Taking pension entitlement early to reinvest

Retired_I.F.A.

pennyunwise wrote: »

It's an awful feeling being told you've made the wrong decision but Thanks anyway.

Our suspisions could be completely way off though. It's not until a complete fact find and a lengthy one to one discussion that an IFA can put himself in your shoes and advise so the possability exists it was the best route. Having another look though his "reason why" letter or report may well justify it.

EdInvestor

pennyunwise wrote: »

Healthwise - Apart from the stress of having made the worst decision of my life, I'm healthy.

I don't think we can say you have made a wrong decision at this point .But if you have, you can always make a complaint, and seek redress from the IFA who advised you.Do you happen to have something called the "commutation rate" mentioned in your documents? That would give a bit of a better idea.

Having suggested you take the pension and tax free cash early, what was his advice about investing the money?

jem16

jamesd wrote: »

How are you getting the regular payments? Is it through an annuity from the original pension company or is it from some other company?

As far as I read it the pension payments are coming from a defined benefit scheme so probably based on final salary and not annuity.

dunstonh

There isnt enough information available in this thread to say if it was right or wrong. Far too many assumptions to say for sure.

Generally, if a final salary pension transfer analysis was being done then you would expect this to be on fee basis and require a lot of detail. There would be a number of assumptions included in the calculation. These assumptions could impact on the decision. For example, a higher critical yield may be acceptable to a higher risk investor but unacceptable to a cautious investor. Remember that the defined benefit scheme has a number of guarantees in it whereas investments are subject to fluctuating returns.

A lot of IFAs will not transact final salary pension transfers. They are a high risk transaction and historically when complaints come in its because of information found out with hindsight that wasnt available at the time. Most of the time its a judgement call that can be right or wrong but only time will tell.

Statistically, most are best left where they are. Is it possible that in your case it never got as far as a full analysis but just a discussion of a generic nature?

Are you cautious investor? For example, if the pension was transferred and it lost 20% in the first year, how would you feel about that? What if it was 40%?

EdInvestor

dunstonh wrote: »

A lot of IFAs will not transact final salary pension transfers.

The pension has not been transferred! We've already been through this.:rolleyes:

The OP has taken early retirement from her original final salary scheme, that's all.

The question is, was the reduction in pension for going early a good deal or not?That's why I asked her what the "commutation rate" was for taking the early pension.[If low -around 12 - not so good.If up near 20 or more, then you have a good deal ]

Another issue might be how long she plans to work full time such that the extrra pension income pushes her into HRT.If not for long ( eg she will reduce hours and salary gradually) ia, that might not be very signifianct.

jamesd

We really don't know enough to say it's a bad decision - just not enough information. A great deal depends on how much investment risk you're willing to take and then on how well the investments do.

On the tax side, one thing you might do is invest the regular income into a personal pension. That gets you 40% tax relief on the money going in and you can then take an inome from this later on when you're not paying higher rate tax. This immediately undoes the tax part of any disadvantage from taking the regular payments early. It also leaves you independent of that former employer for this part of your future pension income, which is a nice extra bit of security. If this was the financial adviser's plan it may be a good plan.

If you invest reasonably well you may still end up better off than before. Savings accounts won't do it long term but that's OK short term - starting in on stocks and shares ISA investing now with part of the lump sum and/or the regular contributions will give you some time to get comfortable with investing.

On the health side, say you were healthy now but not later, this could let you buy one of the annuities that pays more for those with health risks and that could make you better off than you would have been by waiting.

jem16, yes, you're right, thanks!

dunstonh

The pension has not been transferred! We've already been through this.:rolleyes:

I know it hasnt been transferred. However, a transfer analysis would be completed only if the IFA dealt in final salary pensoin transfers. The recent discussion has focused on whether a TVAS was done or not.

Early commencement doesnt need a TVAS. Its a different sort of analysis as effectively you are comparing what you are giving up against what you may receive. Investment risk profile still comes into play as you are effectively reducing a guaranteed income for life against the option to invest. An option that may or may not be better depending on a range of things which we still dont know.

To be honest, this thread is a mess now. Its jumping around all over the place with snippets of information appearing at different points which alter the direction back and forth. We dont know a number of critical facts yet comments are being made on whether the advice is right or wrong.

EdInvestor

dunstonh wrote: »

Investment risk profile still comes into play as you are effectively reducing a guaranteed income for life against the option to invest. An option that may or may not be better depending on a range of things which we still dont know.

The first point of interest is to work out how many years it would take the OP to "catch up" with the accumulated pension money she has already received if she waited to receive the higher income later.

That's a key reason why most people take early retirement, particularly if they feel they may not live to a grand old age.

Gains from saving or investing the money come on top of that and may not actually be all that much of a factor.

pennyunwise

EdInvestor wrote: »

Do you happen to have something called the "commutation rate" mentioned in your documents? That would give a bit of a better idea.

Having suggested you take the pension and tax free cash early, what was his advice about investing the money?

I have no documents with regard to this advice other than some financial projections. I went to the IFA on 2 accounts to review a pension plan I have with Std Life and taking the deferred pension early. The documentation I have concentrated on the Std Life pension. It must be stresed however that they knew I went to them on 2 accounts.

I didn't receive any investmen advice other than that I could not put the tax free lump sum into another pension fund due to the reasons listed earlier in this thread.

jem16

pennyunwise wrote: »

I have no documents with regard to this advice other than some financial projections.

Who is your final salary pension with? For example if it's local government (including teachers) it's 12:1 - not a good commutation rate.