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  • FIRST POST
    • paul hannah
    • By paul hannah 19th Mar 17, 8:23 PM
    • 14Posts
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    paul hannah
    Retirement benefits statement? whats best??
    • #1
    • 19th Mar 17, 8:23 PM
    Retirement benefits statement? whats best?? 19th Mar 17 at 8:23 PM
    Firstly, many thanks to those who "Educated "me on the GMP, very much appreciated!
    Ive received my three options for taking my pension from the JLT .I'LL list the three options.

    Option 1 is Combined tax free lump sum £83k and reduced annual pension of £12k which includes a pension savings from an AVC account.
    Option 2 is Defined benefit tax free lump sum of £72k a reduced annual pension and pension £10k savings in addition.
    Option 3 is a full defined benefit pension £14k and pension savings in addition.
    in each case, the pension savings from AVC's is £40,0000
    Im thick when it comes to pensions, and im aware i should be asking JTL any clarification i need, but they are painfully slow at replying, two weeks is about normal, 10 days is the very best ive ever had from them.
    Option one is the only option that doesn't say "Defined benefits" so is a bad option? its the one pushing a big tax free lump sum.
    I like option 3 as its a bigger pension, but the AVC (pension savings) is in addition so i presume the first 25% tax free, then taxed to death on the remaining 75%?
    Could i choose option one, reduce the lump sum from the max 25% to increase the annual pension, and still have a decent lump sum.( my thoughts were to up the annual pension and still be able to take a tax free cash lump sum that wouldn't be taxed as the AVC would)
    I intend to keep on working, and would need some lump sum to help my daughter onto the property ladder.
    Im taking my pension early as my wife is terminally ill and will need me home as her condition deteriorates, plus im very unsure on my companies future.
    Thanks in advance
    Last edited by paul hannah; 20-03-2017 at 2:34 PM. Reason: dyslexia!!!
Page 1
    • xylophone
    • By xylophone 20th Mar 17, 1:21 AM
    • 23,386 Posts
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    xylophone
    • #2
    • 20th Mar 17, 1:21 AM
    • #2
    • 20th Mar 17, 1:21 AM
    Did you see post 15?
    http://forums.moneysavingexpert.com/showthread.php?p=72265370#post72265370
    • paul hannah
    • By paul hannah 20th Mar 17, 10:28 AM
    • 14 Posts
    • 1 Thanks
    paul hannah
    • #3
    • 20th Mar 17, 10:28 AM
    • #3
    • 20th Mar 17, 10:28 AM
    Yes, i did, but im sorted on the GMP, i understand that part now, this is s separate question about the three options i have in front of me.
    It may seem simple to you, but i thought that was what this forum was for? help for the 98% of us who don't find this simple?
    As mentioned, my wife is seriously ill,I work very long hours, i need care arranged for my wife when im not there, we have doctors appointments and hospital appointments that can happen without much notice.
    I don't want a home visit from a financial adviser talking pensions in front of my wife who simply wont be here to enjoy any retirement or pension.
    I thank you for your time, but id appreciate any other experts who would be willing to shed light on my three options to help out.
    • Linton
    • By Linton 20th Mar 17, 11:14 AM
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    Linton
    • #4
    • 20th Mar 17, 11:14 AM
    • #4
    • 20th Mar 17, 11:14 AM
    Its not 100% clear to me what the options mean - are they quoted word for word from the documentation you were given? For example Option 2 doesnt say what the reduced pension is, perhaps its the same as Option 1.

    I assume:

    Option 1 means £10K (25%) tax free lump sum from AVC and £72K tax free lump sum from DB pension leaving you with £30K AVC and a £12K pension.
    Option 2 means the same as Option 1 but you dont crystalise the AVC.
    Option 3 means you dont take a DB pension lump sum and you dont crystalise the AVC.

