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    • NewShadow
    • By NewShadow 12th Jan 18, 10:10 PM
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    NewShadow
    Help with math - calculating pension + Alpha
    • #1
    • 12th Jan 18, 10:10 PM
    Help with math - calculating pension + Alpha 12th Jan 18 at 10:10 PM
    Evening All.

    I've got a friend staying with me for a while and we've been talking about 'The Future'.

    It's a big, scary place and our discussion isn't helped by neither of us being very good with numbers.

    Can anyone help with the following?

    Female aged 32.

    On track for a full flat rate state pension (at 68)

    Currently earning c. £26k and paying into the civil service alpha pension scheme (accrual rate is 2.32%).

    Also paying in the additional contributions (EPA) to take the pension 3 years earlier (as an option, knowing that if she defers taking that bit, it goes up and can be taken with the rest of her pension at 68 - but we don't know the rate of increase per year deferred)

    Also just started paying into a cash LISA - with a plan to pay the maximum £4k every year between now and 50 and to take for retirement.

    Question 1: IF she nothing changes between now and 68 (no pay rises, no new government policies, no new taxes)... what will she get?

    AND Question 2: (if you don't mind) is there anything she should/could be changing now to make her pension better (she was thinking about additional voluntary contributions - as well as the contributions for the 'early' pension but we aren't sure if this would have a downside)?

    Thank you kindly all.

    Please let me know if there's anything I've left out that makes the numbers make more sense.
    Last edited by NewShadow; 12-01-2018 at 10:13 PM.
    That sounds like a classic case of premature extrapolation.

    There is pleasure in the pathless woods, there is rapture in the lonely shore, there is society where none intrudes, by the deep sea, and music in its roar...
    Byron
Page 1
    • Owen1991
    • By Owen1991 13th Jan 18, 11:22 AM
    • 34 Posts
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    Owen1991
    • #2
    • 13th Jan 18, 11:22 AM
    • #2
    • 13th Jan 18, 11:22 AM
    £21,715 a year at 68 (presuming she started paying this year) + a state pension.
    LISA savings would be roughly £102,000 (presuming it's a Cash LISA and the interest rate remains at 0.75%)

    I may be completely wrong but I tried.
    Save 12k in 2018 - £800/£12000 ~ # | Sealed Pot Challenge 2018 ~ #44
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    • TheShape
    • By TheShape 13th Jan 18, 7:10 PM
    • 1,185 Posts
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    TheShape
    • #3
    • 13th Jan 18, 7:10 PM
    • #3
    • 13th Jan 18, 7:10 PM
    EAlso just started paying into a cash LISA - with a plan to pay the maximum £4k every year between now and 50 and to take for retirement.

    AND Question 2: (if you don't mind) is there anything she should/could be changing now to make her pension better (she was thinking about additional voluntary contributions - as well as the contributions for the 'early' pension but we aren't sure if this would have a downside)?
    Originally posted by NewShadow
    I'd rethink paying into a CASH LISA. The low interest rate currently offered and likely to be offered in the future will erode the value of the 25% government bonus to a huge extent. If saving/investing for retirement you should consider a S&S LISA.
    • NewShadow
    • By NewShadow 13th Jan 18, 9:17 PM
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    NewShadow
    • #4
    • 13th Jan 18, 9:17 PM
    • #4
    • 13th Jan 18, 9:17 PM
    LISA savings would be roughly £102,000
    Originally posted by Owen1991


    That shocked us both. I was thinking £90k and forgot about the power of interest

    I know it might sound small potatoes to some, but she's going through a nasty separation right now and squealed at the idea of actually having a lump sum like that in her future - at the moment she's homeless (in my spare room) and he ex is trying his best to keep her that way.

    The future is not as bleak as it first appears...

    I may be completely wrong but I tried.
    Thank you kindly mi duck

    I was getting between 28,000 and 24,000 but I think I was getting confused by tax allowances.

    ETA - just thinking, have we both left out the additional payments she's currently making (Not sure what the EPA accrual rate is?)

    I'd rethink paying into a CASH LISA. The low interest rate currently offered and likely to be offered in the future will erode the value of the 25% government bonus to a huge extent. If saving/investing for retirement you should consider a S&S LISA.
    Originally posted by TheShape
    Thank you as well

    Is it easy to switch the money from a cash to S&S LISA?

    She's only just put a couple of hundred in her first LISA (with skipton) but is hoping to have at least £4k by the end of February to max the government contribution for this year.

    She's not a natural risk taker (especially with the rest of the uncertainty she's going through at the moment).

    Thank you again for the advice received - and please feel free to provide any other advice (excusing that I know nothing about financial planning and appreciate your time greatly).
    Last edited by NewShadow; 13-01-2018 at 9:21 PM.
    That sounds like a classic case of premature extrapolation.

    There is pleasure in the pathless woods, there is rapture in the lonely shore, there is society where none intrudes, by the deep sea, and music in its roar...
    Byron
    • hugheskevi
    • By hugheskevi 13th Jan 18, 10:01 PM
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    hugheskevi
    • #5
    • 13th Jan 18, 10:01 PM
    • #5
    • 13th Jan 18, 10:01 PM
    On track for a full flat rate state pension (at 68)
    There is a high chance this will increase beyond 68 for her.

