Redundancy looms! How do my figures stack up?

fairleads

Muppet81 wrote: »

Phew! worn out after that. Throwing myself on your mercy :A

Essentially your problem is not lack of income, its more an excess of wants. You have ample income to live on but you can't finance a sack full of dreams from a sock full of capital - so to speak. So perhaps you should count your blessings and then take a long hard look at your situation, after all, the socks' pretty big. And i mean that in the nicest possible way.

jamesd

Muppet81 wrote: »

Not sure about what is at what tax band but salary last year was £59,595. Does this help?

Thanks, yes, I'll do an example with £20,000 of higher rate later, once I'm a bit less busy.:)

Muppet81 wrote: »

I am afraid I don't know much about the different types of pension scheme. if it helps his is a Local Authority scheme and he has no control in the investments.

I think that this is one of the schemes where there is benefit to not taking the lump sum. He should ask what the commutation rate is and (really the same thing) what income he gets without a lump sum and if he can pick how much lump sum he gets.

The same may apply to your own pension if it's final salary.

Your IFA will need this information to do a good job of planning your income situation and investment plan. It's likely to be good to try to get as much income as possible long term. The question becomes which offers the best deal for getting capital out of the pension and how much to take. Say his offers a 14:1 commutation rate and yours offers 12:1, taking a lump sum from his would be better if the benefits like inflation linking and spouse payments were the same.

Muppet81 wrote: »

To the best of our knowledge we are both in good health and would be prepared to consider any option such as buying a pension annuity if it would be a good idea.

Good to read about the health, that tends to favour long term over short term planning. An annuity at your young ages wouldn't be a good idea. Also annuity rates are currently comparatively low because Bank rate (base rate) is low and so are 15 year gilt (UK government bond) rates that are used to help set annuity and income drawdown rates.

The effect of those low rates is that it's currently generally best to use income drawdown (taking income from investments within a pension) rather than buying a lifetime (retirement, pension) annuity.

An IFA can put together a combination of investments that will hit any desired capital value volatility target. Volatility targets are often called risk, they are the amount that the capital value could fall in a bad year. Accepting 20% or so for a total portfolio is pretty common for retirees because that tends to be a good balance of delivering income without huge variation in capital value. 20% would mean that in a bad year a £100,000 pot might drop to £80,000 before recovering over the next few years. Also means it would go up above £100,000 but the focus on risk management is how low it might go because that is what worries people.

The GAD limit that has been mentioned limits how much can be taken out of a drawdown pension pot each year. it's set based on age, gender and the 15 year gilt yield (interest rate) for a particular day on the previous month. Because that's currently uncommonly low the income cap is also uncommonly low. This doesn't affect how much the underlying investments grow, but does limit how much income can be taken out. The limit is recalculated every three years and things will hopefully be normal in three years. A recalculation can also be done when more drawdown money is added to a pension pot and that's a trick that can be used to get updated limits if things have improved a year or two years from now. You can see the effect using this GAD limit calculator. There's also one from Prudential in spreadsheet form that includes a table of past gilt yields so you can experiment with the varying rates to see the effect.

For some examples here's how £1,000 in a pension pot would have its income cap set for a man at various gilt yields and ages:

3.5% 55:£51 57:£53 58:£54 60:£56 65:£63 70:£72 75:£87 80:£111 85+:£150
4.0% 55:£55 57:£56 58:£57 60:£59 65:£66 70:£75 75:£90 80:£115 85+:£154
4.5% 55:£58 57:£60 58:£61 60:£63 65:£70 70:£79 75:£93 80:£118 85+:£158
5.0% 55:£62 57:£63 58:£64 60:£66 65:£73 70:£82 75:£97 80:£122 85+:£161

4.5% is a pretty typical gilt yield over the last twelve years but it's currently 3.5%. On the 4.5 line the 65:£70 entry means that at a 4.5% gilt yield a man would be able to take up to £70 income a year per £1000 in the pension pot.

The GAD limit is frustrating for your situation, mine and that of anyone else who needs higher income until the state pensions start. But it's still better to use drawdown than buy an annuity now in good health at your ages. And even with the limit, the pension tax relief can mean that it's prudently possible to draw out more money than from an ISA or savings account.

This doesn't apply to term annuities, that pay for say five or ten years. Because of the short term those are much less affected and much of the payment money received is actually just returning the capital used to buy the annuity.

gadgetmind

jamesd wrote: »

The GAD limit is frustrating for your situation, mine and that of anyone else who needs higher income until the state pensions start.

Yes, "frustrating" is one word. The GAD limit won't let me use all of my basic rate band pre SP, and post SP my drawdown rate will be so low that the pot will almost certainly keep growing, but taking more money would involve HR tax.

jamesd

Yes, the limits are currently low enough that I expect that a fair number of younger people will end up seeing their pension pot values increase just at the time when they most need to be reducing them. I won't get into higher rate tax post-SP unless the upper edge of reasonable returns happens, something I'll be happy to see. Frustrating would be one word to cover your situation as well.

I do wonder how scheme pensions handle this but it's far enough off that I haven't investigated whether they will allow higher pre-state pension drawdown rates.

gadgetmind

jamesd wrote: »

I won't get into higher rate tax post-SP unless the upper edge of reasonable returns happens, something I'll be happy to see.

The figure in my spreadsheet is currently 4.25% pa for the next 7 years, this being 5% return but subject to 0.75% fees.

I do wonder how scheme pensions handle this but it's far enough off that I haven't investigated whether they will allow higher pre-state pension drawdown rates.

Yup, one thing we do know for sure is that HMG will keep fiddling with the rules other than (of course!) the rules for their pensions.

mania112

All these posts might be making things worse and harder to get your head round.