    Comparing Option 2 and Option3 indicates a £2K pension is worth £72K. This seems a fair choice to me, but taking tax into consideration it would probably favour taking the lump sum. The final choice must be on which is most important to you - an extra lump sum cash now or a lifelong guaranteed inflation adjusted £2K/year. Whether you take the lump sum from the AVC now or perhaps transfer the whole AVC into a SIPP is a secondary detail.
    • Suffolk lass
    • By Suffolk lass 20th Mar 17, 11:44 AM
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    Suffolk lass
    • #5
    • 20th Mar 17, 11:44 AM
    • #5
    • 20th Mar 17, 11:44 AM
    I am so sorry for your wife's condition. It really is so difficult for us to advise you on these threads - our help tends to revolve around making you aware of some of the technicalities and trying to explain things win plain english of we can help in that respect.

    I will try and set out what I would be taking into consideration if I were in your position.

    First and foremost, is your wife claiming the benefits she is entitled to, to help pay for care for herself? My Sister was talking about this yesterday in relation to a relative who is too proud to claim and is therefore missing out on (approximately) £3000 towards her personal care - Do claim. You have paid for this over your working life. It is not means tested (i.e. not based on your income and assets). It is OK for her to "pay" you to care for her.

    You are only 59. Your state pension will not be payable until you are 66 (SPA - state pension age). I would be looking at what my outgoings are in order to inform my decision between options 2 and 3. Why only options 2 & 3?

    Option 1 reads like a fixed pension offering, and while the lump from your pension is highest, I think (note, think) that your pension would not increase beyond £1,000 a month, or £12k per annum. In six years time you may well not have enough to live on. NB unlike a DB option that will link to an inflator (maybe by a set %age, of maybe CPI or RPI (consumer or retail price index)

    If you need the capital sum of £72k (maybe to pay off a mortgage) this might be the option for you, but you might struggle on the lower monthly income. You say you intend to work again but you must ensure you have your personal circumstances covered. Another reason why you should claim the benefit to help while you are unable to work in order to look after your wife

    If you personally could manage without the lump sum, another question to consider before ruling out option 2 is one of inheritance. If you have children you want to provide for, taking a lump sum as well as income from your pension may be the route to go. As your wife will not be alive to take advantage of any dependent/partner benefits if your own life is not long and healthy, maybe this is something for you to consider. When you die, your DB pension would die with you, assuming your wife pre-deceases you and you do not remarry.

    You also have the £40k to consider. Your pension savings of £40k exceed the current limit* of £30,000 that would allow you to draw down (remove) this in cash (maybe over several years between retiring and SPA?), without you first taking advice (for a fee) from an IFA. - In your current circumstances you have said you do not want to think about this, so if you can manage without that capital, leave it for a year or two and rely on your DB pension plus the benefits your wife claims (!) to top it up. At the point you resolve what you are going to do with this, you could currently take 25% of it as a tax-free lump sum. Again*.

    *[That limit might change but the Chancellor is looking for income having sacrificed the self employed NI Contributions change last week - if I were a betting person, I would only look for this sort of sweetener in the Autumn Budget 2019 - when they are dangling temptation ahead of the next election - and there is discussion about him limiting tax-free removals in the future to fill that gap]

    There is no NI contribution on your pension when you begin to draw it but you will pay tax for income over £11,000 (£11,500 from April). That said, you will need to consider paying a NI contribution for the years you do not work between giving up work and SPA. If you take another job, you will pay normal Class 1 employee contributions but with your SERPS opt-out, you may need to maximise the years you have left to improve between Basic and single state pensions - (£119 vs £155 or somewhere between, based on current rates).

