I don’t really differentiate between owning residential property, commercial offices or building renewable energy projects (‘infrastructure’). Yes, infrastructure investment may well has aspects of fixed income (development lending), property (owning actual land/buildings) and equity (the company) but that means it’s a hybrid of other asset classes, not an ‘alt’. Moreover, the idea that ‘alt’ investments are often not influenced by the same drivers as bond/equities is hard for me to fathom. Even the BoE have finally recognized that it isn’t supply-demand that drive property prices but long-dated real yields (1% move in real yield = 18% move in house prices). The relationship between long bond yields and infrastructure funds is very similar.

    The concept of alts was invented by fund marketers. If you market your equity fund to an institutional investor then that they will put your in their bucket called “Equities” and you get a small slice of their money. If you market it instead as an alt, the investor puts your fund in the new shiny bucket called alts, helpfully with rather less competition, and hopefully with higher fees and longer lockup periods. Result.

    This was hugely successful but created an artificial asset class which is often made up of less liquid, opaque or hybrids of other asset classes. It’s success made hedge funds mainstream while also killing their performance. Many bespoke investment strategies, that once did offer alpha, low correlation etc, are now flooded by AUM they simply cannot deploy.

    I have probably 40% of my portfolio in what could be termed ‘alts’, mostly hedge funds but also private equity, venture cap, some infrastructure etc. I view them as what they are: specific investments or strategies, typically focussed on exploiting aspects of an asset class or a cross-asset relationship . The idea of bucketing these together under a category called ‘alts’ is an easy thing to do but also rather meaningless. Sorry if this isn’t helpful.

  • 66 MrOptimistic February 25, 2020, 7:40 am

    @ZX. Thank you once again. Yes, that made sense. Will have to find a more sheltered port.

  • 67 Indecisive February 25, 2020, 7:56 am

    @ZX thank you, that’s fascinating.

    > I have probably 40% of my portfolio in what could be termed ‘alts’, mostly hedge funds but also private equity, venture cap, some infrastructure etc.

    Given we’re on a passive investing site, what’s the benefit you see in keeping 40% in hedge funds etc?

  • 68 ZXSpectrum48k February 26, 2020, 10:34 am

    @Indecisive. As you say this is a “passive site” (despite TI’s “active antics”) so I’m not going to justify my blasphemy. It just triggers comments from people who don’t really understand what people like me do each day. My holdings suit my risk profile which is risk averse both professionally and personally. I want my downside limited to a few percent, but with convexity to the topside. These funds give me that profile; equities and bonds do not.

  • 69 Indecisive February 26, 2020, 10:58 pm

    @ZXSpectrum48k I respect your view, though I would have liked to learn your perspective as your we seem to have similar outlooks on risk. FWIW over 60% of my holdings are in actively managed funds, so I’m not a follower of the one true way™

  • 70 Indecisive February 26, 2020, 11:12 pm

    I should add that due to risk aversion, 80% of my total assets are in cash (and have been for the last 15 years) because it might shrink due to inflation, but I can’t lose it. The other 20% are in equities and a smattering of bonds.

    With hindsight it looks stupid, but for reducing stress about “might happen” risks, I feel it was worthwhile. I am now at a stage where I am secure enough that I am open to changing that, and take a bit more risk for somewhat better returns. Your penultimate sentence intrigues me.

  • 71 Learner February 29, 2020, 2:10 am

    80% cash is not that unusual; consider anyone harboring a mortgage downpayment these days. It’s a pity cash doesn’t even keep it’s value in the post-2008 world.

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