Saturday 14 November 2015

Raise the Private Pension Access Age & My Global Exposure

Firstly, an interesting article in the Financial Times today – Retirement experts campaign for pension freedom age to rise to 65 (should be a free click through or alternatively Google the title and you’ll also find it for free).  It looks like the pensions industry is starting to lobby the government to push back the age at which we can access our pensions from as early as 55 (some of us are not that fortunate) to 65.  Apparently, according to the Society for Pension Professionals:

  • “...55 “was far too young” to allow full access to retirement savings...”
  • “ is also too young to consider oneself retired from a working life...”
  • “Although I recognise this will not be popular it would result in better outcomes in true later life.”
It’s really great to hear that the Pensions industry apparently has our welfare at the top of their agenda.  To be honest though, in my years of investing I've never seen the Pensions industry do anything that has my best interests in mind so I’m not going to start believe their tripe now.  The cynic in me says that this is yet another way to extract more expenses or fees from us.  Just think about all the extra fees available if you can’t access your wealth for another 10 years.  Come to think of it maybe the third bullet point above is actually right.  Maybe it will result in “...better outcomes in true later life”.  It’s just unfortunate that those better outcomes will be for the Pensions industry rather than the punter.

As always some great Comments in response to last week’s post which included some questions around my International exposure.  Rather than give half an answer in a Comment I thought I’d spend some time and give a more thoughtful detailed answer.

As of this morning my Asset Allocation looks like this:

Retirement Investing Today Low Charge Investment Portfolio
Click to enlarge, Retirement Investing Today Low Charge Investment Portfolio

In pounds, shillings and pence it is £819,004 and represents everything I own.  Let’s work around the pie chart to uncover my Globall exposure.

Cash.  I’m sitting on £96,226 of Cash or Cash like investments (predominantly Peer to Peer Lending).  Some of it is in offshore bank accounts but I’m not going to count any of it as International as this is money that will in the near future buy my family a home.

Bonds.  My exposure to Bonds is detailed below.  The NS&I Index Linked Savings Certificates (ILSC’s) are not really a Bond and operate more like Cash but hey ho.  They total £105,169 and will also be used for the family home.  If I net off the Cash and ILSC’s I’m left with wealth that will (hopefully) in the near future be used to generate my FIRE income of £617,610.  Of the Bonds remaining 51% (£17,033) of the iShares £ Corporate Bond ex-Financials UCITS ETF (ISXF) is internationally exposed.

RIT Bonds Portfolio
Click to enlarge, RIT Bonds Portfolio

Property.  My exposure to Property is detailed below.  All of the iShares European Property Yield UCITS ETF (IPRP) is exposed to continental Europe so no UK.  Today that’s £44,237.

RIT Property Portfolio
Click to enlarge, RIT Property Portfolio

Commodities.  This is all Gold.  I’m not sure if it should be categorised as Domestic or International.  I’ll be agnostic and say it’s neither so it doesn’t count as International.

International Equities.  My exposure to International Equities is detailed below.  They equate to £92,348 (or 15% of FIRE income wealth) and crunching all those products together reveals 38% allocated to Europe, 40% allocated to the United States, 21% allocated to Japan (to answer Jim F’s question) and 1% to ‘Other’.

RIT International Equity Portfolio
Click to enlarge, RIT International Equity Portfolio

Emerging Markets.  All £36,691 are Global Equities in Emerging Markets.

Australian Equities.  I've written before about how these were a mistake but they’re mine now (all £81,854 of them) and generate healthy dividends.  They are of course all Global as a UK punter.

UK Equities.  My exposure to UK Equities is detailed below.  They total £171,925.  UK Companies today are global in nature with FTSE100 companies generating 80% of their revenues from overseas while FTSE250 companies generate 50% (source).  If I crash that together with last week’s discussion I find that at least £122,755 of that £171,925 is actually global exposure.

RIT UK Equity Portfolio
Click to enlarge, RIT UK Equity Portfolio

Summing all of the above shows that £394,919 is internationally or globally exposed.  That’s 64% of my FIRE income generating wealth.  So to answer weenies question “I can't but help notice a big home bias in your investments. I might have missed this in a previous post but is there a reason why you haven't diversified into the global market (aside the the 3.5% in Developed Europe)?”  I don’t believe I have a big home bias and instead believe I have adequate exposure to the goings on of the global market.  Whether it's the right exposure is of course a totally different question and one which only the future will answer.

As always DYOR.


  1. > is also too young to consider oneself retired from a working life...

    What on earth is wrong with these blighters? If the best thing you can think of to do with the second half of life is to flush it away 8 hours a day on working then by all means knock yourself out. Some of us can think of better things to do with out time that to go to work to buy stuff we don't need to impress people we don't like and all that, and there's n'owt wrong with that.

    Now if their argument were that this is practically impossible at normal savings rates then fine, but it isn't. It's a claim that for some Calvinist reason you shouldn't quit work before you're too old to enjoy the free time, and that sucks.

    1. "What on earth is wrong with these blighters? " IMHO there is nothing wrong with them. It's just the classic turkey doesn't vote for Christmas syndrome. If they lobbied about how it's possible to live well on a little as well as the damage expenses can do to one's pension pot their yachts are going to be a lot smaller than they currently are rather than the bigger yachts that they are actually trying to secure.

