Early-retirement wannabe

GunJack

westv wrote: »

Have they? Which ones?

Certainly the PCSPS has been for a number of years (from 2011), as have all ps ones unless their rules were written specifically for RPI

https://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uploads/RPI_to_CPI_SPOT011_V1.2.pdf

westv

GunJack wrote: »

Certainly the PCSPS has been for a number of years (from 2011), as have all ps ones unless their rules were written specifically for RPI

https://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uploads/RPI_to_CPI_SPOT011_V1.2.pdf

There's no mention of a cap though.

JoeCrystal

westv wrote: »

There's no mention of a cap though.

I was under the impression that none of the Public Sector pension schemes is capped as well.

GunJack

OK, maybe not a hard cap, but restricted to CPI where it used to be RPI..

Triumph13

@Sea Eagle, the first obvious thing to say is to make sure you pay the voluntary NICs to get both those state pensions up to the full amount as that's the best deal in town.
If you take the DBs, they will give you a total of £42.5k pa post tax once two full SPs are in payment and the limp sums would be enough if invested to match inflation to let you spend at that level from day one without touching your other savings. That would be the lowest stress option.

On the other hand, that's a great multiplier on the DB transfer and you would have to hit very much the worst ever market conditions to not be better off taking it and investing it for drawdown.

I suppose the key question is what would make you happier? A pension that you never have to think about, or more money in return for possibly a little more risk, but definitely more potential to see scary things happen. Only you and your partner can decide that.

jamesd

Sea_Eagle wrote: »

do my numbers add up or am I missing a trick?

Your numbers stack up very well. After deducting lump sum value the remaining CETV is 37.6 times the income, so just 2.55% of the capital a year to match the initial DB income.

The expected age 55 CETV is a hair over 9% above the LTA and a market drop of just 8.26% would get below it. That's every year or two frequency equity market correction territory.

PCLS is only available up to the LTA so currently 1055000 means 263750 tax free and 791250 taxable if you crystallise at one time. There's a second lifetime allowance charge on just growth of the taxable part and any uncrystallised bit at age 75. With average UK equity returns of 5% plus inflation, say 2%, you'd need to be withdrawing 7% taxable on average to prevent growth, £55,388 a year, or £39,562 at 5% assuming lots of bonds in the mix.

So after transferring a base strategy might be:

1. each year crystallise the full basic rate tax band and take that out of the pension with its associated PCLS. Today that's 50k taxable plus £16,666.67 PCLS.
2a. whenever there's a market drop in value of 5% or more below your starting value once per year only take a PCLS half that in 1 and leave the crystallised taxable in the pension. This is to reduce your potential LTA bill if there isn't a big correction. Or
2b. as 2a but withdraw the taxable and buy VCTs to eliminate the higher rate tax cost.
3. if a drop big enough to bring your remaining pot within your remaining LTA happens, take all remaining PCLS to crystallise all the rest and lock in the elimination of pre-75 LTA charge.

The purpose of the VCT use is to draw enough taxable for at least a few years to get ahead of the age 75 growth LTA charge.

Just doing enough to keep ahead of the LTA charge at 75 exceeds your income target. Guyton-Klinger rules taking 5% initially also does so. If G-K income ell below withdrwings you'd reinvest the excess.

Not sure why you want to transfer now. Why not hope for a nice big market drop before say six months before you reach 55? Then you might be able to invest while markets are down.

CETVs are normally guaranteed for three months, free once a year then chargeable. You might adopt the practice of requesting a CETV about five times a year, depending on processing time, to lock in the pre-drop CETV in case they adjust it rapidly. In effect you'd be buying options to make more money if there's a drop.

bluenose1

Sea eagle - can your wife transfer her married allowance to you if her income will be less than £12,500 per annum. Also could she invest the £2,880 for the £3,660 tax advantage and withdraw each year.

Sea_Eagle

Can I say a “BIG thank you” to arnoldy, Triumph13, jamesd & Bluenose. I still have a very open mind on which way to go in terms of taking the DB or taking the CETV however I am certainly warming to taking the transfer option. The level of detail involved when considering the transfer is quite daunting and I intend to improve my understanding of subject in the coming months, so when I do meet with our chosen IFA it should help me in making an informed descision.

jamesd

Deleted_User wrote: »

I am not sure why one would try to time asset allocation based on market conditions rather than just stick with the plan.

My plan includes paying attention to Guyton's varying of equity percentage based on PE10. So I am sticking to the plan.

At the moment I'm at about

48.7% equities
23.9% P2P
18.4% cash
8.4% VCT

My default position is more like 90%+ equities.

Deleted_User wrote: »

The problem is that a) US stockmarket returns have actually been great for a few years. b) many other stock markets have much more reasonably priced equities. c) bonds have even lower expected returns than US stocks.

a) While underweight US I still have a lot of it in there and of course b) in lower PE10 places. c) I agree and use P2P and cash as bond substitutes.

Don't read much into cash being 18%. A lot is being moved to P2P, VCT and building work. Not that I mind cash as a bond substitute when rates are low, it's just misleadingly high at the moment.

Also worth considering that I'm effectively in year 1 of income drawdown, so highest risk for a bad cycle with early big drop.

Plenty of room to prefer different mixtures but I know why I have mine at the moment. It's not where I'd be, ignoring market conditions, but I don't ignore market conditions.

[Deleted User]

jamesd wrote: »

My plan includes paying attention to Guyton's varying of equity percentage based on PE10. So I am sticking to the plan.

At the moment I'm at about

48.7% equities
23.9% P2P
18.4% cash
8.4% VCT

My default position is more like 90%+ equities.

a) While underweight US I still have a lot of it in there and of course b) in lower PE10 places. c) I agree and use P2P and cash as bond substitutes.

Don't read much into cash being 18%. A lot is being moved to P2P, VCT and building work. Not that I mind cash as a bond substitute when rates are low, it's just misleadingly high at the moment.

Also worth considering that I'm effectively in year 1 of income drawdown, so highest risk for a bad cycle with early big drop.

Plenty of room to prefer different mixtures but I know why I have mine at the moment. It's not where I'd be, ignoring market conditions, but I don't ignore market conditions.

What is P2P? Peer to peer lending? And VCT? Is that Venture Capital?

Assuming I am wrong with my guesses and P2P/VCT are bond funds, I don’t see anything wrong with this type of asset allocation per se. Makes a lot of sense to be cautious in year one. If it was me, the main downer would be having half in bonds with next to nothing real return AND 1.5% annual charge. But there are different paths to success.