Things I can't do

by Doug Brodie

I simply can’t.

Cave diving? No problem. Apnoea diving? I’m there. Everest glaciers? A breeze. Ultra marathons? Bring them on. 10k swim races? Where do I join? But ask me to spider crawl up a rock face, lashed up with ropes, and my brain simply freezes and I grind to a halt. Not my cup of tea. If you’re a climber, I tip my hat to you, I don’t know how you do it.

Eddie Izzard maintains that to lead a characterful life we need to run full tilt at those things that scare us (except a cliff edge, he adds). When you retire, you are voluntarily opting for unemployment, in a social environment where the lifestyle expenses you have got used to continue on, month after month, when you have stopped your monthly pay cheque. Our service is switching that pay cheque back on for you.

Did you know there is over £1 trillion currently sitting in money purchase pensions in the UK, and all that at least 75% of that money will have to be converted back into regular income?

When you opt for that retirement, if at no other time in your life, now is probably the single most important time to take advice, take a second opinion, make sure you’ve picked the right products, the right investments to get you to where you want to be.

We do guaranteed income: that’s called annuities, gilts and cash. These are suitable for some, however most who come to us want a little more and recognise that removing the shackle of ‘guaranteed’ opens up myriad possibilities. Removing the guarantees means that there is potential for it all to go wrong – that’s why we diversify. (A typical client portfolio cover 300+ companies, four continents and eight investment sectors). As LTCM showed us, over-confidence in our ability can get us caught, and it’s a matter of fact that we cannot defy the markets which sometimes simply proverbially smack us in the face.

We invest client money to protect against this – fortunately when investing goes calamitously wrong we live to talk about it. I was supervising client money in the 91/92 recession, the dotcom collapse, 2008 financial crisis and, and, … and those experiences shape what we do now.

When researching the photos above, I was surprised and a little shocked to see that in the climbing community they too have the problems of sometimes the mountain bites back, and despite however competent the climber is, they can’t defy the mountain.

---

Eventually we all die.

You’ll want a long term income because you’re planning a long term retirement, however eventually nature catches up with us. Most clients hold their money in SIPPs and in ISAs, and when you die they are treated differently:

Pensions

• If you die before you are 75: “On death before age 75 the benefits can be paid as a lump sum or as a drawdown pension to any beneficiary tax-free, irrespective of whether they derived from uncrystallised or crystallised monies.”

• “On death after age 75 the benefits can be drawn down or paid as a lump sum taxed at the recipient’s marginal rate – i.e. it can be passed on free of inheritance tax.” You can pass it on to anyone – for example, if passed on to a grandchild they can then draw down income up to the personal allowance limit to pay for education costs.

• If you have an annuity, it dies with you (subject to any minimum payment periods you might have included).

ISAs

• If you’re married, your spouse can inherit the full amount of your ISA (if you’re not married, they can’t).

• If you’re not married, then AJ Bell outlines the rules, copied here from their terms:

  • If you die    (I like the way AJ Bell say ‘If’!! : Ed.)

    Your ISA will end when either:

    • your executor closes it,

    • the administration of your estate is completed,

      erwise, your ISA provider will close your ISA 3 years and 1 day after you die.

      There will be no Income Tax or Capital Gains Tax to pay up to that date, but ISA investments will form part of your estate for Inheritance Tax purposes.

• Stocks and shares ISAs

  Your ISA provider can be instructed to either:

  • sell the investments and pay the proceeds to the administrator or beneficiary of your estate.

  • transfer the investments to your surviving spouse’s or civil partner’s ISA - this is only possible if they have the same ISA provider as you have.

Readers of this article will remember a couple of weeks ago I included a table comparing drawdown using either Vanguard’s low cost FTSE-tracking ETF and the 133 year old Merchants Trust. Kseniia, our Ukrainian analyst, has now expanded the range compared and we will shortly publish the results, however I can tell you that for each of the last ten years, measured by an investor starting on 1st January each year and drawing 4% per annum, both the income and the capital were higher with Merchants Trust.

When we publish we will also add the data for Alliance Trust, and if you are an existing client you’ll note that you don’t hold any of this trust in your portfolio – this will show you why, and demonstrate to you that not all trusts are the same, despite surface similarities. (It started 134 years ago).

Now you don’t need to climb the wall of El Capitan, or square up in a ring like Ali or Frazier, but you most definitely want to avoid falling into the lifestyle trap that Benjamin Franklin summarised over 259 years ago: