WEBVTT - How Does the UK Pension Drawdown Work? 0:00:03.120 --> 0:00:11.840 Bloomberg Audio Studios, podcasts, radio news, Merin Talks Money listeners, 0:00:12.000 --> 0:00:15.360 I have exciting news. I have launched a weekly Merin 0:00:15.400 --> 0:00:18.800 Talks Money newsletter. The first edition came out last Saturday. 0:00:18.880 --> 0:00:20.840 Are very in depth, well, maybe not as in depth 0:00:20.880 --> 0:00:22.919 as some of you might like. Look at the Bitcoin 0:00:23.000 --> 0:00:25.880 melt up, all the great insights in even better humor 0:00:25.920 --> 0:00:28.280 than you get here on the podcast. Hard to believe, 0:00:28.320 --> 0:00:30.960 I know, but it is true. The newsletter is for 0:00:31.040 --> 0:00:33.479 Bloomberg subscribers only, so be sure to sign up at 0:00:33.479 --> 0:00:36.640 bloomberg dot com slash Newsletters or check out the link 0:00:36.760 --> 0:00:48.760 in the show notes. Welcome to Merin Talks Your Money, 0:00:48.760 --> 0:00:51.440 the Pirsonal Finance edition of Merin Talks Money and these 0:00:51.560 --> 0:00:54.000 bonus podcasts and they are a bonus. We talk about 0:00:54.040 --> 0:00:56.760 the best strategies for making the most of your money. 0:00:57.000 --> 0:00:59.680 I'm Merrin Somesetweb and with me Senior Border and Money 0:00:59.680 --> 0:01:01.280 Just Still author John's Depic. 0:01:01.360 --> 0:01:02.880 Hello John, Hi'm. 0:01:03.280 --> 0:01:06.160 Signing times Bitcoin Up Down, Up down. I guess everyone's 0:01:06.200 --> 0:01:08.920 reading our newsletters. Everyone's reading money to Still too right 0:01:08.959 --> 0:01:10.039 because you talk about it. 0:01:09.920 --> 0:01:12.800 Too absolutely can't get enough of it. 0:01:12.920 --> 0:01:13.959 Well, do you know what it gets me? A lot 0:01:14.000 --> 0:01:15.800 of engagement on Twitter. People keep saying to me, you 0:01:15.840 --> 0:01:17.880 only post about bitcoin, so you get engagement, and you 0:01:17.880 --> 0:01:23.560 know what, it's true because it's kind of fun. Anyway, 0:01:23.760 --> 0:01:25.920 this week we're not going to be talking about bitcoin, well, 0:01:25.959 --> 0:01:27.920 not on this bit of the pod anyway. We are 0:01:27.959 --> 0:01:31.240 answering another question about pensions, and I don't say another 0:01:31.240 --> 0:01:33.720 with exhaustion. I know it's very important and it's something 0:01:33.760 --> 0:01:36.039 that John and I get questions about all the time, 0:01:36.400 --> 0:01:39.240 and we want to make absolutely sure that when it 0:01:39.280 --> 0:01:41.720 comes to your time to dealing with your pension, you 0:01:41.760 --> 0:01:45.040 know exactly what to do. So this is the question 0:01:45.080 --> 0:01:47.640 that John and I get asked, possibly the most apart 0:01:47.640 --> 0:01:50.000 from should I buy bitcoin? But we're not touching that today. 0:01:50.840 --> 0:01:55.800 Here it is how does pension draw down actually work? 0:01:55.920 --> 0:01:57.680 You know, we hear a lot about pension draw down 0:01:57.680 --> 0:01:59.280 about how are we going to take care of our 0:01:59.320 --> 0:02:00.920 own money and our run up for a time, and 0:02:01.000 --> 0:02:04.680 that's our accumulation phase. Then we get to our decumulation phase. 0:02:04.800 --> 0:02:08.240 How on earth does that actually work? And how best 0:02:08.280 --> 0:02:10.520 can we manage it? Now? John and I of course 0:02:10.600 --> 0:02:13.640 are brilliant and all sorts of things, hugely knowledgeable, but 0:02:13.800 --> 0:02:16.320 on this we have had to pull in an expert, 0:02:16.680 --> 0:02:19.400 so here we have Stuart Trousse Stewart. Thank you so 0:02:19.520 --> 0:02:22.680 much for joining us. Stuart is the co host of Money, Money, 0:02:22.720 --> 0:02:25.800 Money on Switch Radio and author of the Bluffer's Guide 0:02:25.880 --> 0:02:28.040 to Economics. Although of course he had not a bluffer, 0:02:28.240 --> 0:02:31.080 he is an expert. He was previously a strategist at 0:02:31.120 --> 0:02:34.280 the European Bank for Reconstruction and Development. He's also e 