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  • FIRST POST
    • williegofar
    • By williegofar 12th Jun 17, 10:35 PM
    • 196Posts
    • 108Thanks
    williegofar
    Final Salary Pension
    • #1
    • 12th Jun 17, 10:35 PM
    Final Salary Pension 12th Jun 17 at 10:35 PM
    Hi, I have a final salary company pension that closed in 2010.
    My salary at that time was just over 32k. I was a member for 16 years and the accrual rate was 1/60th.
    The transfer figure I have been quoted is a fraction under £350k.

    I was not expecting a figure as high as that. I don't know if this is a question that can be answered based on the info I've provided, but I wondered if anyone had a view on whether or not that was a good figure.

    Thanks.
Page 1
    • Dazed and confused
    • By Dazed and confused 12th Jun 17, 10:40 PM
    • 1,848 Posts
    • 816 Thanks
    Dazed and confused
    • #2
    • 12th Jun 17, 10:40 PM
    • #2
    • 12th Jun 17, 10:40 PM
    It's a huge improvement on 250k but disappointing when compared to 450k
    • Dazed and confused
    • By Dazed and confused 12th Jun 17, 10:45 PM
    • 1,848 Posts
    • 816 Thanks
    Dazed and confused
    • #3
    • 12th Jun 17, 10:45 PM
    • #3
    • 12th Jun 17, 10:45 PM
    Seriously though it seems quite a decent pension to be considering giving up?

    Approx £8.5k when you left, probably nearer to £10k now (if some form of inflation applied to the deferred amount) and who knows how much in 2020 when you retire.
    • williegofar
    • By williegofar 12th Jun 17, 10:56 PM
    • 196 Posts
    • 108 Thanks
    williegofar
    • #4
    • 12th Jun 17, 10:56 PM
    • #4
    • 12th Jun 17, 10:56 PM
    Cheers.

    I'm 53 and don't retire until the end of 2028. I'm just about to be made redundant and part of my thoughts has been to transfer out this pension (and a couple of other smaller pots), to invest in a drawdown with a view to being able to retire, or semi-retire much earlier than 67.

    There's a lot to think about.

    Thanks again.
    • dunstonh
    • By dunstonh 12th Jun 17, 11:15 PM
    • 89,513 Posts
    • 55,946 Thanks
    dunstonh
    • #5
    • 12th Jun 17, 11:15 PM
    • #5
    • 12th Jun 17, 11:15 PM
    and part of my thoughts has been to transfer out this pension (and a couple of other smaller pots), to invest in a drawdown with a view to being able to retire, or semi-retire much earlier than 67.
    Possibly a good option. However, you currently have a secure pension. How would you feel about the bulk of your retirement income being subject to values that go down as well as up (and possibly your income with it). How would you feel about £350k becoming £275k?
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • kidmugsy
    • By kidmugsy 13th Jun 17, 12:27 AM
    • 9,821 Posts
    • 6,614 Thanks
    kidmugsy
    • #6
    • 13th Jun 17, 12:27 AM
    • #6
    • 13th Jun 17, 12:27 AM
    How would you feel about £350k becoming £275k?
    Originally posted by dunstonh
    How would you feel if you thought that it might sink further to, say, £200k?
    • bostonerimus
    • By bostonerimus 13th Jun 17, 1:05 PM
    • 1,106 Posts
    • 620 Thanks
    bostonerimus
    • #7
    • 13th Jun 17, 1:05 PM
    • #7
    • 13th Jun 17, 1:05 PM
    Cheers.

    I'm 53 and don't retire until the end of 2028. I'm just about to be made redundant and part of my thoughts has been to transfer out this pension (and a couple of other smaller pots), to invest in a drawdown with a view to being able to retire, or semi-retire much earlier than 67.

    There's a lot to think about.

    Thanks again.
    Originally posted by williegofar
    How much will your final salary pension be in 2028 and is it index linked? With that number, and assuming an average longevity, it's easy to do the actuarial calculation to see the returns you'd need on your transfer figure to generate the same benefit. Then you can weigh the final salary guarantee against the flexibility of drawdown.

    A rough estimate of what you might expect from drawdown can be easily done.
    If you took the £350k today and got a 3% annual return until 2028 it would have grown to about £500k. That then has a high probability of producing an index linked income of £17k for 30 years. Of course those estimates assume you keep fees to a minimum and you get returns that are similar to historical market returns.
    Last edited by bostonerimus; 13-06-2017 at 1:22 PM.
    Misanthrope in search of similar for mutual loathing
    • fifeken
    • By fifeken 14th Jun 17, 12:41 AM
    • 2,173 Posts
    • 1,128 Thanks
    fifeken
    • #8
    • 14th Jun 17, 12:41 AM
    • #8
    • 14th Jun 17, 12:41 AM
    . . . . to about £500k. That then has a high probability of producing an index linked income of £17k for 30 years. Of course those estimates assume you keep fees to a minimum and you get returns that are similar to historical market returns.
    Originally posted by bostonerimus
    I noticed the other day you had quoted similar figures in another thread and thought it unusual.

