Reply To: Consolidating personal pensions into a SIPP

[Stephen Bland]

Agreed Nigel, everyone’s circumstances are different of course.

One point on the math, I know that 5% capital withdrawal plus dividends was just an example but I wanted to show that the length of time available before it runs out is not simply 100/x years (where x is the annual percentage capital withdrawal) as you had assumed. It is considerably shorter because increasing amounts of capital have to be taken to compensate for the declining dividend income so as to deliver the same (or worse, a growing) total income. There are some crude assumptions in there but that was the basis upon which we were discussing the point.

My fundamental position on this and hence my general advice to readers as I’ve said is that capital withdrawal is to be avoided if at all possible. When advising TDL readers, I have to offer what I believe is the best course for the great majority, which means that this approach may not suit a few. That applies to almost all the advice I give on running HYPs, not just the question of spending the capital.

So, yes, I quite accept that some individual situations will sometimes force a sale of capital from an HYP but would hope that this applies to only a small minority of HYPers.

Also, readers should not start investing in HYPs with the intention from the outset of selling up at some stage, either wholly or gradually. If they are eventually forced to do so by circumstance then so be it, but it should not form part of the reasoning for investing with HYPs in the first place. I had the impression from your message and others that you were assuming from the start that you would be spending capital. I am definitely against that view of HYPing. As I’ve said, selling should be the last resort, not part of the plan.

I’ve been asked many times over the years whether HYPs were suitable for dividend reinvestors building up capital to be used eventually for some other purpose. The answer is always no, that attitude creates unnecessary risk and it is not how I intended the strategy to be used at all. The idea behind HYPs is to step outside the obsession with capital values that preoccupies most equity investors and concentrate on the income. To liberate people from thinking about how much capital they have made or hope to make in future and instead look just at the income.

Thinking about the capital drags us back to trading shares, the old viewpoint from which I am trying with HYPs to distance readers.