0:02:34.280 --> 0:02:39.040 columnist for Bloomberg Opinions to do It. Welcome and thank you. Right, okay, 0:02:39.080 --> 0:02:42.120 so let's just get right in there. How does pension 0:02:42.240 --> 0:02:44.640 draw down actually work? 0:02:45.080 --> 0:02:49.640 The difficulty with pension draw down from an ordinary retire 0:02:50.040 --> 0:02:53.960 or prospective retires perspective is that basically all the risk 0:02:54.440 --> 0:02:57.280 is down to you, so you, you know, unlike having 0:02:57.320 --> 0:02:59.720 a final salary pension where the money just turns up 0:02:59.720 --> 0:03:02.560 in your out every month, so nice. You've kind of 0:03:02.639 --> 0:03:06.360 got to engineer how the money is withdrawn from your 0:03:06.400 --> 0:03:10.720 pot and ideally that you don't outlast your pot. That 0:03:10.840 --> 0:03:12.560 means you take on a lot of risks. So you 0:03:12.600 --> 0:03:16.000 take on the longevity risks simply that you last longer 0:03:16.040 --> 0:03:18.639 than your money does. The inflation risk. You've got to 0:03:18.680 --> 0:03:21.760 have a strategy for investing the money you don't need immediately. 0:03:22.280 --> 0:03:24.120 You know, the bottom line is you've got to decide 0:03:24.160 --> 0:03:27.680 on an appropriate level of draw down from your fund. 0:03:27.720 --> 0:03:30.600 So the way you can handle it is the classic 0:03:30.639 --> 0:03:34.080 thing is people some people take their twenty five percent 0:03:34.160 --> 0:03:36.760 of their pot tax free as a lumps arm to 0:03:37.000 --> 0:03:39.560 go and buy a yacht or a Lamborghini or holiday 0:03:39.560 --> 0:03:43.360 of a lifetime or more sort of more boringly, to 0:03:43.400 --> 0:03:46.240 sort of pay off mortgages than anything outstanding they've got 0:03:46.520 --> 0:03:49.880 prior to retirement, and then they put the rest of 0:03:49.960 --> 0:03:52.720 their pot into what's called draw down, and they decide 0:03:52.720 --> 0:03:55.600 on a sustainable rate of draw down, ideally with the 0:03:55.640 --> 0:03:57.840 help of a financial advisor. But a lot of people 0:03:58.160 --> 0:04:01.440 don't take that route. Some rules of thumb perhaps we 0:04:01.480 --> 0:04:04.640 can discuss later to as a guide of what's a 0:04:04.680 --> 0:04:08.520 sustainable rate. But there is one other strategy that combines 0:04:08.560 --> 0:04:12.600 the tax free cash and drawing down a regular income, 0:04:12.680 --> 0:04:15.800 because you can, instead of taking your twenty five percent 0:04:15.800 --> 0:04:18.240 tax free cash all in one go, you can take 0:04:18.320 --> 0:04:22.719 twenty five percent of each monthly draw down free of tax, 0:04:23.120 --> 0:04:25.360 and that allows you to take a much bigger income 0:04:25.720 --> 0:04:29.320 without running into sort of making yourself a forty percent 0:04:29.360 --> 0:04:32.400 tax payer and retierance stuff like that. And you know, 0:04:32.440 --> 0:04:34.920 obviously that's a big challenge in the way of the 0:04:34.920 --> 0:04:37.800 budget as well. You know, given the inheritance tax now 0:04:38.080 --> 0:04:40.640 applies to pensions, you want to be able to draw 0:04:40.720 --> 0:04:42.599 as much as you can from your pension if you've 0:04:42.640 --> 0:04:45.360 been fortunate enough to build up a big pot without 0:04:45.960 --> 0:04:48.839 paying forty forty five percent to withdraw it. 0:04:48.960 --> 0:04:52.080 Yeah, but the challenge, there's jud so so many places 0:04:52.080 --> 0:04:54.960 to go here. But let's star. Yeah, let's start with 0:04:55.000 --> 0:04:57.480 that inheritance tax point and whether you should take out 0:04:57.560 --> 0:04:59.800 the twenty five percent. It's not always twenty five percent 0:04:59.800 --> 0:05:02.880 any more, is it as capped? But that large tax 0:05:02.920 --> 0:05:05.920 free amount that you can take out immediately. Now, let's say, 0:05:06.160 --> 0:05:10.479 let's just say that you hit whatever it is you 0:05:10.480 --> 0:05:13.000 can start withdrawing from your pension. It's fifty five for 0:05:13.120 --> 0:05:14.760 some and then going up to fifty six, right, and 0:05:14.760 --> 0:05:16.560 then is it going to fifty seven like that? Yes, 0:05:16.800 --> 0:05:18.279 So it depends on which age you can take it. 0:05:18.320 --> 0:05:20.400 But you get to that age and you do not 0:05:20.640 --> 0:05:23.520 take out the twenty five percent, you decide to take 0:05:23.560 --> 0:05:27.400 twenty five percent of every income payment going forward as 0:05:27.440 --> 0:05:30.120 your tax free amount. If you get hit by a 0:05:30.120 --> 0:05:37.640 bus tomorrow, everything in your pension now becomes IHT liable, 0:05:37.920 --> 0:05:39.720 Whereas if you took the whole twenty five percent out 0:05:39.720 --> 0:05:42.880 at once and gave it to your children, then you 0:05:42.920 --> 0:05:44.720 would have avoided that bit of inheritance tax. 0:05:45.040 --> 0:05:47.400 Yeah, and I think you've you've just hit the nail 0:05:47.440 --> 0:05:49.320 on the head there actually, because if you simply take 0:05:49.360 --> 0:05:52.359 the twenty five percent tax free cash and leave it 0:05:52.360 --> 0:05:55.719 in your bank account, you know, economically, that doesn't change anything. 0:05:56.200 --> 0:05:59.560 But if you gift it, then yes, absolutely that's a 0:05:59.600 --> 0:06:02.000 game check. So you know, say you're talking about a 0:06:02.080 --> 0:06:04.240 million pound pot. You can take two hundred and fifty 0:06:04.279 --> 0:06:07.200 thousand pound out of that and gifted away, and your 0:06:07.240 --> 0:06:11.080 inheritance taxes is calculated on the remaining seven hundred and 0:06:11.080 --> 0:06:11.760 fifty thousand. 0:06:11.839 --> 0:06:14.000 You know, that is subject I just want to say 0:06:14.080 --> 0:06:16.080 quickly before I'm just saying that that is subject to 0:06:16.120 --> 0:06:18.279 the seven year uld. Did you get run over by 0:06:18.320 --> 0:06:22.360 a bus tomorrow, you're still subject to problem. Get away 0:06:22.360 --> 0:06:23.800 from buses, stay away. 0:06:24.800 --> 0:06:27.120 Yeah, no, no, yeah, you're absolutely right. That at least 0:06:27.120 --> 0:06:30.960 starts the process rolling. And you know, and to some extent, 0:06:31.000 --> 0:06:33.720 the tax free cash is is kind of more complicated 0:06:33.720 --> 0:06:36.480 as well, because that's not inheritable, do you know what 0:06:36.520 --> 0:06:39.279 I mean? A lot of tax allowances, especially between husband 0:06:39.320 --> 0:06:42.960 and wife, are inheritable, but your spouse or whoever you 0:06:43.080 --> 0:06:46.000 leave it to doesn't inherit your right to tax free cash. 0:06:46.360 --> 0:06:49.159 So that's what slightly changes the dynamic a bit, you know, 0:06:49.200 --> 0:06:51.960 And in some ways it's better to inherit a million 0:06:52.000 --> 0:06:55.520 pound in ices from somebody, although you lose the tax wrapper. 0:06:55.560 --> 0:06:58.120 You have to take that in cash unless you're a spouse, 0:06:58.720 --> 0:07:00.400 so you know, you could see you're already it gets 0:07:00.400 --> 0:07:02.599 really complicated because you've got a whole load of choices 0:07:02.680 --> 0:07:05.520 that most people just don't want to have. You know, 0:07:05.600 --> 0:07:08.200 the sort of pension freedoms ten years or so ago 0:07:08.360 --> 0:07:10.440 gave people a lot of freedom that they didn't really 0:07:10.480 --> 0:07:11.640 want to want to have. 0:07:12.080 --> 0:07:15.080 Oh that's sad, okay, right, Let's assume here we've decided 0:07:15.280 --> 0:07:17.960 we've decided not to take the twenty five percent up front. 0:07:18.040 --> 0:07:20.520 We've decided to leave it in the account, and we've 0:07:20.560 --> 0:07:23.559 decided that every month when we draw our income, twenty 0:07:23.560 --> 0:07:25.360 five percent of it will be the tax free part. 0:07:25.600 --> 0:07:28.640 Or I'm saying twenty five percent is shorthand by the way, 0:07:28.640 --> 0:07:30.720 we do know it's capped. We're just saying twenty five percent. Yes, 0:07:31.640 --> 0:07:33.840 the majority of people, it will remain twenty five percent. 