    Also paying in the additional contributions (EPA) to take the pension 3 years earlier (as an option, knowing that if she defers taking that bit, it goes up and can be taken with the rest of her pension at 68 - but we don't know the rate of increase per year deferred)
    I don't think the scheme publishes them, but it is pretty much irrelevant this far away and the factors change over time.

    Question 1: IF she nothing changes between now and 68 (no pay rises, no new government policies, no new taxes)... what will she get?
    (68-32)*£26,000*0.0232=£21,715.20

    Which due to the EPA would be actuarially enhanced by, say, 4% p/a so about £24,321

    If you assume that salary increases in line with prices then you can consider that value in today's money. However, salary increasing only in line with CPI over 36 years is extremely unlikely.

    AND Question 2: (if you don't mind) is there anything she should/could be changing now to make her pension better (she was thinking about additional voluntary contributions - as well as the contributions for the 'early' pension but we aren't sure if this would have a downside)?
    She could consider Added Pension purchase, or some form of Defined Contribution pension (AVC, SIPP, personal pension, Stakeholder Pension). I don't think she should consider any of them, and would even question the benefit of EPA contributions if she is homeless - I would think she needs the money more now?

    That shocked us both. I was thinking £90k and forgot about the power of interest
    £12K of interest over 36 years is hardly powerful, especially when you take into account the erosion of purchasing power by inflation. 2% inflation each year for 36 years would more than halve the purchasing power, so that £112,000 would have a real value of about £55,000.

    at the moment she's homeless (in my spare room) and he ex is trying his best to keep her that way.
    In that case, I very much doubt additional pension contributions are a priority right now, unless money is not an issue.

    ETA - just thinking, have we both left out the additional payments she's currently making (Not sure what the EPA accrual rate is?)
    EPA accrual rate is same as alpha - EPA just means you get what you would have got at State Pension age three years earlier.

    She's not a natural risk taker (especially with the rest of the uncertainty she's going through at the moment).
    She would be taking a spectacular risk investing in cash for 36 years. That strategy wins in almost no scenarios compared with just about any investment strategy involving investment risk, be it low risk bonds or equities. The risk-bearing assets will almost certainly out-perform cash over such a long period.
    • NewShadow
    • By NewShadow 13th Jan 18, 11:15 PM
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    NewShadow
    • #6
    • 13th Jan 18, 11:15 PM
    • #6
    • 13th Jan 18, 11:15 PM
    She could consider Added Pension purchase, or some form of Defined Contribution pension (AVC, SIPP, personal pension, Stakeholder Pension). I don't think she should consider any of them, and would even question the benefit of EPA contributions if she is homeless - I would think she needs the money more now?
    Originally posted by hugheskevi
    Homeless is melodramatic - more representative of her mental state than anything else. A mental state that has resulted in serious conversations about being destitute in her old age = hence the thread and the desire to take control/make some positive changes now.

    She has a steady/healthy income but only left her partner last month and will hopefully be in a new rented home by the end of this month.

    As soon as they've come to an agreement about splitting the savings she should have a decent lump sum to establish herself and top up the LISA.

    The risk-bearing assets will almost certainly out-perform cash over such a long period.
    Okay - now me asking for me as well as my friend - I've just read through martin's guide and we talked it over this evening.

    I'm understanding that she would just open a new S&S LISA and somehow request to transfer the cash LISA in (and possibly pay a penalty on the couple of hundred in there) - right?

    There was only one provider of the cash lisa, but there seem to be quite a few for S&S

    Given the length of time and the desire to pay in money as it becomes available then forget about it from year to year - Would you recommend any particular provider/fund?

    I personally liked the sound of the one that rounds up all your card purchases to the nearest pound - but it smacks of a novelty and the guide said high management charges...

    Thank you for your continued advice.
    That sounds like a classic case of premature extrapolation.

    There is pleasure in the pathless woods, there is rapture in the lonely shore, there is society where none intrudes, by the deep sea, and music in its roar...
    Byron
    • Owen1991
    • By Owen1991 14th Jan 18, 12:04 AM
    • 34 Posts
    • 47 Thanks
    Owen1991
    • #7
    • 14th Jan 18, 12:04 AM
    • #7
    • 14th Jan 18, 12:04 AM
    If it was in a S&S LISA and you got 4% above inflation, after 18 years of depositing that would be worth roughly £140,000 (age 50) and worth £204,000 by age 60 when you can withdraw it.

    A massive difference.
    Save 12k in 2018 - £800/£12000 ~ # | Sealed Pot Challenge 2018 ~ #44
    £7000 in LISA | £8000 in Savings - End of 2017
    Debt Free | Saving for a House Deposit
    • BobQ
    • By BobQ 14th Jan 18, 12:52 AM
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    BobQ
    • #8
    • 14th Jan 18, 12:52 AM
    • #8
    • 14th Jan 18, 12:52 AM
    Alpha has only been around for a couple of years. Has she just joined the CS or does she also have pension built up under previous CS schemes?

    Another consideration is if friend is married and is heading towards a divorce, her pension and his pension are in the mix in working out a financial settlement. If they are not married problem does not arise.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • westv
    • By westv 14th Jan 18, 10:11 AM
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    westv
    • #9
    • 14th Jan 18, 10:11 AM
    • #9
    • 14th Jan 18, 10:11 AM
    "Math"?!
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