In the Sunday Times this week I saw an advert, specfically about being over 55 and made redundant:

www.wsw-ifa.com/retirenow

Speaking to an IFA might be the most 'clear' solution.

fairleads

jamesd wrote: »

The GAD limit is frustrating for your situation, mine and that of anyone else who needs higher income until the state pensions start.


And even with the limit, the pension tax relief can mean that it's prudently possible to draw out more money than from an ISA or savings account.

You couldn't be more wrong. A misrepresentation of the facts.

Muppet81

jamesd wrote: »

Thanks, yes, I'll do an example with £20,000 of higher rate later, once I'm a bit less busy.:)

I think that this is one of the schemes where there is benefit to not taking the lump sum. He should ask what the commutation rate is and (really the same thing) what income he gets without a lump sum and if he can pick how much lump sum he gets.

The same may apply to your own pension if it's final salary.

Your IFA will need this information to do a good job of planning your income situation and investment plan. It's likely to be good to try to get as much income as possible long term. The question becomes which offers the best deal for getting capital out of the pension and how much to take. Say his offers a 14:1 commutation rate and yours offers 12:1, taking a lump sum from his would be better if the benefits like inflation linking and spouse payments were the same.

Good to read about the health, that tends to favour long term over short term planning. An annuity at your young ages wouldn't be a good idea. Also annuity rates are currently comparatively low because Bank rate (base rate) is low and so are 15 year gilt (UK government bond) rates that are used to help set annuity and income drawdown rates.

The effect of those low rates is that it's currently generally best to use income drawdown (taking income from investments within a pension) rather than buying a lifetime (retirement, pension) annuity.

An IFA can put together a combination of investments that will hit any desired capital value volatility target. Volatility targets are often called risk, they are the amount that the capital value could fall in a bad year. Accepting 20% or so for a total portfolio is pretty common for retirees because that tends to be a good balance of delivering income without huge variation in capital value. 20% would mean that in a bad year a £100,000 pot might drop to £80,000 before recovering over the next few years. Also means it would go up above £100,000 but the focus on risk management is how low it might go because that is what worries people.

The GAD limit that has been mentioned limits how much can be taken out of a drawdown pension pot each year. it's set based on age, gender and the 15 year gilt yield (interest rate) for a particular day on the previous month. Because that's currently uncommonly low the income cap is also uncommonly low. This doesn't affect how much the underlying investments grow, but does limit how much income can be taken out. The limit is recalculated every three years and things will hopefully be normal in three years. A recalculation can also be done when more drawdown money is added to a pension pot and that's a trick that can be used to get updated limits if things have improved a year or two years from now. You can see the effect using this GAD limit calculator. There's also one from Prudential in spreadsheet form that includes a table of past gilt yields so you can experiment with the varying rates to see the effect.

For some examples here's how £1,000 in a pension pot would have its income cap set for a man at various gilt yields and ages:

3.5% 55:£51 57:£53 58:£54 60:£56 65:£63 70:£72 75:£87 80:£111 85+:£150
4.0% 55:£55 57:£56 58:£57 60:£59 65:£66 70:£75 75:£90 80:£115 85+:£154
4.5% 55:£58 57:£60 58:£61 60:£63 65:£70 70:£79 75:£93 80:£118 85+:£158
5.0% 55:£62 57:£63 58:£64 60:£66 65:£73 70:£82 75:£97 80:£122 85+:£161

4.5% is a pretty typical gilt yield over the last twelve years but it's currently 3.5%. On the 4.5 line the 65:£70 entry means that at a 4.5% gilt yield a man would be able to take up to £70 income a year per £1000 in the pension pot.

The GAD limit is frustrating for your situation, mine and that of anyone else who needs higher income until the state pensions start. But it's still better to use drawdown than buy an annuity now in good health at your ages. And even with the limit, the pension tax relief can mean that it's prudently possible to draw out more money than from an ISA or savings account.

This doesn't apply to term annuities, that pay for say five or ten years. Because of the short term those are much less affected and much of the payment money received is actually just returning the capital used to buy the annuity.

Thank you very much for all this. Very interesting and informative. Have copied it and will sit and digest it and try to take it all in. May come back with a question or two ... perhaps you would be kind enough to check back at some stage :A

Muppet81

fairleads wrote: »

Essentially your problem is not lack of income, its more an excess of wants. You have ample income to live on but you can't finance a sack full of dreams from a sock full of capital - so to speak. So perhaps you should count your blessings and then take a long hard look at your situation, after all, the socks' pretty big. And i mean that in the nicest possible way.

Yep! Guilty as charged!

As I said in my original post, I KNOW we are fortunate and I never forget that.

I have over the years read posts on this forum which have been heartbreaking in terms of the terrible struggle so many people have and very often through no fault of their own. This is certainly not a complaining post!

Yes, we do live well with lots of interests and hobbies. Accept things will have to be trimmed and have no problem with that. Just assessing in a sensible manner how much trimming will be needed.
Still see no harm in looking at what we have and working to get the very best from it.
Having enjoyed a good lifestyle, would like to keep as much of it as we sensibly can.

There is such a wealth of knowledge within this Forum and I can assume that it is biased as may be the case with an IFA. Great to get both sides and pick the bones out of what is said and offered. The experiences of others teach us so much.

Muppet81

mania112 wrote: »

All these posts might be making things worse and harder to get your head round.

In the Sunday Times this week I saw an advert, specfically about being over 55 and made redundant:

www.wsw-ifa.com/retirenow

Speaking to an IFA might be the most 'clear' solution.

That is the case at this stage but nevertheless, I really appreciate all that everyone has offered here. It has all been copied and will be filed away once I have digested it all. Whilst it may all seem confusing now, hopefully as I carry on researching over the coming months it will all fall into place

Thanks for the link, off to look at that now.