Taking responsibility for own pension forecasting

waccamole

Hi

Following my trials with IFA's (the subject of a separate thread) I'm going to try and get a better understanding of our pension provision. I've worked out how much income we need in retirement. My aims are to understand what income our current provision is likely to produce, if there is a gap work to fill it and monitor progress each year.

I want to make realistic projections tending towards the conservative and I want to work using consistent values not a mixture of 'money terms' and 'today's values'. Preferably todays values i.e. today's buying power.

Me - age 47 current salary £35.5K (just returned to work after 7 year career break)

current provision:
old employer's DB pension NRD 60 £1600 per year
old employer's DC fund value £30K
personal pension fund value £55K
personal pension fund value £12K
current employer's stakeholder just joined paying 3% + employer's contribution of 3%

Partner - age 52 current salary £64K

current provision:
old employer 1 DB pension NRD 60 £8K
old employer 2 DB pension NRD 61 £1K
personal pension fund value £44K
current employer's DC fund value £135K contributing 5% + employer's contribution 10% (salary sacrifice)
wef April 2013 ASC to current employer's DC fund £400 per month (salary sacrifice and 6% uplift from employer)

Other considerations:
We have approx. £50K of an interest only mortgage to cover which I am currently planning to use tax free cash from partner's old employer 1's pension at age 60 for.

I've seen various pension calculators but am not sure what assumptions are realistic to use. Also I've heard that fund value is a better measure to use than annuity that can be bought but I'm not sure what income a fund value translates into.

Would like to aim to both retire in 10 years time but accept that this may not be achievable.

Any advice or guidance gratefully received.

Thanks in advance

W

mania112

waccamole wrote: »

Hi

Following my trials with IFA's (the subject of a separate thread) I'm going to try and get a better understanding of our pension provision.

...

Any advice or guidance gratefully received.

So you DO need to speak to an IFA, they're the one's who are qualified to give financial advice.

Find one at https://www.unbiased.co.uk

GhIFA

Waccamole, what response did you get from the IFA regarding why your monies are still sitting in cash?

atush

I am a bit concerned abt using your partner LS from a DB scheme to pay off the mtg. I would think using PP/DC TFLS would be better? Or overpaying and making your interest free mtg a repayment one now?

What is the rate?

And yes, we do want to know what IFA4 says about the report you should have gotten. Be like a dog with a bone on that one.

jem16

waccamole wrote: »

Other considerations:
We have approx. £50K of an interest only mortgage to cover which I am currently planning to use tax free cash from partner's old employer 1's pension at age 60 for.

I'm also concerned that you are using the DB lump sum as opposed to the DC tax free cash. What does your partner think? Is he happy to go along with this plan too?

I've seen various pension calculators but am not sure what assumptions are realistic to use. Also I've heard that fund value is a better measure to use than annuity that can be bought but I'm not sure what income a fund value translates into.

It depends on the annuity rate. If index linked, joint life it will be lower and around 3%. If level and single life it could be around 5.5%.

The other option is to use drawdown and not use an annuity at all.

jamesd

waccamole wrote: »

We have approx. £50K of an interest only mortgage to cover which I am currently planning to use tax free cash from partner's old employer 1's pension at age 60 for.

This is often a bad idea, particularly if it is a government pension and the amount of cash being considered is above the minimum Going to more than the minimum often involves sacrificing an unreasonably large amount of ongoing income.

Using a DC scheme tax free lump sum would be better planning than using any above minimum money from a DB scheme.

waccamole wrote: »

Also I've heard that fund value is a better measure to use than annuity that can be bought but I'm not sure what income a fund value translates into.

Between 3% and 6% depending on risk tolerance of the capital value of the fund as income. 3% would probably preserve the whole pot value, 6% would probably gradually drain it, slowly, over a long life. Assuming income drawdown, which is particularly likely to be best for the younger person, given the very poor annuity rates at younger ages and them not becoming really good until age 75 and later.

Your partner is:
1. A higher rate tax payer, by around £22k a year.
2. In a salary sacrifice scheme so able to also gain from employee and maybe some employer NI as well as just income tax.
3. Close to being 55.

