| Non-motoring > Pensions query | Miscellaneous |
Thread Author: smokie |
Replies: 33 |
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New Sat 23 Aug 14 14:58
Pensions query - smokie
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I am gathering info on the various pensions myself and SWMBO have accumulated to see when we can afford to retire. We are both nearly 59. She has one with a previous employer which is probably what you'd call a final salry one, or maybe deferred benefit, not really sure which. They sent her a valuation with options. For ease, here they are: Option 1: Leave in scheme, estimated lump sum £18k, annual pension from NRD £2829 pa Option 2: £127k transfer value (it says could take £31k as lump sum) We have no urgent need for the lump sum in either instance. So given the new draw-down rules, in my tiny mind option 2 is massively better, as option 1 would take around 30 years to get the £127k back, whereas using option 2 we could stick it into some other fund and draw-down as much as we like (subject to tax) as soon as we like, with any remaining money easily being mine if she pre-deceased me (instead of whatever tiny widowers pension the scheme would pay for any limited time). So why are people saying "ooo no, final salary pension, you don't want to take that out" |
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New Sat 23 Aug 14 15:53
Pensions query - Manatee
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Final salary = defined benefit. Money purchase scheme = defined contribution. Is it some sort of public sector / local government scheme? What is the scheme NRA, 60? The transfer value on my final salary pension is proportionately much worse that that. |
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New Sat 23 Aug 14 15:53
Pensions query - Falkirk Bairn
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It is not that straight forward - seek advice having written down everything you know: Your pension (statefull/partial), your pensions values from previous & current, savings, shares, isas, own fully your home?/rented.......any possessions of value, any anticipated legacies....... SWMBO (state full/partial), pensions values from previous & current, savings, shares, isas, own fully your home?/rented, any possessions of value, any anticipated legacies....... AS a general rule final salary schemes are best left where they are - guaranteed, inflation linked......you cannot beat that normally. |
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New Sat 23 Aug 14 16:18
Pensions query - smokie
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Recently done a full fact find with an independent IFA pal, he has some of the top qualifications you can have in that game and I trust him. He only deals with pensions. He's away at the mo and we only just go the letter re SWMBOs this week hence the query here. It isn't public sector aI can't immediately find what age the quote is based on. I too have a defined benefit (thanks for the definition) in a previous company but the "payback period" is much shorter (£14k pa pension, transfer value of £180k) so at the moment I am listening to his advice on that to leave it where it is. The situation is quite simple, we have enough to retire on sometime in the next few years with all the other stuff, but this particular one would seem much better transferred than remaining where it is because of poor return compared to transfer value. Last edited by: smokie on Sat 23 Aug 14 at 16:22
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New Tue 26 Aug 14 10:26
Pensions query - Mapmaker
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??So why are people saying "ooo no, final salary pension, you don't want to take that out" Because the £2,829 is presumably index linked? Just going to an annuity calculator, www.find.co.uk/pensions/annuities_centre/annuities-calculator and putting in your age and the 127k transfer value, it will buy (best buy): An annuity that's not indexed of £6,680 p.a. An annuity that's linked to RPI of £3,596 that increases at 3% of £4,323 and one that increases at 5% of £3,063 So the £2,829 is a not very good annuity rate, such as you would expect from not shopping around (being about 20% below the best-buy rate). Of course, the FTSE 100 index is yielding about 3.5%, which would be £4,445 p.a., which would be index linked (broadly speaking) and would preserve your capital. In answer to your question, annuities have never been good value in comparison with the yield on the FTSE 100. In conclusion, if it were my money, I'd be taking the cash and running. Don't forget, if she's still working, she can take the 25% cash out and (subject to the recycling rules) potentially put it back in again, thus getting additional tax relief. |
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New Tue 26 Aug 14 11:12
Pensions query - smokie