    For years we have been told about the 4% rule, but that appears to be old hat now and tools like cFIREsim give much larger percentages. What makes you think 3 or 3.5% should be used?
  • jamesd
    • #9
    • 14th Jun 17, 5:44 AM
    • #9
    • 14th Jun 17, 5:44 AM
    closed in 2010. ... My salary at that time was just over 32k. I was a member for 16 years and the accrual rate was 1/60th.
    The transfer figure I have been quoted is a fraction under £350k.

    I was not expecting a figure as high as that. I don't know if this is a question that can be answered based on the info I've provided, but I wondered if anyone had a view on whether or not that was a good figure.
    Originally posted by williegofar
    It's good but whether it's desirable for you depends on the rest of your circumstances, how well you can handle investment ups and downs and if you accept variable income. Most people do accept some varying because spending tends to decrease with age.

    Since you're 53 you can't take money out yet but you can transfer it. To give you some idea of the potential I'll assume you have nothing else except a state pension entitlement of £8,000 a year at age 67 and run a cfiresim analysis assuming you're 55.

    Retirement year 2017 end year 2052 age 95.
    Investigate: max initial spending
    Portfolio value: 350000 Fees/drag: 0.68
    Spending plan: Guyton-Klinger Spending floor defined value 16500 (roughly 16/60 * 32,000 + 8000)
    Pension 1 label SP 8000 starting 2029
    Click on Run Simulation

    Answer: £17,909 which means that in 95% of the historic US retirement years over the last 125 years or so you could have started at that income level and not gone below the £16,500 minimum. In the other 5% your income would drop below that, even to just the state pension if you hadn't made income reductions sooner. The withdrawal analysis shows that the median average income would be at or above 17,909 in the first, middle and final thirds of retirement.

    95% success rate is too cautious for those who have lots of guaranteed income and who are willing to adjust so here are some alternatives, success rate then notes:

    47%: £28,877. Value suggested by Blanchett for a person with absolute minimum income need of 50% of their income, guaranteed income equivalent to 50% of their wealth and medium income stability need. 1st, 2nd & 3rd median incomes of 28,878, 17,052, 22,469.

    75%: £24,420. Commonly used by financial advisers in the US. 1st, 2nd & 3rd median incomes of 24,420, 17,802, 21,758.

    90%: £20,656. 1st, 2nd & 3rd median incomes of 20,656, 18,590, 21,961.

    95%: £17,909. cfiresim default

    100%: £10,554. If you were unfortunate and retired at a repeat of the worst times this is where you'd need to start.

    As you can see, the possible starting income varies a lot depending on how willing you are to take the chance of dropping to just your state pension income.

    The minimum income you give also decreases the starting income as you make it higher. If you cut it to £12,000 the 90% starting income level increases from £20,656 to £26,918. This is because the Guyton-Klinger rules are allowed to cut more if you do live through bad times, instead of being forced to stop at £16,500.

    There's much more about drawdown planning at Drawdown: safe withdrawal rates.
    Last edited by jamesd; 21-06-2017 at 7:23 PM.
  • jamesd
    I noticed the other day you had quoted similar figures in another thread and thought it unusual.

    For years we have been told about the 4% rule, but that appears to be old hat now and tools like cFIREsim give much larger percentages. What makes you think 3 or 3.5% should be used?
    Originally posted by fifeken
    Bostonerimus should really answer but here are some of the likely reasons, all true but maybe not theirs:

    1. If using cfiresim you probably include your state pension and this allows more of the pot to be used for income before the state pension starts. Not included in 4% rule calculations.

    2. It's for level inflation adjusted income, no changes based on investment performance. And 100% success rate required. See how big a difference the success rate and minimum target matter in my post. If using cfiresim you're probably willing to use the Guyton-Klinger rules once a year as well.

    3. Fixed investment mixture. We're now in a time when expected return from US equities is lower than average and this reduces the safe withdrawal rate. It's part of why I suggest using Guyton's sequence of return risk reduction method, which cuts equity holdings when their prices are high, including now.
    • errolt1
    • By errolt1 14th Jun 17, 10:09 AM
    • 11 Posts
    • 2 Thanks
    errolt1
    It looks like a good value especially as inflation is high , interest rates might go up and the future CETV will probably be lower.
    I am also 53 and just completed my transfer for a larger amount.
    I intend to clear the mortgage in 18 months time with the tax free element.The pension is now higher than after the commission to the IFA in 3 weeks.
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