final salary pension and IFA problem

atush

Sipps can invest in commercial property but no pensions can invest in residential property. If you had invested in property you may have bought in 2006 at the peak (as it took years for those contributuions to reach 80K) and lost your money.

Not to mention if you had not gotten her employers contributions the pension could be worth only 20-25K?

So stop worrying about what you could have done with the money, and think about what you want going forwards.

Do you have a pension? If you are worried about what happens when/if she dies maybe you should start on a pension in your name?

Rikaroo

gadgetmind wrote: »

Is that £4930 annuity after a lump sum, is it indexed, and is there any spouse pension?

The 'Pre retirement pension fund illustration' says...

The real terms value would be £136k with £4930 being the full annuity, not after any lump sum.
It says the annuity payments will increase each year with RPI
No mention of spouse pension other than reduced annuity of 50% paid to dependant.

Out of interest, where does the other 50% go (guessing it's not the local dog rescue home?)

Rikaroo

atush wrote: »

Sipps can invest in commercial property but no pensions can invest in residential property. If you had invested in property you may have bought in 2006 at the peak (as it took years for those contributuions to reach 80K) and lost your money.

Not to mention if you had not gotten her employers contributions the pension could be worth only 20-25K?

So stop worrying about what you could have done with the money, and think about what you want going forwards.

Do you have a pension? If you are worried about what happens when/if she dies maybe you should start on a pension in your name?

Would love to start my own pension but I'm currently parttime house husband/babysitter so not earning a great deal. I know I should be throwing money into some sort of saving for future but untill the kids are older, my career/earnings are, erm, pants. So there's not alot of spare cash for another pension.

Regarding the property, is it not possible to cash in her old pensions or is that cash fixed into whatever pension arrangements till she retires? (said I was a newbie)

Just_Some_Guy

Rikaroo wrote: »

Out of interest, where does the other 50% go (guessing it's not the local dog rescue home?)

Nowhere. This is usual with joint life annuities, they are 100% while the main life is alive, then 50% to any surviving spouse, then 0% when both are dead. If the spouse goes first then the main life gets 100% until death.

Annuities are great if you live to 100 and a bit of a rip off if you live to 66. Unfortunately if you haven't got a crystal ball you have to pay your money and take your chances.

Just_Some_Guy

Rikaroo wrote: »

Regarding the property, is it not possible to cash in her old pensions or is that cash fixed into whatever pension arrangements till she retires? (said I was a newbie)

You cannot cash in pensions until you retire. The single exception is if you die, when the funds are released in accordance with the pension scheme rules, expression of wish forms, and your will.

You can transfer funds between pension arrangements as you please but you cannot get money from them until you formally retire. You also can't invest in residential property through pensions (this is to prevent rich guys getting pension tax breaks on their buy-to-let empires).

To be honest the extra years offer sounds like an excellent one and I would be grabbing it with both hands. It would pay about £5700 in real terms (final salary pensions are inflation proofed) with a government guarantee vs the £5000 or so the IFA came up with using optimistic projections. Women tend to outlive men to so the lower percentage survivor's pension isn't as big of an issue.

dunstonh

The final salary pension gives her 1/60th final salary/year worked, but if she dies the widower gets only 1/160th so just £268 for every year she worked there.

That is a limitation of defined benefit schemes but not money purchase schemes which pay 100% of the value out tax free and outside of the estate if you die before retirement. However, final salary schemes usually make up for it by including a death in service payment of around 1-4 times salary.

The wrap isn't quite as bad, giving a 'reduced annuity of 50% to be paid to dependants.'

The wrap is giving the FSA required default option. There are other options available which can give greater amounts on death.

If she/we had put the money in property then whoever died first, 100% of the property/rental income would still be there?

But the property would have cost significantly more than the amount paid into the pension. £1 for £1 spent, the final salary scheme would wipe the floor with property.

Out of interest, where does the other 50% go (guessing it's not the local dog rescue home?)

It goes towards mortality gain on the annuity rate for the annuity option or with defined benefit schemes it is factored into the amount the pension needs people or the employer to pay to get the defined benefits.

magpiecottage

It is worth bearing in mind that whilst the pension accrued from the moment of joining the scheme benefits from employer's contributions (which for a final salary scheme means whatever the benefits cost minus the employee's contributions) anything above that will not normally benefit from any enhancement paid by the employer.

This means that although you are buying additional service credit their actuaries will have worked it out based on the investment return assumed and how much they expect to pay out (which will make assumptions about how long you will stay in the scheme, your rate of salary increase, inflation and how long you and your spouse will live).

If those assumptions result in them giving you more service credit than they should have done you then transferring in will have been a bargain but if it gives less then in effect you subsidise the employer because your transferred fund is available to meet other members' benefits.

It doesn't work exactly that way because most public sector schemes are unfunded - i.e. today's contributions go toward paying today's benefits but nevertheless the principle still applies.

atush

You and your wife can have a stakeholder pension for you of 2880 a year which basic tax relief will increase to 3600. So you can have a pension too if you can save 240 a month (but can go as low as 20) per month. You can also open an investment trust savings plan for you (or your kids) saving from 20-50 quid per month. But this won't get uplifted by tax relief like the stakeholder will.

Unless your wife has underlying health issues, is much older than you or her parents died much before yours, you will probably not outlive her so don't probably need to worry quite so much about survivorship. This is just statistical of course ;-)

Rikaroo

Well we saw another advisor who pretty much said we could tell the first IFA to take a running jump.

The wrap he was suggesting we take would have been worth £4800ish with 7% growth after fees, complete with the uncertainty of stock market flim flam.

Putting the pensions into the final salary scheme would buy enough years to give £5000ish guaranteed.

We think he wanted us to do his suggestion so he'd get his £1900 plus .75% for the next 25 years whearas if we go with the final salary he doesn't.

So we've gone final salary. So much for INDEPENDANT financial advisor. If he argues we'll ask the ombudsman to look at his suggestion.

gadgetmind

Rikaroo wrote: »

Well we saw another advisor who pretty much said we could tell the first IFA to take a running jump.

Sound advice!

So we've gone final salary. So much for INDEPENDANT financial advisor. If he argues we'll ask the ombudsman to look at his suggestion.

Yes, advising some to go for a private pension when a public sector one is available is pretty high on the "never do this" list.