Another CETV Q; Help Me Thrash It Through...
cloud_dog
Posts: 6,044 Forumite
Ok, so another CETV post I’m afraid.
I have a DB scheme and my position has been that it provides (very) good protection for retirement income, i.e. removes the ricks of investments, and it is a position I have put forward on these boards numerous times in the past. Having said that, I have been going over and over our finances and future plans. ‘Plans’ is quite a strong word as it is not something we, as a couple have discussed in great detail (I have spoken about how I think things should progress with the OH) but, where my head is at the moment is that there is a lack of flexibility around the finances that would allow us to consider early(ish) retirement.
To this end, I’d like to post the details below and would welcome people’s thoughts on the matter.
Pension Me: DB scheme, NRA 65; SP 67 (need another 4 years for full SP)
Pension OH, mixture: DB (age 67), S32 (age 60), DC (age 55); SP 67 (need another 5 years for full SP)
I haven’t requested a CETV for my DB scheme but, if we were to assume a CETV ratio of around 32 times (recent post by someone else), this would provide a figure of £852800 (based on the 1 April 2017 figure). I know all this is meaningless without an actual CETV value but I would like to ‘thrash things out’, ‘chew the cud’, so as to ensure I have considered all possibilities and truly understand both the increased risks and benefits.
One other thing that is at the back of my mind and, I believe needs due consideration. My father passed at age 63 from heart attack, my paternal grandmother passed at age 77 due to angina, my mother had a triple heart by-pass when she was 72 (she still going at 82, whoop whoop). This is not something I can ignore.
So, with all that in mind....
The one big advantage I can see from transferring out of my DB scheme is significant flexibility for retirement age. That is not something I can see how I could achieve otherwise.
I cannot see myself working for my current employer until 65.
The downside is the significant increase in risk.
Based on the £852800 value, minus PCLS, would leave £639600. A draw down rate of 4% (???) would equate to a pension of £25584pa. Maybe I need to use 3%? But, my DB pension minus PCLS would be £21773pa so, a 3.5% withdrawal rate would provide a comparable pension. Plus, I would have an additional £65k from the PCLS of the CETV as opposed to the DB PCLS from which income could be derived (ISAs etc).
My mind at the moment is certainly focussing on the flexibility aspect and also the hereditary health consideration (it would be remiss to ignore it).
Thoughts?
(I suppose the simple thing to do would be to request a CETV and revisit all of this).
I have a DB scheme and my position has been that it provides (very) good protection for retirement income, i.e. removes the ricks of investments, and it is a position I have put forward on these boards numerous times in the past. Having said that, I have been going over and over our finances and future plans. ‘Plans’ is quite a strong word as it is not something we, as a couple have discussed in great detail (I have spoken about how I think things should progress with the OH) but, where my head is at the moment is that there is a lack of flexibility around the finances that would allow us to consider early(ish) retirement.
To this end, I’d like to post the details below and would welcome people’s thoughts on the matter.
- Age 52, OH 50.
- Mortgage £89k
- ISA(s) £90k
- 1 child (14)
Pension Me: DB scheme, NRA 65; SP 67 (need another 4 years for full SP)
- Pension at NRA: £33386pa
- Lump sum: £145150
- Reduced pension: £21770pa
- Spouse pension: 50% (£16693pa)
- Preserved pension as of 1 April 2017: £26650pa
- AVC: £2k (+£250pm)
Pension OH, mixture: DB (age 67), S32 (age 60), DC (age 55); SP 67 (need another 5 years for full SP)
- LGPS DB at NRA: £2900pa
- Lump sum: £12490
- Reduced pension: £1875pa
- Preserved pension as of 31 March 2017: £292pa
- S32 at 60: £1220pa
- DC/SIPP Pension: £31k (+£500pm)
I haven’t requested a CETV for my DB scheme but, if we were to assume a CETV ratio of around 32 times (recent post by someone else), this would provide a figure of £852800 (based on the 1 April 2017 figure). I know all this is meaningless without an actual CETV value but I would like to ‘thrash things out’, ‘chew the cud’, so as to ensure I have considered all possibilities and truly understand both the increased risks and benefits.
One other thing that is at the back of my mind and, I believe needs due consideration. My father passed at age 63 from heart attack, my paternal grandmother passed at age 77 due to angina, my mother had a triple heart by-pass when she was 72 (she still going at 82, whoop whoop). This is not something I can ignore.
So, with all that in mind....
The one big advantage I can see from transferring out of my DB scheme is significant flexibility for retirement age. That is not something I can see how I could achieve otherwise.
I cannot see myself working for my current employer until 65.
The downside is the significant increase in risk.
Based on the £852800 value, minus PCLS, would leave £639600. A draw down rate of 4% (???) would equate to a pension of £25584pa. Maybe I need to use 3%? But, my DB pension minus PCLS would be £21773pa so, a 3.5% withdrawal rate would provide a comparable pension. Plus, I would have an additional £65k from the PCLS of the CETV as opposed to the DB PCLS from which income could be derived (ISAs etc).