    I hope this helps a bit
    MFiT T4 #2 update 42.67% after Q7 £5,465 behind where I should be
    Save £12k in 2017 #64 - £9,260.94 saved (84.19%) after October - my annual target is £11,000
    OS Grocery Challenge 2017 budget of £3,600 £3000 (reduced from Apr) - 78.56% including stores after October
    My DFD is http://forums.moneysavingexpert.com/showthread.php?t=5593594
    • Linton
    • By Linton 20th Mar 17, 12:10 PM
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    Linton
    • #6
    • 20th Mar 17, 12:10 PM
    • #6
    • 20th Mar 17, 12:10 PM
    I dont see any evidence that Option 1 is for a fixed rate pension different to Options 2 and 3. The numbers would suggest that it's the same. However the OP should find out what the index linking arrangements are.
    • kidmugsy
    • By kidmugsy 20th Mar 17, 2:16 PM
    • 9,820 Posts
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    kidmugsy
    • #7
    • 20th Mar 17, 2:16 PM
    • #7
    • 20th Mar 17, 2:16 PM
    There is a fourth option. You could argue that a DB pension is of less value to a bloke who's lost his wife because the widow's pension rights are now worthless. You could therefore ask them to quote a Cash Equivalent Transfer Value and think about whether you should transfer out into a money purchase scheme. That, however, removes the investment risk and longevity risk from the shoulders of your scheme's trustees and puts them on your shoulders.
    • paul hannah
    • By paul hannah 20th Mar 17, 2:41 PM
    • 14 Posts
    • 1 Thanks
    paul hannah
    • #8
    • 20th Mar 17, 2:41 PM
    • #8
    • 20th Mar 17, 2:41 PM
    [QUOTE=Linton;72279185]Its not 100% clear to me what the options mean - are they quoted word for word from the documentation you were given? For example Option 2 doesnt say what the reduced pension is, perhaps its the same as Option 1.



    Very sorry if i made it unclear, here word for word !

    Option 1 Combined tax free lump sum of £83k
    includes pension savings of £41k
    Plus an annual reduced pension of £12k

    Option 2 Defined benefit tax free lump sum of £72k
    Plus a reduced annual pension of £10k
    Plus Pension savings of £41k

    Option 3 Full defined benefit pension of £14k
    Plus pension savings of £41k
    Last edited by paul hannah; 20-03-2017 at 3:00 PM.
    • paul hannah
    • By paul hannah 20th Mar 17, 2:51 PM
    • 14 Posts
    • 1 Thanks
    paul hannah
    • #9
    • 20th Mar 17, 2:51 PM
    • #9
    • 20th Mar 17, 2:51 PM
    I dont see any evidence that Option 1 is for a fixed rate pension different to Options 2 and 3. The numbers would suggest that it's the same. However the OP should find out what the index linking arrangements are.
    Originally posted by Linton

    Thanks for reply, Option one is the only option that doesn't mention Defined benefit, and this concerned me as its all flashing lights pointing at the biggest lump sum, and most people in our firm have been drawn in by the big cash offer.
    All the three options are on a single A4 sheet, no explanations (unless you ask, and then wait an eternity for a reply).
    • paul hannah
    • By paul hannah 20th Mar 17, 2:58 PM
    • 14 Posts
    • 1 Thanks
    paul hannah
    There is a fourth option. You could argue that a DB pension is of less value to a bloke who's lost his wife because the widow's pension rights are now worthless. You could therefore ask them to quote a Cash Equivalent Transfer Value and think about whether you should transfer out into a money purchase scheme. That, however, removes the investment risk and longevity risk from the shoulders of your scheme's trustees and puts them on your shoulders.
    Originally posted by kidmugsy
    Very true, i have asked them if they would consider offering me better terms as id be a single life policy, and pointed out that they were discriminating against being single, thus having me subsidise the married members of the scheme ( please forgive me as im still married, but, well you know what i mean!)
    They said they have no provisions for this, and i replied that you now have "common law partners" on the documentation, that wasn't there a few years back, but you had to amend things to be seen to be "political correct" but still waiting for a reply on that one
    • Suffolk lass
    • By Suffolk lass 20th Mar 17, 3:24 PM
    • 1,593 Posts
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    Suffolk lass
    I dont see any evidence that Option 1 is for a fixed rate pension different to Options 2 and 3. The numbers would suggest that it's the same. However the OP should find out what the index linking arrangements are.
    Originally posted by Linton
    I agree. My "I think" is based on the fact that options 2 & 3 specifically do mention defined benefit, therefore, it is not - as I said before, "I think".
    MFiT T4 #2 update 42.67% after Q7 £5,465 behind where I should be
    Save £12k in 2017 #64 - £9,260.94 saved (84.19%) after October - my annual target is £11,000
    OS Grocery Challenge 2017 budget of £3,600 £3000 (reduced from Apr) - 78.56% including stores after October
    My DFD is http://forums.moneysavingexpert.com/showthread.php?t=5593594
    • xylophone
    • By xylophone 20th Mar 17, 3:26 PM
    • 23,386 Posts
    • 13,590 Thanks
    xylophone
    Yes, i did, but im sorted on the GMP, i understand that part now, this is s separate question about the three options i have in front of me.
    It may seem simple to you, but i thought that was what this forum was for? help for the 98% of us who don't find this simple?
    Your initial query was about the GMP as it applied to a buy out of one part of your pension and to your DB CARE pension.