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Thanks Mappy, confirms my thoughts. I'm assuming the new draw down rules kind of annuls the annuity comparison as I understand it to be an improvement, but that is a good way to measure it. I'd simply thought that a pot of £127k at £3k per year will take 40+ years to exhaust, which is an unlikely life expectancy! I'm pretty sure that the pension is index linked but with such a low start point that seems a bit academic. I'd heard of the recycling option, reading this link there could be some scope for a bit of saving but I don't want to be in the position that we get an unexpected tax bill once we are dependent on retirement funds. www.hl.co.uk/__data/assets/pdf_file/0005/45428/Recycling_Factsheet.pdf Mate is back from hols, could be time to take him down the pub and discuss this and a more complex, mostly non-index linked fund I have got. |
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New Tue 26 Aug 14 13:14
Pensions query - helicopter
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I tend to agree with Mapmaker about taking the money but please take proper advice from a proper financial advisor and get comparisons of the rates available, my advisor was able to increase the anniuty rates for SWMBO and myself by hundreds of pounds per annum by investigating open market options, he saved us his fees in increases in our income if we live more than two years.. Although now retired , I still have a similar amount to yours sitting in a stakeholder pension which I have not yet taken because I simply have no financialneed to take it at the moment . I will probably wait until the new rules come in, take the 25% tax free £30 K and then draw down the remaining monies in small amounts as and when required... I actually do not want to take the other money as a large lump sum which would be subject to 40% tax. Be careful if taking the lump sum tax free and reinvesting in another pension....HMRC take a very dim view of this..... |
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New Tue 26 Aug 14 13:24
Pensions query - smokie
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Thanks, I do have my proper IFA and will be consulting him. To me it doesn't seem *that* complex, even the stuff I have not put above, but I don't want to be shooting myself in the foot later by a rash decision now. We have no outstanding debt. I have a couple of pensions in funds I can draw down from, plus one which is mostly not index linked (pension at age 65 of £14k NOT index linked plus about £3.5k index linked). That's my one which is causing me grief, that too has a reasonable transfer value (around £180k) and I am minded to take that and bung it all into some relatviely low risk fund somewhere where I have control over it. I understand the new rules also mean the cash is there and available to my other half if I croak, whereas she'd only get a fairly meagre widow's pension from the scheme. |
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New Tue 26 Aug 14 14:10
Pensions query - Manatee
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>> I will probably wait until the new rules come in, take the 25% tax >> free £30 K and then draw down the remaining monies in small amounts as and >> when required... I actually do not want to take the other money as a large >> lump sum which would be subject to 40% tax. You actually don't need to wait unless you want to. You can put your fund into drawdown now and still elect to use the new rules next year without being disadvantaged (E&OE - DYOR!) www.hl.co.uk/news/articles/income-drawdown-gives-flexible-access-to-pensions-why-wait Doing so might enable you to spread it out a bit more if it helps to reduce the tax charge. |
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New Tue 21 Oct 14 14:22
Pensions query - smokie
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Well her old company paid for advice and the report has come through. They are recommending we leave it where it is. Primary reasoning seems to be "that they have discounted Capped Drawdown and Phased Capped drawdown because you are planning to work for the next 5 years and have no real need for the lump sum or income currently". I can't see an option which says take the money and stick it into an uncapped drawdown so assume it's the same as either of the above. I presume SWMBO is at liberty to ignore their advice. I really don't see the logic. £129k into some low risk fund which hopefully will grow modestly and we can draw what we want when we want. OR £4k+ a year (rising by no more than 5% pa) from age 65. She will be 90 by the time we've got the £129k back, and that's forgetting about any growth in whatever fund we choose!! I just am not that comfortable ignoring "experts" advice in case there is something I'm missing. So I will let her review it then have a joint discussion with the IFA. Interestingly, my IFA mate mentioned above who was also of the opinion to leave it where it is (without the benefit of the deep dive review) is now saying to me he is considering doing exactly the same with his pot. He was initially so quick to rule out taking the money to a different place I'm starting to think they've all been indoctrinated the same way, and haven't moved with the times. |
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New Tue 21 Oct 14 15:11
Pensions query - Cliff Pope
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I don't really know how defined benefit pensions work, but my thought is, what happens to the £127K if you don't take it now? Does it stay, invested like a pension pot, or is a one-off offer: pension now, or cash-in? |