0:07:35.000 --> 0:07:38.040 That sounds like admin. Hell, how do you do that? 0:07:38.320 --> 0:07:41.520 You simply say your provider do this for me? Or 0:07:41.600 --> 0:07:43.960 is there some kind of admin that you're required to 0:07:44.000 --> 0:07:45.040 do to make this happen? 0:07:45.880 --> 0:07:48.920 Yes, there is that been required to make that happen. 0:07:48.960 --> 0:07:51.640 But actually most pension providers will be able to set 0:07:51.640 --> 0:07:54.440 you up. So say, for example, you decide to take 0:07:54.520 --> 0:07:57.480 twenty five percent of each monthly payment free of tax, 0:07:58.040 --> 0:08:02.160 you can you can arrange for that to be paid 0:08:02.200 --> 0:08:06.720 regularly into your bank account with minimal interference. A problem 0:08:06.760 --> 0:08:09.400 comes when they have to decide what to sell from 0:08:09.440 --> 0:08:12.840 within your pension pot to provide you with a liquidity, 0:08:12.920 --> 0:08:15.880 so you can't completely get away from the problem. But 0:08:15.960 --> 0:08:19.280 most people can set it up so that they receive 0:08:19.520 --> 0:08:22.680 a regular amount into their bank account. The question is 0:08:22.280 --> 0:08:25.480 is whether that's too much now run out of money 0:08:25.600 --> 0:08:28.000 or too little and now pot will build up and 0:08:28.080 --> 0:08:30.560 up and up and now get hit with inheritance tax 0:08:30.560 --> 0:08:31.560 when they eventually die. 0:08:31.800 --> 0:08:35.240 But when you say they, you're referring to the provider. 0:08:35.400 --> 0:08:38.920 But let's say, for example, that you hold your SIP 0:08:38.960 --> 0:08:43.120 on a DIY platform, so maybe you all language landsown 0:08:43.160 --> 0:08:46.560 or I or something like that. How does it work. 0:08:46.600 --> 0:08:48.840 Then when you say they have to decide what to 0:08:48.880 --> 0:08:52.480 sell to create the liquidity and these circumstances, you have 0:08:52.520 --> 0:08:54.640 to do that yourself. So it's hard work. 0:08:55.000 --> 0:08:57.040 You're exactly right, and you know, I mean, this is 0:08:57.080 --> 0:08:59.200 a conversation I have with a lot of people, is 0:08:59.200 --> 0:09:02.800 that we may all, you know today, we may all 0:09:02.840 --> 0:09:05.560 feel on top of our powers, and you know, on 0:09:05.600 --> 0:09:08.679 top of our game and stuff like that, our appetite 0:09:08.679 --> 0:09:11.680 for complexity, you know, in our late seventies and eighties 0:09:11.760 --> 0:09:15.640 is going to be significantly diminished, even if we've got 0:09:15.679 --> 0:09:18.120 mental capacity. So you know, this is one of the 0:09:18.160 --> 0:09:22.599 problems with things like draw down. There's a lot of flexibility, 0:09:22.640 --> 0:09:25.319 a lot of freedoms to do stuff, but most people 0:09:25.320 --> 0:09:28.000 don't want those freedoms. So you can have it set 0:09:28.080 --> 0:09:30.600 up so you get the regular income. You can do 0:09:30.640 --> 0:09:32.800 the regular income even if you've taken all your tax 0:09:32.840 --> 0:09:35.280 free cash. It's just you can have a bigger income 0:09:35.760 --> 0:09:39.560 without paying a huge amount of tax. If you take 0:09:39.880 --> 0:09:41.400 a quarter of each monthly. 0:09:41.080 --> 0:09:44.560 Payment so it might make sense then, I mean in 0:09:44.600 --> 0:09:47.440 the accumulation phase obviously, you know, if you're diying in 0:09:47.480 --> 0:09:50.520 the accumulation is complicated. You've given eyels all the time, 0:09:50.679 --> 0:09:52.720 be careful of your investments, et cetera, but you don't 0:09:52.760 --> 0:09:55.720 have the same type of maths to do so. For 0:09:55.880 --> 0:09:57.680 most people, is it fair to say that it would 0:09:57.679 --> 0:10:02.200 make sense, if you've diyed through accumul perhaps to hand 0:10:02.240 --> 0:10:04.920 it over to a platform that will do the money 0:10:04.960 --> 0:10:07.600 management for you in the decumulation phase. 