Trustnet Magazine Issue 12 November 2015 | Page 10

RETIREMENT

Expertly
navigating the UK
Investment trusts from Schroders
For UK investors, home shores can form the bedrock of
an investment portfolio.
That’s why you’ll find some of our most senior
investment talent at the helm of our longstanding UK
investment trusts. Our managers bring an average of 26
years’ industry experience to managing the trusts. So if
skilled hands are important on your investment voyage,
make Schroders your first port of call.
There are three trusts in the Schroders UK range:
Schroder UK Mid Cap Fund plc, investing in
medium-sized companies; Schroder Income Growth
Fund plc, aiming to provide both income and growth,
and Schroder UK Growth Fund plc, which seeks to
capitalise on the growth potential of UK companies.
As with any investment, investment trusts carry risk. The
value of an investment trust will rise and fall in value, and
you may not get back what you put in. As these trusts
concentrate on only the UK, they can carry more risks
than those trusts that are spread across a number
of regions.
Whether your focus is growth, income or a combination,
our deep knowledge of the UK can help you chart the
right course. Talk to your financial adviser or visit
schroders.co.uk/its

Investing for
your world
Fund manager industry experience: Rosemary Banyard: 36 years, Andrew Brough: 28 years, Sue Noffke: 25 years and Philip Matthews: 16 years. The most up to date
key features can be viewed on the UK Investor website via www.schroders.co.uk/investor. Issued in September 2015 by Schroder Unit Trusts Limited, 31 Gresham Street,
London EC2V 7QA. Registered No: 4191730 England. Authorised and regulated by the Financial Conduct Authority. UK09735

provision for sickness and death
needs to be top of everyone’s list:
“This means knowing where
someone’s will is and what’s in it,
how much pension will be received
and what your life insurance will
pay out.”

LIFESTYLE FACTORS

Mike Williams, an independent
financial adviser at Chamberlain,
Stean & West, says that it is also
vital to incorporate lifestyle
factors into any financial plan.
“We have a number of discussions
with our clients, but the first
has nothing to do with money,”
he explained. “It is more about
how people are going to live in
retirement.”
“Do they want to help pay for
their grandchildren’s education
or travel the world? This helps
determine when and how they
will need their money. Only then
does the financial planning start.”
Williams says that once this is
in place, it is possible to carry out
some scenario planning: “What
happens if the market has a bad
run? What if there is a divorce?
Or a redundancy? In this way, we
can anticipate the bad times to
some extent.”
He adds that drawdown is far
more flexible. While annuities
have a place for a person’s core
expenses in retirement, flexiaccess drawdown means that
retirees can take a variable
amount in any given year. It also
allows the pot to be passed on to
children and grandchildren.
trustnetdirect.com

WHEN THE “DEAR
JOHN” LETTER
APPEARS ON THE
KITCHEN TABLE, AT
LEAST YOU’LL BE
PREPARED
Connolly agrees. “In many cases
it will be sensible for people to
leave pension assets alone and to
draw income from other wrappers
such as ISAs,” he said.
“All withdrawals from an ISA are
tax-free and money left in ISAs is
potentially liable to inheritance
tax. In contrast, withdrawals from
a pension could be taxable and
money left in pensions will not be
liable to inheritance tax.”
“Even if people are taking an
income from their pensions, many
will remain invested and plump
for flexi-access drawdown. This
effectively means that they can
take what they want from their
pension whenever they want it.
This is ideal for those who might
need to access cash in a hurry. The
risks of this approach are that any
larger withdrawals from a pension
are more likely to be subject to a
higher rate of tax.”

SEQUENCE RISK

However, West cautions against
a phenomenon called “sequence
risk”. This was seen a few years ago
when a perfect storm of changes
to the pension rules, low interest

rates and falling markets meant the
amount investors could take from
their pots was severely limited.
However, while the need to
diversify your investments is
well known, the same cannot
necessarily be said for the need to
diversify wrappers. Ultimately, a
smorgasbord of pensions, ISAs and
other income sources is likely to be
the best option.
Another problem for investors
who need cash in a hurry is market
risk. They will probably need to
take the capital from holdings in
stocks or bonds and therefore may
have to pull it out at a low point in
the market. There is almost no way
around this for emergency funding
– holding a high weighting in cash
for a 20- to 30-year retirement is
likely to be more costly (because of
the drag of inflation) than simply
taking a one-off hit. Those who
have a little more notice of their
funding needs may want to stagger
their exit from the market to
mitigate some of this risk.
Life will always have a few nasty
surprises and the retirement years
are no different. It is vital to have
a financial plan that is flexible
enough to adapt. This is far easier
in the new era of pension freedoms,
where investors have greater
control over how and when they
take their income. Nevertheless, it
is as important to diversify across
wrappers as it is to diversify the
investments within them. In this
way, when the “Dear John” letter
appears on the kitchen table, at least
you’ll be financially prepared.
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