Taking pension early...am I missing something?

Marine_life

kidmugsy wrote: »

There's no need to pay HRT in retirement while VCTs and EISs are available.

Which I assume are UK vehicles? I will be resident in Austria.

mgdavid

in your situation I would have the extra cash now, use it for fun and frivolity while you can... I've heard that Austria is quite a serious sort of country ;-)

SomeUser

Firstly, I'm 99.9% sure that you don't get fixed 5% increases on all your pension. The best I've ever seen is fixed 4% for a firm of well known investment managers and even so, that's not across all pension tranches. Minimum statutory increases are here https://www.dropbox.com/s/m030v9oba46sww9/2014-08-25%2017.05.02.jpg?dl=0


Your inflation assumption is too low. You would need to do this calculation on a "best estimate" basis. If you're too prudent with your assumptions you're not going to get a realistic picture. These are annual inflation figures since 1995, taking September figures.


September CPI September RPI
1995 3.0 3.9
1996 2.3 2.1
1997 1.8 3.6
1998 1.4 3.2
1999 1.2 1.1
2000 1.0 3.3
2001 1.3 1.7
2002 1.0 1.7
2003 1.4 2.8
2004 1.1 3.1
2005 2.5 2.7
2006 2.4 3.6
2007 1.8 3.9
2008 5.2 5.0
2009 1.1 -1.4
2010 3.1 4.6
2011 5.2 5.6
2012 2.2 2.6
2013 2.7 3.2
Average over whole period CPI 2.2, RPI 3.0

Finally If we assume your life expectancy is 25 years from 63, you're comparing paying a pension of £7400 which increases by 2.5% annually for 35 years from 53 against a pension of £15,175 increasing annually by 2.5% for 25 years (15175 is 12450*1.02^10)


You need to look at the pension as a whole. Using mid-points as an approximation and ignoring discounting:


35*7400*1.025^17.5 ~ 400k


25*15175*1.025^12.5 ~ 517k

If you do in fact get 5% incs in payment then the the calcs are in fact

12450*60%* 35 *1.05^17.5 ~ 1.442m
15176* 25 *1.05^12.5 ~1.285m
This is extremely unlikely

You know your maths - get more information on the assumptions and I'll run through the entire calc if you want, so you can use the formulas and "stress test" it yourself.

kidmugsy

Marine_life wrote: »

Which I assume are UK vehicles? I will be resident in Austria.

Then find out what vehicles Austria has for avoiding its HRT. There are likely to be some: the people who write tax codes are themselves exposed to HRT I imagine.

P.S. I am struck by the coincidence that an Austrian resident is worrying about income tax at 20% and 40%. Are their tax rates really identical to ours?

atush

Marine_life wrote: »

I don't disagree (about hating to waste money) - but I reran the calculations this morning assuming that I will be taxed at 20% prior to getting my pensions and 40% thereafter and the 'catchup' period came in at 26 years.

The chances of my living to 89 are quite slim and I suspect by that time I will not care about money (or probably will not know whether or not I care!).

I have higher hopes for your LE with all that time you will be spending int he austrian mountains with clean air lol. And my Inlaws lived to 90-95 You will be a sprightly old codger.

Marine_life

Many thanks - thats very helpful

SomeUser wrote: »

Firstly, I'm 99.9% sure that you don't get fixed 5% increases on all your pension.

Which applies the theory that if something looks too good to be true it probably is. I agree that's one assumption that is key. I need to dig out the exact words but thats what it seems to say (I will post the words later). My pension is split between a GMP and the rest and the 5% only applies to the rest however the GMP part if immaterial. But I agree in the current environment it looks quite generous although I dod currently have also a deferred income plan (legal in Germany) which guarantees 5%.

SomeUser wrote: »

Your inflation assumption is too low.

Possibly. But when I look at inflation in Europe bumping along at 0.5% I tend to think we are in a period of persistent low inflation but you are right, maybe something between 2-3% is more realitic.

SomeUser wrote: »

You know your maths - get more information on the assumptions and I'll run through the entire calc if you want, so you can use the formulas and "stress test" it yourself.

Many thanks for the offer - I am going to ask for clarification on my understanding and will come back.

xylophone

http://www.ey.com/GL/en/Services/Tax/The-worldwide-personal-tax-guide---XMLQS?preview&XmlUrl=/ec1mages/taxguides/TGE-2013/TGE-AT.xml
might be worth a look.

Marine_life

kidmugsy wrote: »

I am struck by the coincidence that an Austrian resident is worrying about income tax at 20% and 40%. Are their tax rates really identical to ours?

Austria actually has fairly punitive rates as follows.
up to €10,999 - 0%
€11,000 – €25,000 - 36.5%
€25,001 – €60,000 - 43.2%
Over €60,000 - 50%

I was guessing at an average rate.

Marine_life

atush wrote: »

I have higher hopes for your LE with all that time you will be spending int he austrian mountains with clean air lol. And my Inlaws lived to 90-95 You will be a sprightly old codger.

Well...that's certainly the plan :T

kidmugsy

Marine_life wrote: »

Austria actually has fairly punitive rates as follows.
up to €10,999 - 0%
€11,000 – €25,000 - 36.5%
€25,001 – €60,000 - 43.2%
Over €60,000 - 50%

BldyHll! No wonder Hitler left the place.