Is it worth the Risk?

jamesd

ebw30 wrote: »

I will be 62 in September so considering my options due to the pending pension changes. My wife and i are in good health she as no pension provision, i have full NI stamps but i have been contracted out for a large chunk of my working life. my wife's state pension is now only due in 2021. ... The scheme went into deferral in 2013. i have a deferral certificate offering a pension at age 65 of 23K, this with a 50% widows pension and linked to a 3% guaranteed growth. I realise that the risk remains with the company with a DB scheme. ... i received the figure this week and it is $541k this i am told is because Transfer values are high due to the Gilts being low? ... So therefore this is an opportunity? is it?

Partly an opportunity to make a mistake. A commonly used value for income drawdown is 4% if the initial pot increasing with inflation without an excessive chance of having to reduce income later in life. 4% of £541k is £21.64k, so less than the 23k from the scheme, and with you having to take the risk of a drop in market values between now and taking the income, and beyond that. This after we've been in a bull market since early 2009. It's not a good time to be taking such a bet given your timing concerns. Drawdown has the advantage of providing a 100% spousal pension and in normal rather than bad market conditions likely leaving a substantial inheritance or later increase in income.

Rather than 4% or DB there's the option of deferring your state pension. That will increase it by 5.8% for each year of deferral. Initially this is equivalent to £31.494k a year. However that ignores the gradual decrease in value as you accumulate more years and have to cover the missed income for long. It also ignores the cap on additional state pension. I doubt that you could get more than about £200 a week this way, so £10,400 a year as the limit. This probably is a good deal for you but it provides no spousal pension, it vanishes when you die. That's not necessarily bad for a spouse not much younger but it's a consideration.

ebw30 wrote: »

My instincts are telling me to stick with the DB scheme, i intend to go 18 months early with a lump sum of 55k and a 17k salary and a DC pot worth 20k.

Why not wait until normal retirement age and take the higher income? It's probably better to borrow money to live on rather than going early. You should also work out how much income you lose to get the lump sum, the exchange of income to lump sum is often very poor value. Typically so poor that borrowing to get the lump sum then repaying is cheaper.

ebw30 wrote: »

And just how risky is managing a DC pot. considering i would be paying for the fund to be managed could it still all vanish?

If you screwed up badly enough it could all vanish but that's not very likely provided you stick to mainstream investments and follow some of the guidelines to reduce risk.

ebw30

hyubh wrote: »

Why are you quoting the CETV in dollars? And regardless of the reason, is the 23K in dollars too, or is that in pounds?

Sorry this was a Typo All figures are pounds.

ebw30

TH1878 wrote: »

How much income do you need each year?

If you were to die, how much would your wife need?

In today's terms.

I have over a period of time reduced our monthly overheads, i am currently on 30k, a Figure of 17k would cover my needs, and the cavalry or state pension would be a huge boost in 2018.

If i died before leaving employment my wife gets a small widows pension through my DB scheme plus a small lump sum.
BUT also 7 x my salary from the DC scheme.(Better employ a food taster).
After leaving 50% widows pension and cash in the bank if we take a lump sum, we own our home.

ebw30

kidmugsy wrote: »

In addition to wondering about transferring, you might do well to wonder about pensions for your wife. If she has no pensions other than SRP it is tax-efficient to buy her a pension because her withdrawals will be tax-free as long as she times them to use her Personal Allowance to best advantage.

You could also wonder about (i) keeping your DC scheme intact for her to "inherit" when you shuffle off,
]

Thank you Kidmugsy, i will consider this, i had intended to leave the DC pot invested for both of us, but of course it would become provision for my wife if i pop my clogs. Good advice.

ebw30

Jamesd
So much to consider, some very sound advice. I do agree the cost of the lump sum is not the best deal, however a lump some whatever the size is mighty tempting. You have given me lots to absorb thank you.

Sorry guys, i havn't mastered how to reply with part quotes etc, hence the individual replies.

Thank you to one and all, lots to consider. however my main reason for posting was to see if i was missing something other than a quick fix.

Due to so many of my colleagues jumping ship. So tempting short term to think, i can retire next month with a large lump sum, BUT all the risk that involves is just not for me.

You support my initial gut feeling, and i feel better placed to make an informed decision. so thank you all.

LHW99

Your colleagues may have different pension values, priorities, health issues.

And just because "everyone" is (or appears to be) doing it doesn't mean its right for you.

jamesd

ebw30 wrote: »

After leaving 50% widows pension and cash in the bank if we take a lump sum, we own our home.

What happens if you don't take the lump sum and use the higher income to pay the mortgage bill, or part of it? How long does it take before you finish off the mortgage then have that extra income for the rest of your life?

The thing about borrowing and debts is that they are short term, while the income just keeps on going.

There's no need to be in a hurry, time will take care of things.

ebw30

jamesd wrote: »

What happens if you don't take the lump sum and use the higher income to pay the mortgage bill, or part of it? How long does it take before you finish off the mortgage then have that extra income for the rest of your life?

The thing about borrowing and debts is that they are short term, while the income just keeps on going.

There's no need to be in a hurry, time will take care of things.

Sorry didn't explain that very well, i have the deeds to the house, so no mortgage to pay,understand that time will sort things out if i am patient.