    It is not easy to understand the ramifications of GMP ( and yours is complex) and I (and hyubh) did our best to explain what appeared to be your situation in this respect.

    You then set out the options available to you and asked for comments as you were having difficulty in understanding how to choose the best option for your circumstances.

    My post 15 said

    If you are completely at sea, you might benefit from taking qualified, independent financial advice.

    https://directory.moneyadviceservice.org.uk/en

    You will pay a fee ( ring round several to establish) but it would assist you to understand your options and choose the most appropriate option for your circumstances.

    If you are giving up paid work, you may wish to consider voluntary NI so as to bring your state pension up to NSP.
    Given your current situation, it still seems to me that personalised, independent financial advice might well be advisable - apart from anything else you may need to consider the way your pension revalues in payment up to age 65 and post age 65, considering that you have pre and post 88 GMP.

    And should you wish to transfer your DB pension/buyout pension with safeguarded benefits to a DC arrangement, (post 7 above) then it will be compulsory to take advice from an Independent Financial Adviser who is a pension Transfer Specialist.
    • Linton
    • By Linton 20th Mar 17, 3:42 PM
    • 8,448 Posts
    • 8,366 Thanks
    Linton
    ........

    Option 1 Combined tax free lump sum of £83k
    includes pension savings of £41k
    Plus an annual reduced pension of £12k

    Option 2 Defined benefit tax free lump sum of £72k
    Plus a reduced annual pension of £10k
    Plus Pension savings of £41k

    Option 3 Full defined benefit pension of £14k
    Plus pension savings of £41k
    Originally posted by paul hannah

    I think I have unravelled it!

    Lets look at Option 2 first:
    For these purposes we can take the total DB to be worth 4 X £72K=£288K. Option 2 gives you the £72K tax free, the remaining £216K is used to pay for a £10K pension. The AVC is unaffected.

    Now Option 3 makes sense:
    The £288K is used in its entirety to pay for a DB pension of £14K which is a bit more generous than Option 2. The AVC is unaffecteed.

    Option 1 is the most complex:
    The AVC is used to pay for part of the DBs TFLS. This is usually beneficial.
    So the total fund is £288K+£41K =£329K. 25% =£82K is taken as a TFLS. OK the numbers are slightly out but still very close. Perhaps because we dont know the exact pension values. The remaining £246K is used to buy a £12K pension which is much the same factor as the other options. So you lose the AVC.

    Now which to choose. The ratio of calculated DB pension pot to pension paid is always around 21. This is rather low ( or rather generous to someone taking a pension). The figure suggests that in pure financial terms you would be better off taking the maximum pension rather than the lump sum.

    However there are other factors, firstly tax and secondly as Kidmugsy points out the spouse pension and the option of transferring out the whole pension. I dont think there is much chance of them giving you a special deal based on your circumstances. The Transfer Value may be very different to the calculated pension value given above. It may be worth your while asking for a Transfer Value in case that is rather more generous.

    Finally as said before you may well have other factors such as a need for cash now.
    Last edited by Linton; 20-03-2017 at 3:45 PM.
    • paul hannah
    • By paul hannah 20th Mar 17, 5:37 PM
    • 14 Posts
    • 1 Thanks
    paul hannah
    [QUOTE=Linton;72280877]I think I have unravelled it!