0:10:08.840 --> 0:10:11.439 Yeah, no, no, I think there's a case to be 0:10:12.000 --> 0:10:15.760 made for doing that. Another way people handle the complexity 0:10:15.760 --> 0:10:18.679 as well, is that the early years of retirement tend 0:10:18.720 --> 0:10:21.800 to be pretty expensive. In fact, spending in retirement tend 0:10:21.840 --> 0:10:24.000 to be a bit of a u shape. But you, 0:10:24.559 --> 0:10:26.400 I don't know, You still might have children on the 0:10:26.440 --> 0:10:29.000 balance sheet, and you might want to sort of buy 0:10:29.000 --> 0:10:32.040 yourself a little present for a lifetime working or something 0:10:32.120 --> 0:10:34.439 like that, or the holiday and what have it, whatever, 0:10:34.520 --> 0:10:36.800 whatever the cause, you spend quite a bit in the 0:10:36.800 --> 0:10:40.560 early years of retirement, and then you get to the 0:10:40.600 --> 0:10:43.840 stage where hopefully you're sort of still fairly fit, but 0:10:43.840 --> 0:10:46.760 your appetite for sort of trekking in the Himalayas or 0:10:46.760 --> 0:10:48.720 what have you, is not quite what it was when 0:10:48.720 --> 0:10:51.920 you were in your twenties, so you're spending goes down 0:10:51.960 --> 0:10:53.760 a bit. And then obviously the final years it's a 0:10:53.760 --> 0:10:57.520 bit of a lottery. You've got care and stuff like that. 0:10:57.640 --> 0:11:00.880 So what some people do is that they spend sort 0:11:00.880 --> 0:11:04.600 of in a more discretionary manner in the early part 0:11:04.640 --> 0:11:06.960 of retirement, and then when they start to get a 0:11:07.000 --> 0:11:10.959 clear idea of what their fixed expenses are, then some 0:11:11.000 --> 0:11:14.640 people buy an annuity to cover just those fixed expenses 0:11:15.440 --> 0:11:17.800 and then and you know, the rest of the pot 0:11:17.840 --> 0:11:19.840 is available to be drawn down if they need more 0:11:19.880 --> 0:11:22.920 money than that. But that's kind of a nice way 0:11:23.000 --> 0:11:26.000 giving yourself some certainty at a time when you're you're 0:11:26.240 --> 0:11:29.040 you're craving a lack of complexity in your life. 0:11:29.840 --> 0:11:31.880 Okay, that makes it. That makes a lot of sense. 0:11:31.960 --> 0:11:34.200 That's a really useful thought. The idea that your retirement, 0:11:34.360 --> 0:11:38.280 your retirement spending is is you shaped. So let's say, 0:11:39.240 --> 0:11:41.360 let's say, John, this is the last question I'm going 0:11:41.400 --> 0:11:42.920 to ask, and I'm handing over to you at the 0:11:42.960 --> 0:11:44.840 long list of questions I know you have about this. 0:11:45.760 --> 0:11:48.760 You don't, of course, you do, of course you. So 0:11:49.040 --> 0:11:52.640 let's talk about how we actually invest. So let's say 0:11:52.640 --> 0:11:55.360 that I am going to stay DIY at least maybe 0:11:55.400 --> 0:11:57.400 for the first ten years of my retirement. Maybe I'm 0:11:57.440 --> 0:11:59.160 only in my late thefties, and I'm pretty sure that 0:11:59.320 --> 0:12:01.040 I can do this my out for the next fifteen 0:12:01.120 --> 0:12:03.240 years or so. Do I just go out and buy 0:12:03.280 --> 0:12:06.280 a pile of equity income funds or equity income investment 0:12:06.320 --> 0:12:10.839 trusts or is that the wrong approach and I should 0:12:10.880 --> 0:12:12.600 just go straight into bonds and hold a pall of 0:12:12.600 --> 0:12:15.280 boring bonds forever. Not the bonds are always boring. 0:12:15.640 --> 0:12:18.400 There's so much to unpicking that, you know. It's a 0:12:18.400 --> 0:12:21.640 basic principle of investment. The amounts of risk you take 0:12:21.880 --> 0:12:24.440 is proportionate to your time horizon. So you know, if 0:12:24.480 --> 0:12:27.400 you're setting you know, if you're saving a lump some 0:12:27.960 --> 0:12:29.520 I don't know, to pay off for mortgage by a 0:12:29.520 --> 0:12:32.480 flat something like that in the next few months, you 0:12:32.559 --> 0:12:34.360 obviously don't want to take the risk of the market 0:12:34.440 --> 0:12:37.839 crashes and halves your capital, so you take zero risk 