My mind at the moment is certainly focussing on the flexibility aspect and also the hereditary health consideration (it would be remiss to ignore it).
Thoughts?
(I suppose the simple thing to do would be to request a CETV and revisit all of this).
Personal Responsibility - Sad but True 
Sometimes.... I am like a dog with a bone
Sometimes.... I am like a dog with a bone
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Comments
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Two things from me.
Transferring out also allows your child some protection if you/both die.
I would also seek a CETV for your OH as well as maybe pleasantly surprised.0 -
We are looking at something similar, but what has made the decision sway towards taking the CETV is the fact that until the pension is in payment there would be no spousal income, just the return of contributions, This has come as a bit of a shock to us. Similar figures to you.
Additionally, if we take the CETV it is inheritable.
We are considering an insurance policy but then we would be paying quite large premiums.
Not sure if you might be in a similar position?0 -
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Based on the £852800 value, minus PCLS, would leave £639600. A draw down rate of 4% (???) would equate to a pension of £25584pa. Maybe I need to use 3%? But, my DB pension minus PCLS would be £21773pa so, a 3.5% withdrawal rate would provide a comparable pension. Plus, I would have an additional £65k from the PCLS of the CETV as opposed to the DB PCLS from which income could be derived (ISAs etc).
Given these numbers I'd stick with the DB pension. There is a trend today to emphasize the account balance wealth of a cash out over the guarantee of a defined benefit pension. If this discussion was happening 10 years ago cashing out would have been a bed decision, whereas keeping the pension would have been a good safe one. I don't know if cashing out to day would be great or bad, but i do know that keeping the DB pension remains a good safe option. Also if you plan to retire early .....let's say 55 you had better plan for 40 years given today's life tables so 4 or even 3.5% might be optimistic for a sensible withdrawal rate.
I would keep the big DB pension, look into cashing out your spouses pension and save aggressively into ISAs to give you the flexibility you desire. I retired with 2/3rds of my income coming from a DB pension and it is fantastic not to have to worry what the markets are doing and yo know that each month a check will be deposited in the bank account. That sort of guarantee can take a lot of worry out of retirement.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Just to add, the pension revision / increase calculations after retirement:
If you commenced pensionable service before 6 April 1997 you will have a ‘Guaranteed Minimum Pension’ (GMP) as a result of you being contracted out of the additional element of the state pension arrangements. The GMP accrued prior to 6 April 1988 will not be increased by the Scheme, whilst the GMP accrued between 6 April 1988 and 5 April 1997 will be increased in line with price inflation, subject to a maximum of 3% pa compound. The pension in excess of the GMP in respect of service before 6 April 1997 will increase by 2.5% pa compound. Pension accrued for service between 6 April 1997 and 30 June 2005 will increase in line with price inflation, subject to a maximum of 5% pa compound and for benefits accrued from 1 July 2005 will increase in line with price inflation subject to a maximum of 2.5% pa compound. If you commenced pensionable service after 5 April 1997 your pension earned for service between 6 April 1997 and 30 June 2005 will increase in line with price inflation, subject to a maximum of 5% pa compound and for benefits accrued from 1 July 2005 will increase in line with price inflation subject to a maximum of 2.5% pa compound.
I commenced employment in 1994.Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0 -
Hi, just to be clear retiring at 55 is not something that is going to happen. Retiring after 60, possibly.bostonerimus wrote: »Also if you plan to retire early .....let's say 55 you had better plan for 40 years given today's life tables so 4 or even 3.5% might be optimistic for a sensible withdrawal rate..Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0 -
What spouse's provision do you have from your wife's pension?Save 12 k in 2018 challenge member #79
Target 2018: 24k Jan 2018- £560 April £26700 -
There is a spouse pension from the LGPS. Unsure of the S32, would need to check.What spouse's provision do you have from your wife's pension?
TBH, at this moment taking a spouse pension from my wife's pensions is not something I am looking at doing. I am trying to maximise her income in her own right.Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0 -
What are your reasons for giving up the DB pension? Is it an effort to pass on more money to heirs, fund early retirement or to be able to spend capital?“So we beat on, boats against the current, borne back ceaselessly into the past.”0
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I tried to cover that in the initial essaybostonerimus wrote: »What are your reasons for giving up the DB pension? Is it an effort to pass on more money to heirs, fund early retirement or to be able to spend capital?
I think it basically comes down to flexibility in allowing you to make more appropriate choices, if situations arise and you need to. No one has a crystal ball. For example retirering earlier (than 65), the ability to have financial means should I be made redundant late in my working life. Flexibility = Options.
Passing on money is not a primary consideration but it is something to consider, as per my comments on hireditary health. On its own it is not a factor.
I don't have a requirement / need to spend capital. I'm sure there will be requirements to spend capital going forward but it is not something that is in my decision makinh process.Personal Responsibility - Sad but True
Sometimes.... I am like a dog with a bone0
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