      What makes me sad is just how many people listen to all these experts. Work hard to consume (plus pay all that tax), invest in my over priced pension wrapper containing expensive active funds and then work till you drop. The question is how do you get the alternative word out? They have all the advertising/lobbying £'s that can reach millions and I have a small blog that after 8 years reaches a few thousand people a week.

  2. Pensions are already deeply unattractive due to all the meddling that recent Chancellors (especially Brown and Osborne) have been doing. This has significantly increased the investment risks associated with pensions particularly if planning for FIRE, since one has to price in the high probability of the rules changing over the period of investment. Increasing the access age would be a very significant problem because the risk of dying before one can get a return from a pension is much higher with the threshold at 65 than at 55. And once the Government and pensions industry have achieved that I'm sure they will link it to the state pension age, which will probably be 70 by the time I get there!

    Coupled with the possibility of losing HR tax relief on contributions, I can see this being the death blow for private pension saving in the UK.

  3. The run-out-of-cash brigade seem to assume that SIPPs are early retirees only source of income, completely ignoring ISAs or downsizing. The big worry is that their nanny rules will force FIREs to burn off their ISA allowances and hit financial difficulties while their pension pots over £1m are being punitively taxed.

    Of course a pension company wants to charge you fees until you die, while a FIRE might want to do a fast SIPP drawdown into an ISA and escape from their clutches 20 years earlier.

    There is also the worry that you could lose the benefits of 10 years tax allowances before accessing your pot, and hit higher rate tax afterwards.

    I hope that a government that removed drawdown restrictions won't backtrack, but if the idea gains traction, FIREs need to actively campaign against it. Roz Altmann hasn't mentioned it yet, which is a good sign.

  4. I suspect that many people fear that lots of others will spend all their pension pots and then sponge on the taxpayer i.e. on the many people who have the fear. They are probably right: when we lived in Oz it was called "double dipping" and the pols were about to prohibit it just as we left the country. Recently I discovered that they never had and that the problem still festers. It's particularly prevalent in Oz because the old age pension is (or was when we lived there) means tested.

  5. I'm getting more and more wary of the pension. Locking up money until you're 65 is eating away any of tax benefit if you want to get at it earlier. And even that looks like it will be slashed.

    I had just upped my contributions. Feels like some serious thinking will need to be done after the next Budget. Perhaps all in an ISA and a taxable account is best, the markets are volatile but that's nothing compared with ministers meddling.

  6. I've changed my SIPP contributions to the minimum monthly amount, everything else is going in the NISAs or taxable accounts. I'm sick of the pensions meddling, although I do think the state pension should be means tested and they should continue to raise the age very gradually

    1. "I do think the state pension should be means tested": what, retrospectively? People should be diddled out of the pension they've paid for? Why?

  7. Thanks for answering my question, RIT!

    That's a great and diversified portfolio you have there - I'm really jealous of your Index Linked Savings Certificates - I had a chance to buy them a long time ago and ended up going for premium bonds instead! Oh well!

    I had previously been trying to up my SIPP contributions but when I heard that it's likely that I may not be able to access them at 55, I'm switching to investing more in my ISA.

    I expect there to be a lot more government tinkering over the next 10 years (pensions and ISAs), so any plan I have will need to be flexible to be able to adapt.

  8. I'm already paying into a pension through my workplace, so I thought ISAs made the most sense if there was any likelihood that I might retire before I could access it. That's the intention anyway, but there's been too much pension fiddling over the years for me to trust it not to happen again.

    ISAs are simple and popular, and have been around in the same basic form (previously as a PEP) since 1986. Thus I'm hoping less likely to get changed.

  9. It's the pension industry being jealous about banks. Banks are extending mortgage terms and so making more profits as house buyers pay more mortgage interest over the longer term. Pension firms don't want more people to withdraw their money to buy houses, they want it tied up so they can make more fees themselves from it.

  10. I expect this will be the last year I contribute to my SIPP. It is perverse that while the government is spreading the message that we should be saving more for retirement the meddling with legislation is having the opposite impact.

    1. Well, it might be considered perverse if you thought our government cared about the future. I would guess ISAs are being made more and more attractive compared to pensions because it means more money to the government of today rather than the government of tomorrow.


  11. This I have pulled from one of the links above. Is it true? I had always thought the lifetime allowance was the sum of money you had put into a pension over you lifetime, hence 'lifetime allowance', not the value the pension is worth at retirement age. How naive of me; I can see why more and more people want to abort their SIPP early, certainly those with total annual savings under the ISA limit.

    If you have a defined contribution scheme or a Sipp the total fund value is assessed against the limit. This will be tested on nine different occasions such as when you take your 25pc tax-free cash, you buy an annuity or you start drawing an income.

    Final salary schemes, the most generous of all workplace pensions, are assessed differently. To determine the total value of a scheme that you have not yet accessed, you simply multiply the annual pension by 20, then add any additional tax-free cash. For example a final salary scheme that will pay £40,000 a year is worth £800,000 in relation to the limit.

    1. The lifetime allowance is indeed based on value, not contributions, so penalises the successful investor and increases uncertainly. Its inconsistent with ISAs, and I wonder if the PensionISA being mulled by the Treasury will standardise on limiting on contribution, or be tempted by a tax raid by imposing growth limits on ISAs. Osbourne must be tempted by any new system where the transitional arrangements encourage transfers from existing schemes at a high, but predictable tax charge now. This windfall will boost receipts short term and get him into No 10, and the consequences will be when he's long gone.

    2. When was the last time a chancellor actually did something to improve the future situation for our society rather than just try make their performance review look good?