0:12:37.920 --> 0:12:40.800 your cash or short dated bonds. But as your time 0:12:40.840 --> 0:12:44.360 horizon lengthens, and especially once it gets past five years, 0:12:44.400 --> 0:12:47.200 which at least some of your pension pot will be 0:12:47.280 --> 0:12:50.200 designed to last for then it's appropriate to take more risk. 0:12:50.360 --> 0:12:52.800 And the question is how you take the risk with 0:12:52.920 --> 0:12:55.120 a pension Because you don't have to pay capital gains 0:12:55.160 --> 0:12:57.760 tax and stuff like that, you don't actually need to 0:12:57.800 --> 0:13:01.440 have income generating sets in that you can draw down 0:13:01.600 --> 0:13:03.840 on the capital gain. So you know, it's the old 0:13:03.840 --> 0:13:08.040 thing between being indifferent between an income and a capital gain. 0:13:08.120 --> 0:13:10.960 You know, if your wealth is risen by ten percent, 0:13:11.000 --> 0:13:13.640 it doesn't matter whether you've got ten percent of dividends 0:13:14.040 --> 0:13:16.680 or your the value of your assets gone up by 0:13:16.920 --> 0:13:20.640 ten percent. So to that extent, you don't necessarily have 0:13:20.760 --> 0:13:24.280 to restrict yourself to equity income funds on the one hand, 0:13:24.480 --> 0:13:27.920 And then you talked about bonds, and the natural thing 0:13:28.240 --> 0:13:33.319 is that as people get older, they de risk their portfolios. 0:13:33.400 --> 0:13:36.720 They have bigger holdings of bonds. But there's a massive 0:13:36.720 --> 0:13:40.400 difference between holding a bond, an individual bond, and holding 0:13:40.400 --> 0:13:42.960 a bond fund because the only way you get the 0:13:43.000 --> 0:13:45.120 good bits of bonds, you know, the fact that you 0:13:45.200 --> 0:13:48.360 know what you're going to get when they mature, and 0:13:48.160 --> 0:13:52.120 the regular income along the way is if you hold 0:13:52.240 --> 0:13:55.120 individual bonds to maturity if you buy a bond fund, 0:13:55.559 --> 0:13:59.040 you know, you're just as subject to the arbitrary movements 0:13:59.040 --> 0:14:01.920 and markets as an equity fund would be, you know, 0:14:01.960 --> 0:14:05.400 and people found that to their huge cost in say 0:14:05.440 --> 0:14:09.520 twenty twenty two, when inflation took off, interest rates took off, 0:14:09.720 --> 0:14:15.839 and bond funds got absolutely crucified. And so it really 0:14:15.920 --> 0:14:18.720 depends what you're going for. If you've still got an 0:14:18.720 --> 0:14:22.920 appetite for complexity, then you organize your bonds. You've got 0:14:22.920 --> 0:14:27.000 them running off at a regular period, creating a stream 0:14:27.040 --> 0:14:30.400 of coupon income and final redemption, so you can actually 0:14:30.440 --> 0:14:32.800 plan what's going on. You can't do the same with 0:14:32.840 --> 0:14:35.960 a bond fund. It's simply just another asset class that's 0:14:36.000 --> 0:14:37.960 subject to market movements. 0:14:38.800 --> 0:14:41.520 Okay, so going into bonds by yourself it's also very 0:14:41.560 --> 0:14:42.120 hard work. 0:14:42.400 --> 0:14:45.800 Yeah, No, it's very labor intensive. You're doing what a 0:14:46.160 --> 0:14:49.560 defined benefit pension fund manager would be doing, matching their 0:14:49.560 --> 0:14:53.040 assets and liabilities, and you having a nice ladder of 0:14:53.720 --> 0:14:57.080 bonds maturing at regular intervals, and you can have a 0:14:57.160 --> 0:15:00.000 spreadsheet or I'm sure there's more sort of exotic software, 0:15:00.160 --> 0:15:04.120 but from an individual investors' perspective, they can see where 0:15:04.120 --> 0:15:06.480 their incomes coming in each month, and they can engineer 0:15:06.480 --> 0:15:08.880 it so they get exactly what they want. And you know, 0:15:08.920 --> 0:15:13.640 they can even do fancy things by outside pension wrappers, 0:15:13.640 --> 0:15:16.280 by sort of buying low coupon bonds. So some of 0:15:16.320 --> 0:15:18.720 the return is in the form of capital gains. But 0:15:19.320 --> 0:15:22.880 do you know what I mean, you know, yeah, exactly, 0:15:22.920 --> 0:15:26.080 you're optimizing all the tools you've got at your disposal. 