    Thanks!
    I think I finally understand the three options!
    You have explained them very well- thank you!
    I've a friend on the pension board, I've asked him to raise the single life policy option on my behalf, as its a saving to the pension fund, and a legitimate point. After all, to have a spouses pension does reduce your annuity on any of the online calculators.
    Thanks again
    • hennerz
    • By hennerz 21st Mar 17, 12:39 AM
    • 172 Posts
    • 32 Thanks
    hennerz
    Now which to choose. The ratio of calculated DB pension pot to pension paid is always around 21. This is rather low ( or rather generous to someone taking a pension). The figure suggests that in pure financial terms you would be better off taking the maximum pension rather than the lump sum.
    Originally posted by Linton
    I've been using the transfer value as the value of the pension pot to produce this ratio, is that wrong? In the press we hear of CETV ratios of 30+ being good, but how do you make the judgement 'in pure financial terms' please?
    • Suffolk lass
    • By Suffolk lass 21st Mar 17, 7:12 AM
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    • 17,860 Thanks
    Suffolk lass
    Don't be too disappointed if your pension provider will not refund contributions in respect of spousal benefits - they may well argue that you have had that benefit throughout your working life - with your wife benefitting from knowing your pension was there for her, throughout that time so you have potentially saved on not making separate costly provision for her.

    In my DB scheme they will refund that part of the contribution after someone is divorced or widowed (if they do not remarry), at retirement date, but only from the date of the decree absolute or death.
    MFiT T4 #2 update 42.67% after Q7 £5,465 behind where I should be
    Save £12k in 2017 #64 - £9,260.94 saved (84.19%) after October - my annual target is £11,000
    OS Grocery Challenge 2017 budget of £3,600 £3000 (reduced from Apr) - 78.56% including stores after October
    My DFD is http://forums.moneysavingexpert.com/showthread.php?t=5593594
    • Joey Soap
    • By Joey Soap 21st Mar 17, 8:14 AM
    • 79 Posts
    • 21 Thanks
    Joey Soap
    My sympathies to the OP, however, in that boat I would take the maximum DB pension available as it is immediate and guaranteed income that is required. There are significant state benefits available to the person who is ill and their carer too. Make sure you get all you are entitled to.

    Then, in the future, if/when you work again (as seems likely) your expenditure may well be quite a bit lower than you estimate so this will help you to build the pot of money you may otherwise feel you are missing by taking the maximum pension.

    Hope that helps.
    • Linton
    • By Linton 21st Mar 17, 9:27 AM
    • 8,448 Posts
    • 8,366 Thanks
    Linton
    I've been using the transfer value as the value of the pension pot to produce this ratio, is that wrong? In the press we hear of CETV ratios of 30+ being good, but how do you make the judgement 'in pure financial terms' please?
    Originally posted by hennerz
    If you are considering moving your DB pension as a lump sum to a SIPP, then CETV is what you need to consider. In the OPs case the concern was how much DB tax free lump sum to take. Here the CETV is irrelevent because we arent looking at a transfer. What is important is how much pension you are losing for what cash gain. In this case the ratio was less than 20.

    A few years ago you would judge whether a ratio is good or bad by calculating how much money you would need to buy an equivalent annuity. On that basis as inflation linked annuities are around 3% (ie a ratio of 30-35) the lump sum provided by the OPs scheme was poor value.

    These days you need to consider drawdown as an alternative. You can get some idea of what's involved by looking at cfiresim. These results tend to show that if you want to take a safe steady inflation matching income from a sensible portfolio of equity investments 3.5% of initial pot size is a reasonable figure, giving a ratio of a bit less than 30. If you are prepared to vary your drawdown in line with the market conditions, especially during a crash, you can perhaps go for 5-6%. But this would require more careful management. In my view it's something only someone confident with investing and managing large sums of money should take on.

    The "pure financial terms" means that there may be some good reasons for taking a lump sum that arent included in this somewhat rough and ready analysis.
    Last edited by Linton; 21-03-2017 at 9:31 AM.
    • paul hannah
    • By paul hannah 21st Mar 17, 6:17 PM
    • 14 Posts
    • 1 Thanks
    paul hannah
    Don't be too disappointed if your pension provider will not refund contributions in respect of spousal benefits - they may well argue that you have had that benefit throughout your working life - with your wife benefitting from knowing your pension was there for her, throughout that time so you have potentially saved on not making separate costly provision for her.

    In my DB scheme they will refund that part of the contribution after someone is divorced or widowed (if they do not remarry), at retirement date, but only from the date of the decree absolute or death.
    Originally posted by Suffolk lass
    JTL dont give enhanced annuity for single life nor existing illness, i really think they should move with the times.
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