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New Tue 21 Oct 14 15:52
Pensions query - smokie
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Well I hope my understanding is correct, maybe it's time to check! £129k is the transfer value. I can take that, and, if I want, take 25% tax free from it, then invest the rest in a fund which I can then draw down on as often and as much as I like, till it is exhausted. There will be an annual fee and the value could go up or down. Or I can leave it where it is where it will pay a pension of c £4k a year from age 65 with no lump sum, or a £19k lump sum and £2k + as a pension. In option 1 if SWMBO croaks the money becomes part of the deceased estate and has no special (expensive) tax treatment, nor is any withheld. In option 2 there is a 50% widows pension. (The adviser came up with 7 options... but essentially they boil down to 2) |
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New Tue 21 Oct 14 16:30
Pensions query - Falkirk Bairn
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Final salary pensions pay out a pension based on years of service / 60ths (or /80ths). MPs it's 30ths!!!!! Say final salary £30K and 20 years service Pension = £30K X 20/60 = £10K per year OR £30K x 20/80 = £7.5K per year This is usually linked , at least in part, to inflation so will increase with time. If you last worked for them 20 years ago they would up the £10K or £7.5K by some form of inflation link or may be a bank rate increase per year. Money in the hand can be a good thing BUT you then take the risk that you will get a good return on your cash. Good return - you win, bad return you lose. |
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New Tue 21 Oct 14 16:34
Pensions query - Crankcase
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They mutate though. Mrs C's was 80ths for twenty years, 49ths for four years and now is a £500 odd a year increase instead of any "ths", whereas mine is a straight 60ths for the past 17 years. |
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New Tue 21 Oct 14 17:26
Pensions query - legacylad
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| It all sounds very complicated to me. I began saving into a private pension when I was 18, and gave up when I took out my first mortgage aged 23 ish. I took my 25% tax free lump sum 5 years ago and blew it on my current car. I think current valuation is for about £340pa, but not enough to keep me in beer! Glad I spent all my spare income on a larger mortgage, which was pure luck, so I have no decisions to make, apart from the best time to downsize and what to spend the released equity on. |
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New Tue 21 Oct 14 19:49
Pensions query - mikeyb
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>> It all sounds very complicated to me. I began saving into a private pension when >> I was 18, and gave up when I took out my first mortgage aged 23 >> ish. I took my 25% tax free lump sum 5 years ago and blew it >> on my current car. I think current valuation is for about £340pa, but not enough >> to keep me in beer! Glad I spent all my spare income on a larger >> mortgage, which was pure luck, so I have no decisions to make, apart from the >> best time to downsize and what to spend the released equity on. >> The out-laws took a similar approach, and both retired at 50. Comfortable and don't want for anything. I've got a final salary pension, but wonder if it will still exist when I get to that point. Mrs B has nothing, but we have a second property rented out, so come the day we will either have the income, or the lump sum from it. Personally I expect the pension fund changes could send the property market upwards when people start taking lump sums out and looking for a vehicle to provide an income |
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New Tue 21 Oct 14 19:56
Pensions query - No FM2R
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Seems to me you also have to include two subjective and non-financial inputs, either of which could sway your course of action; 1) How much would the money now improve your life? 2) What is your feeling about your potential non-working longevity? If you need the money now, or you think you'll only live 5 years, then take it now. If you don't need the money now, and you think you'll be around for 20 years, leave it where it is. A friend of mine saved all his life, and invested as much as he could into his retirement. He really avoided holidays, cars, houses and other expensive stuff, but did end up quite wealthy. Sadly, about 12mths before he retired he developed Alzheimer's and quite quickly needed long term [expensive] care. So he [unknowingly] spent all his money, and didn't enjoy a penny. Last edited by: No FM2R on Tue 21 Oct 14 at 19:57
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New Tue 21 Oct 14 22:12
Pensions query - smokie
