If you are determined to avoid annuities but still need an income from your pension, these are the main options
|
|
|
|
|
|
One of the great benefits of the new
pension freedoms is that they make it easier for savers to take an
income from their retirement fund without buying an annuity. While an
annuity pays a guaranteed income for life, it does so at the cost of
surrendering your savings at the outset; when you die, there is nothing
to pass on to your family.
The
alternative offered by the new freedoms is to retain ownership of your
pension savings but draw an income from them, either by taking income
from investments, such as dividends, or withdrawing some of the capital.
Either way, there should be money left to pass on to your family. If
you need your retirement fund to produce an income, however, the
question is how to invest it to best effect.
There is a huge array of choices, but they mostly fall into a few simple categories, which we examine in turn.
Cash
Cash doesn’t pay very much at the moment, but it
does offer the certainty of capital preservation (but do remember the
£85,000 limit of the deposit guarantee scheme).
Only certain types of savings account can be held in a self-managed pension. Currently, the best rate is 2.9pc on five-year bonds from Bank of Baroda and State Bank of India. This website has up-to-date best buys for these special accounts. You’ll also need a self-managed pension (Sipp) that offers unrestricted access to cash accounts; many do not.
• I've got £150,000 in cash. Would investing in a B&B be better than a pension?
Bond funds
Bonds have traditionally been seen as a safe bet for steady income, although there are fears that some are currently overvalued. “Strategic” bond funds have the most flexibility to adapt to changing market conditions.
Among those most widely recommended by financial advisers – and chosen by “fund of fund” managers for their clients’ money – are Jupiter Strategic Bond (which currently yields 5pc), Henderson Strategic Bond (4.9pc) and M&G Optimal Income (2.7pc). Less well-known funds include TwentyFour Dynamic Bond (4.5pc).
Equity Income funds
Most bond funds with decent yields offer limited scope for capital growth. Funds that invest in shares, on the other hand, hope to grow both income and capital over the long term, although savers need to be prepared for the possibility of falls. Share-based funds that target a decent yield are called equity income funds.
Among the favourites of fund experts are Woodford Equity Income (a new fund with a current target yield of 3.4pc), Threadneedle UK Equity Income (3.7pc), JO Hambro Capital Management UK Equity Income (4.1pc) and Artemis Income (3.4pc).
There are also similar funds that invest overseas, to offer further diversification. They include Newton Asian Income (4.3pc) and Schroder Asian Income (3.9pc).
Multi-asset funds
If you only choose bond funds, you are unlikely to get much growth in either capital or income. With equity income funds, both are possible – but you are also exposed to stock market falls. A blend of the two with other assets should dampen the ups and downs while offering the chance of some growth in income and capital.
While you could build your own multi-asset portfolio, perhaps using some of the funds above along with property funds (see page 6), you could also buy a single fund that holds a mix of assets. Some are structured as ordinary funds, possibly with separate managers for the different assets, while some buy holdings in other funds – the “fund of funds” or “multi-manager” approach.
Popular examples of the former include Premier Multi-Asset Monthly Income (4.7pc) and JP Morgan Multi-Asset Income (3.6pc).
Well-regarded multi-manager income funds include F&C MM Navigator Distribution (4.5pc) and the Old Mutual “Generation” range, which aims to produce a set income of either 4pc or 6pc. The funds achieve this by, in effect, selling some capital growth to other investors.
Investment trusts
Arguably, some of Britain’s venerable generalist investment trusts are ideal for retired savers who want income with the chance of capital growth. Many have records of maintaining or increasing dividends that stretch back decades.
One example is City of London, managed by the veteran investor Job Curtis. The trust yields 3.6pc and has increased its dividend in each of the past 48 years.
Another favourite among income seekers is the Edinburgh Investment Trust, formerly managed by the celebrated investor Neil Woodford and now run by Mark Barnett of Invesco Perpetual. It yields 3.3pc.
But before you buy an investment trust – they are traded on the stock market, as these funds are structured as companies – check for any “premium”. This is an extra price you sometimes have to pay, and results from the fact that the trust’s share price can rise above that of its constituent assets.
Currently, City of London trades at a minimal premium of 1.5pc, while Edinburgh is actually available at a discount of 3.6pc to the value of its assets.
Exchange-traded funds
“ETFs” are just 15 years old, but are gaining ground among private investors because of their low charges. Like investment trusts, they trade just like shares, but premiums and discounts are extremely rare.
These funds tend to be “passively” managed, meaning that there is no fund manager making decisions about the assets to buy. Instead, these funds simply track a stock market index, such as the FTSE 100. However, some target income, thanks to the existence of indices that focus on dividend-paying shares.
