Taking responsibility for own pension forecasting

jem16

waccamole wrote: »

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?

The minimum quoted is usually an automatic lump sum as defined by the pension scheme. Sometimes it is possible to do inverse commutation and not take the lump sum but a higher pension. If this is not possible or it's a bad rate then there is no difference using this lump sum rather than the DC lump sum.

It might be worthwhile asking your partner if he could ask his pension scheme if inverse commutation is possible and at what rate?

jem16

waccamole wrote: »

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

Did he not even respond about the whereabouts of the Suitability Report?

jamesd

waccamole wrote: »

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

It might be the same. To know you'll need to check how much extra pension can be bought by reducing the lump sum. Sometimes that's a good deal, paying more than an open market annuity purchase, sometimes it's a bad deal.

In general, if its doable, I'd prefer to switch to a repayment mortgage and use higher income to repay the capital rather than using a lump sum. With some mortgage lenders willing to lend to 85 or maybe older there's likely to be ample time for that and a chance for a better lifestyle along the way.

GhIFA

waccamole wrote: »

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

Ok, but what explanation did he offer for not providing a suitability report?

Not being funny, but it is 5 weeks since you first posted on here about your situation, and 2 weeks since you said about writing to him asking questions. He's only coming to see you next week - If it was me and a client had written suggesting that I had acted in a non-compliant manner (which I'm pleased to say has never happened ) I wouldn't be leaving it nearly 3 weeks to get it sorted.

mania112

I need to reiterate my point:

Some of the best responses you'll receive here are from IFA's.

So to say you no longer want to use the service of an IFA but instead want to come here, is a contradictory statement.

Although you may have had a bad experience with an IFA doesn't mean you shouldn't find another one.

jem16

mania112 wrote: »

So to say you no longer want to use the service of an IFA but instead want to come here, is a contradictory statement.

To be fair to the OP, she didn't say she didn't want to use an IFA. She said she wanted to understand her pension provision better, something that everyone should regardless of whether or not they use an IFA.

waccamole

mania112 wrote: »

I need to reiterate my point:

Some of the best responses you'll receive here are from IFA's.

So to say you no longer want to use the service of an IFA but instead want to come here, is a contradictory statement.

Although you may have had a bad experience with an IFA doesn't mean you shouldn't find another one.

Not meaning I don't want to use an IFA - I do. It's just that it's been well over a year since I started trying to find one. I'll not go into detail as I have already been thru' it all on another thread, but I've spoken with 4 IFA's and one FA since then. I chose one and am now in the position of some of our pension fund and all our S&S ISA being taken out of the market in October last year and invested in cash since then (again subject of another thread) with no suitability report provided.

I just want to be well informed so I know if we're on track not relying solely on an IFA. By taking responsibility I don't mean DIY'ing, I mean satisfying myself that we are in the position we need to be.

waccamole

jamesd wrote: »

In general, if its doable, I'd prefer to switch to a repayment mortgage and use higher income to repay the capital rather than using a lump sum. With some mortgage lenders willing to lend to 85 or maybe older there's likely to be ample time for that and a chance for a better lifestyle along the way.

Hi Jamesd

Thanks for your reply. This was posted last year on another thread:

"We have a relatively large mortgage (not in LTV terms tho) and it is interest only with about £50K not covered by existing investments so we need to deal with that too. I've seen some interesting posts about using Tax Free Cash to
so that but I don't want to end up reducing our retirement income too much."

Your reply was:

"When you're looking at the mortgage you're looking at the tax free cash in the wrong way. Using it doesn't reduce your retirement income, it increases it. Say you paid off the mortgage with money outside a pension. You receive no pension tax relief on it. Do it with tax free cash from your husband's pension and he %+ tax relief on the money. It's way more efficient to do it that way than with money that hasn't gone through a pension! The negative part is that 3/4 of the after tax relief money stays in the pension so more total money is needed, but that boosts pension income so it's likely to be a good deal. It's effectively paying off the mortgage at no net cost because it's all funded by tax relief. It's a great deal if you need both higher pension income and to clear a mortgage.

Say you took £5,800 from savings to live on and your husband increase pension contributions at higher rate by £10,000 in a salary sacrifice scheme where the employer adds half of the employer NI saving:

Net cost = £10,000 - 40% income tax - 2% employee NI = £5,800, that money
Money in pension pot = £10,000 + 13.8%/2 = £10,690
25% lump sum = £2672.50
75% staying in pension = £8,017.50

The cost here is that instead of £5,800 paid off the mortgage, only £2,672.50 gets paid off, with the rest ending up in the pension pot. So you need to pay a total of 2.17 times as much money. If you want both the mortgage cleared and higher pension income that's a good deal because the £8,017.50 75% left in the pension pot only had a net cost of £3,127.50. And with your husband able to use flexible drawdown, if that can be used in time to clear the mortgage there's actually no increase needed."

So why do you now recommend a repayment mortgage rather than interest only and paying off with TFC?

We are in the position to do either, the £50K isn't a worry, it's just deciding the cheapest most tax efficient way to pay it off also taking into account that we would like to reduce my partner's taxable income to retain child benefit.

Thanks

W

gadgetmind

The best tool is a spreadsheet.

Use one column per year starting in 2013 and running well past state pension age. You then have rows for the various pensions and pots that let you add whatever you'll be putting in pa and then multiply by whatever annual return you are comfortable with. 4%-5% is reasonable for most combinations of equities and bonds, less for cash, and no idea regards DB pensions as I suspect you'll need to look at those case by case.

You can then work out what you can get pa from each "pot", which is easy for DB pensions and will need a rule of thumb for others such as 4% pa.

You then need to model for tax, so you'll need rows for personal allowance and 20% band. GOK where these will go in future! I boost by CPI but the 20% band is dwindling quickly...

You should then be able to get a total pa in money terms.

I then have a money->todays converter that starts at 1.0 for "now" and goes up by whatever you reckon your personal inflation rate is pa. You then just divide by this to get your today's terms income. Make sure that values such as inflation, investment return, etc. are in named cells and ideally use dropdown ranges to let you play with them.

My spreadsheet also includes state pension, adjusting which pots I take lump sums from, and much more.

Have fun making those numbers work for you!

jamesd

waccamole wrote: »

So why do you now recommend a repayment mortgage rather than interest only and paying off with TFC?

Pension and TFC use beats repayment mortgage.

Then when you come to the point where you can use the TFC you have another choice: should you use the TFC or switch to a repayment mortgage and use the ongoing pension income to repay it?

The same general calculation principle applies: the money invested is likely to make more than the saving from repaying the mortgage.

But there's an additional consideration: you can use the TFC to enhance your income for a while, spending some of the capital to do that. This is useful if you will have a higher guaranteed income later, like from the state pensions. In this case you can even out your before state pension and after state pension income level by delaying repaying the mortgage. No requirement to do this but given your ages it's fairly clear that there would be some benefit in delaying repaying the mortgage until after at least one person's state pension starts.