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1) not required 2) not going to last that long, even when I give up the fags (planned for when I run out of duty frees in about 4 weeks). My health is fine at present. When I read of these celebs dying at early ages (Linda Bellingham the other day @ 66) I am thinking I should stop work and enhoy the only-average rewards. My spreadsheet tells me we have enough pensions and cash to keep us going till late 80s. But part of that spreadsheet incldued taking this money now. £5k a year in 25 years won't make a lot of difference. And I still don't see the economics of not taking it, if it's going to take 25 years to get it back. Better in my control than someone else's. |
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New Tue 21 Oct 14 22:24
Pensions query - CGNorwich
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When you hear of celebrities dying at an early age it seems shocking because it is quite unusual. The life expectation of someone aged 60 is somewhere around 85. Being poor when you are young is bearable. Poverty in old age is perfectly miserable. |
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New Wed 22 Oct 14 10:14
Pensions query - Cliff Pope
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> >> >> And I still don't see the economics of not taking it, if it's going to >> take 25 years to get it back. Better in my control than someone else's. >> But won't it continue to have a transfer value, if you leave it, which you could take out at any future date? So you could reconsider the options at any time? If that is how it works, then aren't you simply comparing the growth prospects of the transfer value if left invested, with those in an alternative fund if you took it out? I thought the general advice to leave it alone rested on two factors - index-linking, and the link to final salary. Those are both advantages hard to match out in the real world. |
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New Wed 22 Oct 14 11:11
Pensions query - legacylad
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I don't think 66 is a particularly early age. My Dad died aged 52, my grandad 47. I'm not even 60 yet and if I should croak tomorrow I would have no complaints whatsoever. Several contemporaries of mine have died in their 20s & 30s due to health issues outside their control, which is why I spend every penny I earn these days. Otoh my Dads sister is 96, my Mum in her upper 80s. This might sound crass but I have no wish to live to be that age. I meet enough old people in my job who worry about the upkeep of their 'property portfolios' to turn me right off saving for old age! |
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New Wed 22 Oct 14 12:58
Pensions query - helicopter
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I would take the view that a bird in the hand is better than an annuity , who knows what inflation will do to your nest egg in the next 30 years Smokie. I am still looking at what to do with one of my pensions as mentioned above worth around £125 K I am quite happy and can live comfortably with my retirement income at the moment but have a lot of money sitting earning very little in the bank ( although we are spending lots on home improvements.) One possibility I am looking at is investing some of our savings a buy to let property. Locally a one bed flat will go for around 150 -200 K and would bring in a rental of £650 to £750 per calendar month and should yield a minimum of 4 or 5 % , better by far than it sitting in the bank or building society.... |
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New Wed 22 Oct 14 16:24
Pensions query - Manatee
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>> I would take the view that a bird in the hand is better than an >> annuity , who knows what inflation will do to your nest egg in the next >> 30 years Smokie. That's an argument for buying an annuity with some inflation protection, unless you want to take the cash to spend it on something now. I wonder if this is an 'enhanced transfer value' - it seems 'too good' in the normal way of things. I have a pension I am currently drawing of about £8,000 a year, payable from 60, with up to 5% RPI rises and a 50% spouse pension if I die first. The transfer value was about £138k. A few years ago (before I 'retired') all the deferred members were sent a letter saying that the trustee was considering offering enhanced transfer values to some members to reduce the funding risk to the scheme. They subsequently wrote to say they weren't going to offer me one, so I took the pension. There are people for whom 'cashing in' DB pensions can make sense. People with a short life expectancy being the most obvious. In general though if you have a mix of DB and money purchase, and you want to cash some in or use drawdown, it's better to start with the money purchase. Things to consider are the degree of RPI protection, any guaranteed minimum period, any other guarantees of any kind including pensions for spouse and dependent children if you predecease. With money purchase, always check to see if there is a guaranteed annuity value. I have one currently worth about 60k IIRC that will pay just short of £5,000 a year from 65, but with no rises. I'll have to keep an eye on that one. |
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New Wed 22 Oct 14 13:00
Pensions query - legacylad