One example is the SPDR UK Dividend Aristocrats fund, which yields 3.8pc. It owns shares in high-yielding companies that have maintained or increased their dividends for at least the past 10 years. Similar funds for the US and European markets are available.
Even cheaper is a simple FTSE 100 index-tracking ETF. The index currently yields 3.4pc.
Culled from The Telegraph
Only certain types of savings account can be held in a self-managed pension. Currently, the best rate is 2.9pc on five-year bonds from Bank of Baroda and State Bank of India. This website has up-to-date best buys for these special accounts. You’ll also need a self-managed pension (Sipp) that offers unrestricted access to cash accounts; many do not.
• I've got £150,000 in cash. Would investing in a B&B be better than a pension?
Bond funds
Bonds have traditionally been seen as a safe bet for steady income, although there are fears that some are currently overvalued. “Strategic” bond funds have the most flexibility to adapt to changing market conditions.
Among those most widely recommended by financial advisers – and chosen by “fund of fund” managers for their clients’ money – are Jupiter Strategic Bond (which currently yields 5pc), Henderson Strategic Bond (4.9pc) and M&G Optimal Income (2.7pc). Less well-known funds include TwentyFour Dynamic Bond (4.5pc).
Equity Income funds
Most bond funds with decent yields offer limited scope for capital growth. Funds that invest in shares, on the other hand, hope to grow both income and capital over the long term, although savers need to be prepared for the possibility of falls. Share-based funds that target a decent yield are called equity income funds.
Among the favourites of fund experts are Woodford Equity Income (a new fund with a current target yield of 3.4pc), Threadneedle UK Equity Income (3.7pc), JO Hambro Capital Management UK Equity Income (4.1pc) and Artemis Income (3.4pc).
There are also similar funds that invest overseas, to offer further diversification. They include Newton Asian Income (4.3pc) and Schroder Asian Income (3.9pc).
Multi-asset funds
If you only choose bond funds, you are unlikely to get much growth in either capital or income. With equity income funds, both are possible – but you are also exposed to stock market falls. A blend of the two with other assets should dampen the ups and downs while offering the chance of some growth in income and capital.
While you could build your own multi-asset portfolio, perhaps using some of the funds above along with property funds (see page 6), you could also buy a single fund that holds a mix of assets. Some are structured as ordinary funds, possibly with separate managers for the different assets, while some buy holdings in other funds – the “fund of funds” or “multi-manager” approach.
Popular examples of the former include Premier Multi-Asset Monthly Income (4.7pc) and JP Morgan Multi-Asset Income (3.6pc).
Well-regarded multi-manager income funds include F&C MM Navigator Distribution (4.5pc) and the Old Mutual “Generation” range, which aims to produce a set income of either 4pc or 6pc. The funds achieve this by, in effect, selling some capital growth to other investors.
Investment trusts
Arguably, some of Britain’s venerable generalist investment trusts are ideal for retired savers who want income with the chance of capital growth. Many have records of maintaining or increasing dividends that stretch back decades.
One example is City of London, managed by the veteran investor Job Curtis. The trust yields 3.6pc and has increased its dividend in each of the past 48 years.
Another favourite among income seekers is the Edinburgh Investment Trust, formerly managed by the celebrated investor Neil Woodford and now run by Mark Barnett of Invesco Perpetual. It yields 3.3pc.
But before you buy an investment trust – they are traded on the stock market, as these funds are structured as companies – check for any “premium”. This is an extra price you sometimes have to pay, and results from the fact that the trust’s share price can rise above that of its constituent assets.
Currently, City of London trades at a minimal premium of 1.5pc, while Edinburgh is actually available at a discount of 3.6pc to the value of its assets.
Exchange-traded funds
“ETFs” are just 15 years old, but are gaining ground among private investors because of their low charges. Like investment trusts, they trade just like shares, but premiums and discounts are extremely rare.
These funds tend to be “passively” managed, meaning that there is no fund manager making decisions about the assets to buy. Instead, these funds simply track a stock market index, such as the FTSE 100. However, some target income, thanks to the existence of indices that focus on dividend-paying shares.
One example is the SPDR UK Dividend Aristocrats fund, which yields 3.8pc. It owns shares in high-yielding companies that have maintained or increased their dividends for at least the past 10 years. Similar funds for the US and European markets are available.
Even cheaper is a simple FTSE 100 index-tracking ETF. The index currently yields 3.4pc.
Culled from The Telegraph
No comments:
Post a Comment