Portfolio Value of a DB Scheme

AlanP_2

My wife and I are both in the LGPS and in addition I have a deferred DB pension from a previous employer, we are both about 55.

Assuming we left the LGPS scheme now, at 65 they would pay out:

Me - £8.5k pa

Wife - £11k pa, with an AVC pot alongside this that should provide the TFLS without commuting any of the LGPS pension.

Plus my deferred scheme will pay out £9k at age 60.


We are now setting up a SIPP for my wife (HR taxpayer) and an ISA. The investments into these are all equities i.e. no Bonds which makes it appear that we are overweight in "risky" investments by what seems to be conventional wisdom.

Our logic here is that the DB schemes are providing the "safe" returns so we can accept a higher risk level.


Does that make sense as a strategy and, how do I value the DB pots to assess where we are in terms of overall allocation profile?

I have read 16x or 20x Annual Pension as the rule of thumb but that sounds low to me.


Thanks

kidmugsy

AlanP wrote: »

Does that make sense as a strategy and, how do I value the DB pots to assess where we are in terms of overall allocation profile?

Yes; either ask them what the transfer value is or perhaps just use the yield on long-dated index-linked gilts to convert the annual pension into an equivalent capital sum. For instance, the 2037 is yielding 0.78% p.a. below RPI inflation at the moment, which is itself 2.3% p.a. So 1.5% p.a. => roughly multiply by 60. You might then want to haul a bit off to allow for the fact that it's some years before you'll get the pensions, and another bit off assuming that ILG yields might well have risen before then, but it still implies to me that 40x might be a better approximation that 20x or 30x.

davide691

I would multiply the combined annual pension by say 35. I have just had a public sector pension transfer value and it is 40 times the annual pension, but mine pays out at 60. For asset allocation, I would classify that all as index-linked gilts.

For SIPP and ISA, as well as equities, there are a bunch of other asset classes worth considering - e.g., non-index-linked bonds, commodities, real estate, private equity, etc

atush

for every 3.5K of indexed income, say a value of 100K?

Koicarp

My NHS report says "hypothetical fund" of £310k for £8.6k annual pension

AlanP_2

So a factor of between 28 and 40 seems to be the consensus so going with 35 should give me a reasonable estimate to plan with.


Thanks