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Purely by coincidence, I was just browsing the BbC World website. Some chap named Ezekial J Emanuel, an oncologist speaking at a summit in NY reckons that 75 is a decent age to cark. An interesting and thought provoking article. Time for another beer then in the sun... |
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New Wed 22 Oct 14 13:44
Pensions query - Cliff Pope
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>> 75 is a >> decent age to cark. >> >> That would give 2 years of retirement then: citywire.co.uk/money/why-the-state-pension-age-should-be-73-already/a779197 |
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New Wed 22 Oct 14 19:50
Pensions query - legacylad
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| On those figures I shall get 9 years State Pension. No complaints whatsoever. Body will be knackered by then anyway. |
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New Wed 22 Oct 14 20:17
Pensions query - Manatee
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This whole approach (just raising the pension age to balance life expectancy) is poor really. Life expectancy has of course improved, but years of good health and the ability to do many jobs has not. Just moving up the retirement age won't do it. There's a pensions (or of you prefer, retired incomes) crisis already. People are making choices to rely on state support (pension credits, care costs) because they will "lose benefits" if they provide for themselves, having completely lost sight of the fact that benefits are for people who can't do that, not just won't do it. The unacceptable truth is that a great deal more of the income we generate while working will need to be diverted to fund our old age. Either through higher taxes, or 'pension' saving. In the science fiction I read as a youth, the expected scenario for the future was that the machines would do most of the work. In other words, productivity would lead to a vast increase in leisure time. Of course it hasn't, it's been absorbed by us all having more "stuff", Parkinson's Law, Departments for Not Much That Matters, etc. I think we need to get out heads round using productivity and technology advances to increase leisure time not on a weekly basis but after the end of our working lives. A pure market economy will not deliver this. And any country that tries to go it alone and do it by compulsion will just make its goods and services uncompetitive for years. Sensible younger people will distinguish paying the capitalists (buying stuff) from paying themselves (saving relatively large proportions of income), and pay themselves first, if they don't want to be struggling with a job in their 70s. Happy to say that my daughter and her husband seem to have worked that out for themselves. Last edited by: VxFan on Thu 1 Oct 15 at 13:00
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New Thu 23 Oct 14 08:40
Pensions query - Cliff Pope
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One factor that is emerging however is that the real class divide is between those who are physically worn out at 65, and those who are in their prime and will go on to enjoy another 20 years of good health. The first category includes manual workers, but also those who have misused their bodies by junk food, quick meals, smoking, and too much alcohol. It is impossible to devise a uniform retirement system that fits both, eg by merely raising the retirement age. |
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New Thu 23 Oct 14 14:19
Pensions query - smokie
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Sorry I wasn't in yesterday, had to go and do a day's work in the City (usually home based!) So according to niece, SWMBO will die at 89. I don't dare ask my death date. ("niece is also in the business"). We got an hionest view from here - the compliance people will never allow a recommendation of cashing in an "occupational pension" as it is a guaranteed income. And in email exchanges with the people that did the assessment yesterday, if we choose to take the transfer value, the request must be fully hand written. So it's all about someone else taking a decision for us really. So if SWMBO lives to her allotted date we probably break even or thereabouts. If she croaks before me, I lose out (my pension would only be £2.2k pa) - but I don't think that scenario will happen naturally). Remember the transfer value is £129k. The pension has not been stated as 60ths or 80ths, or dependent on final salary - it probably was when she was working at the company but after that I suppose it just gets a value. And under the new rules we can drawdown whenever we like, and under the most recent announcement 25% of every drawdown is tax free - which means nearly £30k tax fere (if we didn't take the £30k lump sum on offer). And if we croak and there is some left the kids get it. So in my mind that seems to me the only way to go, as we can withdraw varying proportions from savings and pension drawdowns each year to minimise the tax burden. However SWMBO is now tending towards accepting the advice for now. We have till tomorrow before the free advice and transfer runs out so I suspect we will sit on it a few years and see how employment, health etc pans out over the next year or so, then make a decision later and have to take the hit of any decision to transfer. At times it would be useful but probably upsetting to have a crystal ball. |