0:15:26.200 --> 0:15:28.680 Is it is mind blowing. 0:15:29.040 --> 0:15:31.640 So that there's a reason why people do this professionally, right. 0:15:31.840 --> 0:15:35.320 Yeah, oh, definitely, very much so, you know, but the 0:15:35.360 --> 0:15:38.440 issue between the difference between bonds and bond funds is 0:15:38.600 --> 0:15:40.400 a crucial one that you know, even a lot of 0:15:40.440 --> 0:15:42.360 financial advisors don't seem to grasp. 0:15:42.760 --> 0:15:48.560 And I think that's really interesting point that Manas kind 0:15:48.560 --> 0:15:52.400 of brought up. Is there difference between the accumulation and 0:15:52.480 --> 0:15:58.280 the decumulation fees. I mean, ultimately, accumulation can be quite 0:15:58.360 --> 0:16:01.480 easy if you really wanted to, then you can just 0:16:01.480 --> 0:16:06.000 stick your money monthly basis, save every month, stick and 0:16:06.200 --> 0:16:08.960 track your funds whatever. But you know, you start in 0:16:09.000 --> 0:16:11.880 your twenties, you get forty fifty years before you're retired, 0:16:12.040 --> 0:16:15.800 you can keep your portfolio being virtually the same kind 0:16:15.800 --> 0:16:18.800 of you know, between eighty and one hundred percent equities, 0:16:18.840 --> 0:16:21.160 probably for at least the first twenty years, probably for 0:16:21.240 --> 0:16:24.080 the first thirty if you want, and then you don't 0:16:24.080 --> 0:16:27.000 have to worry too much. But is this becoming very 0:16:27.000 --> 0:16:30.840 obvious from the conversation. The bit after that is actually 0:16:30.920 --> 0:16:36.120 really complicated because suddenly your time horizon completely narrows. You're 0:16:36.120 --> 0:16:39.680 suddenly trying to balance. It's not about saving as much 0:16:39.680 --> 0:16:41.840 as you possibly can. It's about trying to make sure 0:16:41.880 --> 0:16:44.040 that you use up as much of the port as 0:16:44.080 --> 0:16:47.880 you can before you die. Yeah, and you just don't 0:16:47.960 --> 0:16:50.240 know obviously, you don't know when you're going to die. 0:16:50.360 --> 0:16:53.040 You don't know what your rate of return is going 0:16:53.080 --> 0:16:55.479 to be on the stuff that's still in your portfolio. 0:16:56.080 --> 0:16:58.680 You only have a I mean, you barely know what 0:16:58.760 --> 0:17:01.040 your spending is going to be. And one thing I've 0:17:01.280 --> 0:17:03.960 noticed whenever I talk to the retired people is they 0:17:04.000 --> 0:17:08.440 are astonished by how much they spend, even though I mean, yeah, 0:17:08.440 --> 0:17:12.200 it's the U shaped thing, definitely, but it's also it's 0:17:12.240 --> 0:17:14.040 a bit like, you know, they're always complaining about how 0:17:14.080 --> 0:17:16.520 they don't have any time now that they've retired. And 0:17:16.720 --> 0:17:18.800 then also you know, they don't have any money either, 0:17:19.080 --> 0:17:21.560 or rather they spend more than they expect. I mean, 0:17:21.680 --> 0:17:24.520 so from that point of view, do you think there's 0:17:24.760 --> 0:17:29.119 a good case for even if you've been an independent investor, 0:17:29.440 --> 0:17:34.160 you're for your accumulation phase of opening an advisor, And 0:17:34.200 --> 0:17:37.760 if so, what other kinds of things you should look 0:17:38.080 --> 0:17:41.440 for in a wealth manager and maybe how much should 0:17:41.480 --> 0:17:44.480 you be expecting they pay for that? I know those 0:17:44.520 --> 0:17:48.080 are all those are both pretty tricky questions, but I mean, 0:17:48.119 --> 0:17:52.040 if you've got a rough view on your thinking there. 