This means that the current second priority for pension investing is to use the whole of your partner's higher income tax rate band for pension contributions into the work DC scheme.

Top pension priority is just enough into the schemes for both of you to get all of the available employer matching money.

Given higher rate tax and partner's age, the use of the pension for your partner is of higher priority than ISA use and that should be deferred if necessary to allow fully using the higher rate and salary sacrifice benefits.

At age 55 your partner can look to moving the money to another pension plan and entering drawdown while taking the 25% tax free lump sum accumulated so far. The income from drawdown can be recycled into more pension contributions if the higher rate band isn't being fully used. If you're both in higher rate it'll be useful to split the higher rate between the two of you, always using higher rate pension investing, not any basic rate.

The lump sum can be recycled into pension contributions for you or, within allowance limits, for your partner. That'll get a second chunk of tax relief. But this would reduce available capital, so it may be desirable to put this money into S&S ISA investments instead of pension contributions.

If you have non-pension savings and investments its worth considering putting them into your partner's pension. You can extract the money in drawdown later. Start as soon as you can if you do this, to establish a pattern of higher pension use before the TFC is taken.

Because of your partner's age, tax situation and salary sacrifice that's where you can currently gain the greatest benefit from using the money. Assuming you also eventually end up at higher rate and hopefully also in salary sacrifice, you can adjust the balance then.

Do not use the TFC at age 55 to pay off the interest only mortgage, that loses too many years of investment growth. Unless the mortgage is at an unusually high interest rate, then it just might pay.

waccamole

mania112 wrote: »

So you DO need to speak to an IFA, they're the one's who are qualified to give financial advice.

Find one at www.unbiased.co.uk

Cheers mate - that's where I started back in Jan 2012. Hasn't worked out too well so far.

waccamole

GhIFA wrote: »

Waccamole, what response did you get from the IFA regarding why your monies are still sitting in cash?

He's coming to see us next week after I wrote to him. Will let you know the outcome.

waccamole

atush wrote: »

I am a bit concerned abt using your partner LS from a DB scheme to pay off the mtg. I would think using PP/DC TFLS would be better? Or overpaying and making your interest free mtg a repayment one now?

What is the rate?

What's the difference between using DB TFC or DC TFC? Only reason for planning to use DB TFC is we are currently being told it's £54K so about the right amount and at the right time - age 60.

If it's better to use DC TFC we can do that instead. I thought it was usually best to take TFC rather than increased pension where that is an option. Didn't even know you could do that with a DB scheme. Thought it was defined as 'this is what you get: pension plus TFC'.

I'm not worried about clearing the £50K interest only. We could quite comfortably overpay and clear it before then but the reasoning is that we have three children so loss of child benefit is £2400 net per year so, by paying extra into partner's pension we can retain most, possibly all, our child benefit. So more efficient not to pay mortgage off out of income.

Fixed rate at the moment till Aug 2014 - think it's 4.59%. I know rates have come down but I am happy with our decision to fix. At the time we only had one salary coming in so it was important to know what our outgoings would be and that we could cover them.

waccamole

jamesd wrote: »

This is often a bad idea, particularly if it is a government pension and the amount of cash being considered is above the minimum Going to more than the minimum often involves sacrificing an unreasonably large amount of ongoing income.

Using a DC scheme tax free lump sum would be better planning than using any above minimum money from a DB scheme.

Ah - maybe this answers the question I just asked (note to self - should read all replies before responding!).

It's not a govt. pension (insurance company) and it's not above what they are quoting, which I presume is the minimum.

So, does this mean it's no different to using DC TFC?

Linton

waccamole wrote: »

What's the difference between using DB TFC or DC TFC? Only reason for planning to use DB TFC is we are currently being told it's £54K so about the right amount and at the right time - age 60.

If it's better to use DC TFC we can do that instead. I thought it was usually best to take TFC rather than increased pension where that is an option. Didn't even know you could do that with a DB scheme. Thought it was defined as 'this is what you get: pension plus TFC'.

.......

Generally speaking the amount of DB tax free cash offered is significantly less than it would cost to pay for the income lost. So DB cash is usually only worth taking if you have some over-riding need for cash now. DC cash is evenly balanced but as it is tax free it is advantageous to take it.