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New Thu 23 Oct 14 14:46
Pensions query - Manatee
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You could transfer out, put it in a SIPP, crystallise it, take 25% tax free out as a pension commencement lump sum, then do drawdown on the rest - you wouldn't have to take it all and pay higher rate tax to get the whole of the 25%. Or you could just transfer out to a SIPP, and manage the investment yourself, or to a personal pension. Neither would stop you doing drawdown in due course. The drawdown rate under current rules would be capped, linked to the 'government annuity rate', but that will change next year (and will in any event be uncapped if you have a minimum level of secure income from elsewhere). E&OE. I found Osborne's comment about 25% of every drawdown being tax free confusing, sounds as if he is talking about crystallising in bits and I haven't got to the bottom of it yet. I need to before next April as about a third of my pension provision is in an uncrystallised SIPP currently. The only reason (that I can see) to 'be in a hurry' is if the TV is an enhanced one with an expiry on it. The actuarial funding requirement for your wife's pension entitlement will be significantly lower than the buyout value (the cost of removing the risk from the scheme by buying an annuity to cover the scheme's liabilities). What they sometimes do is offer a transfer value that is higher than their actuarial funding requirement, and nearer to the buyout value, to reduce their risk. Such offers may be time limited. You will definitely need to have taken advice (whether or not you followed it) to liberate a DB pension. Quite right too. And please make sure you have NOTHING to say to anybody offering investments in Brazilian hardwood, fine wines, classic cars.... |
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New Thu 23 Oct 14 15:01
Pensions query - Cliff Pope
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>> I found Osborne's comment about 25% of every drawdown being tax free confusing, sounds >> as if he is talking about crystallising in bits and I haven't got to the >> bottom of it yet. There is to be a new kind of drawdown, to be an option alongside the present kind, which does indeed work as you describe. Called the UFPCLS ("You puffle") or something similar. It's all getting quite difficult to understand, with new announcements or interpretations of announcements coming thick and fast. I don't think it is the same as crystalising in bits. Last edited by: Cliff Pope on Thu 23 Oct 14 at 15:02
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New Thu 23 Oct 14 15:07
Pensions query - Manatee
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As I suspected it appears Osborne was just confusing the issue. You can either put your whole fund into drawdown ("crystallise" it), and take 25% tax free, then the rest when you like (subject to caps until next year), or you can put only part of it into drawdown, in which case you can only take 25% of that part tax free. That is currently called 'phased drawdown". Osborne contemplates a new product that will make you fund like a 'bank account' whereby every withdrawal is a "phased drawdown" and so 25% of it is tax free, the rest is taxed. If this is simplification of pensions I'm a Dutchman (sorry Dutchie). forums.moneysavingexpert.com/showthread.php?t=5093709 dunstonh is an IFA. |
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New Thu 23 Oct 14 16:26
Pensions query - smokie
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Two posts up Manatee has exactly described how I saw this but maybe hadn't explained it as well. "Crystallise" was a new term to me yesterday which i shall endeavour to understand. But we take the offered cash, put it into a pension fund ( - I did the same with a bunch of money from my Ltd company last year, with Scottish Wodows) which we can then drawdown as and when required. If it comes with extra tax breaks, all the better. Whether we take the 25% tax free lumop sum is questionable as that would end up in savings which would likely be taxcble - although could fund next year's NISA and a holiday. The IFA (who is being paid by the pension fund to give advice and enable transfers till end Oct) reckoned any future transfer value could be higher but I had already wondered whether they were offering an enhancement to encourage people out of the scheme. To me, the only real risk is in the fund you put it in - but even something rock steady which only averages 1% a year means the odds are we would be at least as well off. It would deffo go into a very low risk fund. My last year's money went into something a bit higher in the risk stakes - but any losses (up to about 20%) are less worrying as I didn't have to pay corp tax on the amount which went into the scheme. |
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New Thu 23 Oct 14 16:32
Pensions query - smokie
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| And I've now got crystallised - its the point at which you take the 25% and start drawing down. That's a few years away for me most likely. |
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