0:17:52.840 --> 0:17:56.639 You're exactly right, because you know, accumulation is completely different 0:17:56.680 --> 0:18:00.960 from decumulation, and there are all sorts of issues. You know, 0:18:01.119 --> 0:18:04.040 it's you've got pound cost averaging on the way in 0:18:04.119 --> 0:18:07.600 for accumulation that works in your favorite you know, very briefly, 0:18:07.640 --> 0:18:11.400 that's basically, the weaker the market is, the more your 0:18:11.440 --> 0:18:14.920 regular monthly contributions buy, the more units in funds. The 0:18:14.960 --> 0:18:17.880 mirror image of that is there when markets are really strong, 0:18:17.920 --> 0:18:21.120 you're buying fewer units, so on average, you're buying each 0:18:21.280 --> 0:18:23.680 unit at a lower price than you might otherwise have done. 0:18:23.720 --> 0:18:27.199 It's smooth things out and protects you against falls. And 0:18:27.240 --> 0:18:30.200 in fact, if you're really young as big stock market 0:18:30.280 --> 0:18:33.080 form might actually be a really good thing because you're 0:18:33.119 --> 0:18:35.160 going to put more in in future than you've done today. 0:18:35.240 --> 0:18:38.920 So that's the accumulation phage, and that's pound cost averaging. 0:18:38.960 --> 0:18:41.720 What we've just been talking about, what you've been asking about, 0:18:41.760 --> 0:18:45.320 is pound cost ravaging. And this is probably where you 0:18:45.359 --> 0:18:48.960 need the help because because basically, if the stock market, 0:18:49.359 --> 0:18:51.879 if the stock market falls sharply and you're just about 0:18:51.920 --> 0:18:53.680 to sort of you know, if you're say taking your 0:18:53.720 --> 0:18:56.120 annual income in one go, you know, just to sort 0:18:56.119 --> 0:18:58.800 of make the for the purpose of illustration, you're going 0:18:58.880 --> 0:19:00.760 to have to sell a lot more units in your 0:19:00.840 --> 0:19:03.480 pension fund to make however much you want to draw 0:19:03.520 --> 0:19:06.119 down from your fund. And that's where the professional advice 0:19:06.160 --> 0:19:08.320 can really help, because if you can take some of 0:19:08.400 --> 0:19:11.000 the pressure off your pension fund when stock markets are 0:19:11.000 --> 0:19:14.480 really weak, give them time to recover as they usually do, 0:19:15.000 --> 0:19:17.960 that will give you your fund a lot more resilience, 0:19:18.040 --> 0:19:21.320 and it's worth paying extra for that. The problem is 0:19:21.400 --> 0:19:25.119 is that basically, rather than simply giving you the advice 0:19:25.160 --> 0:19:28.560 setting you up with a sustainable plan and letting you 0:19:28.720 --> 0:19:32.080 get on with it, that financial advisors will want it 0:19:32.119 --> 0:19:36.040 to bring all your assets under management and charge you 0:19:36.040 --> 0:19:38.440 a fee appropriately, And that's a large part of the 0:19:38.520 --> 0:19:41.440 reason why, you know, people who haven't got enough assets 0:19:41.880 --> 0:19:45.199 don't interest financial advisors because two percent of nothing is 0:19:45.240 --> 0:19:50.000 still nothing, whereas people who've got very substantial assets, perhaps 0:19:50.000 --> 0:19:54.760 people who've used pensions of as wealth management in estate 0:19:54.800 --> 0:19:57.520 management tools, might have many millions in there, and two 0:19:57.600 --> 0:19:59.960 percent of that is a very substantial amount of mine, 0:20:00.160 --> 0:20:03.800 and probably considerably more than the advice they get is worth. 0:20:04.359 --> 0:20:08.560 So you do get caught in that situation. But if 0:20:09.840 --> 0:20:14.920 you derive quite a bit of consumer sort of joy, 0:20:15.000 --> 0:20:17.400 if you like, from having all this worry taken away 0:20:17.400 --> 0:20:19.760 from you, you know, it's difficult to put a price 0:20:19.800 --> 0:20:22.800 on that, especially if you're buying peace of mind by 0:20:22.880 --> 0:20:25.760 getting advice. You can also get free advice as well, 0:20:25.800 --> 0:20:28.720 you know, pension wise, there are you know that the 0:20:28.760 --> 0:20:32.040 take up of these services has been extremely disappointing from 0:20:32.040 --> 0:20:35.320 a government's perspective, and financial advisors are always quick to 0:20:35.320 --> 0:20:37.320 point out that the take up is quite low. But 0:20:37.640 --> 0:20:40.399