Tony and Diane Clipstone enjoy a comfortable standard of living in retirement, thanks to savings and investing carefully throughout their working lives.
I’ve been helped by rising markets - my money has performed well
Clipstone, a retired company accountant, says that he has always tried to maximise both pension and ISA savings to make the most of these tax-free savings plans.
He has contributed to a number of company pension and these, combined with the benefits drawn from his SIPP and ISA, currently give the couple an income of around £50,000 a year.
Clipstone says: “It’s been a priority to ensure that I don’t pay more tax than I have too on these investments.”
The couple draw an income from their ISAs first as this is tax-free. As they are higher-rate taxpayers, this makes a substantial saving.
He says: “At the moment we are simply taking the natural yield from these savings.”
Tax-free Pension Drawdown
Clipstone is also utilising flexible option within his drawdown plan and simply withdraws chunks of capital from his pension tax-free. Under the new pension rules, couples like the Clipstones can take a quarter of the fund tax-free, but this no longer has to be as a lump sum but can be taken at regular intervals.
However Tony says he is aware that while he has a generously funded pension scheme, he wants to ensure that it will continue to provide a decent income stream throughout their retirement.
To this end, he is sought advice from financial planners Depledge to review his investment strategy and ensure his money is invested effectively.
Tony says: “Since I’ve retired four years ago my investment portfolio plan has grown in value, despite the fact that I’ve been taken an income from it. But to an extent I’ve been helped by the rising markets - my money has been in sectors that have performed well.
“But I want to ensure that my pension is more resilient so that if we do have a less benign investment climate then I wouldn’t be hit too hard.”
To this end he has shifted a quarter of his portfolio into more defensive funds. These include Invesco Perpetual Distribution, Standard Life Global Absolute Returns Strategies, also known as GARS, and CF Ruffer Total Return.
The Invesco Perpeutal Distribution fund has a five-star rating reflecting its strong performance in recent years. In fact it has been a top decile fund since its inception in January 2014, and also in the 10 years to September 2015.
The fund invests in a mix of bonds and equities but has no more than 40% exposure to equities at any time. The bond portfolio is managed by the ‘two Pauls”: Paul Causer and Paul Read; while the equity profile has been managed by Ciaran Mallon since 2013, when the previous manager Neil Woodford announced he was leaving the company. All take a highly active stock selection.
This combination of experienced managers means Morningstar has awarded this fund a Bronze medal rating, reflecting their confidence that the fund will continue to outperform peers. However, their high conviction approach can mean this fund is more volatile than either of the two absolute return funds.
GARS: A Megafund with a Successful Track Record
The Standard Life GARS fund has one of the more successful track records within the absolute return sector, and as such currently has a Bronze medal rating from Morningstar.
It is run by the company’s well-resourced multi-asset team and since its launch in 2008 it had met its performance objective of delivering absolute returns in all market conditions with low volatility. Since launched it has delivered annualised returns of around 6.5% a year.
Following the departure of three portfolio managers from the GARS management team in the last couple of years, Morningstar analysts have said there is no immediate cause for concern as its performance remains solid.
The CF Ruffer Total Return fund has a four-star rating from Morningstar. It also aims to achieved positive returns in all market conditions with low volatility. It invests in a range of assets inclining equities, bonds and currency.
Tony says: “I see these as the core part of my portfolio. Hopefully they will continue to grow but they will help ensure that my capital is preserved in periods of market downturn, which means our income shouldn’t be too drastically reduced.”
He added: “We have been more adventurous in the past with our investments. Although this is a large fund, and we have the capacity for loss, as we get older we feel far less comfortable about watching the value of our investments drop by 10 or 20%. If we continue to take an income we know it is then harder for these funds to recover, so we’re following a more cautious path now.”
Thinking About Inheritance Planning
As they are retired, the couple are also looking at inheritance planning. As well as their substantial investment portfolio they also own their own property outright and have a holiday home in Brittany France.
“We are less worried about ensuring that there are surplus pension funds to leave to our children, as both of them are fairly well provided for and have decent jobs themselves.” They are hoping though that the properties will be able to be passed on - provided of course neither of them needs expensive long-term care in the future.
They couple have taken out a whole-of-life policy which they hope will ensure that any future inheritance tax bill will be covered.
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