should i cash in my final salary pension ?....?

mgdavid

closing phrase of post #1

'I dont work anymore'

:eek:

atush

Missed that thanks.

I'd still consider S&S isas with all that cash.

jamesd

232607 wrote: »

At the risk of getting “shot down” in flames, I’m going to offer the opinion that the transfer should be investigated in more detail.

No reason to shoot you down, it's worth considering. We already have the numbers to do an initial analysis, though they do ignore the potential for spousal pension or death benefits that may make transferring a worse deal than it seems.

232607 wrote: »

Generic advice of it being a bad decision in 9 out of 10 cases was probably true in the past but we’re now seeing very high CETV’s as a result of low gilt yields. In my opinion, this is a “game changer” from the general generic advice.

This one doesn't have one of those very high transfer values.

232607 wrote: »

I’ve just transferred a DB that had a current value of £10,998 PA to a pot of £283.4K, giving a ratio of 25.8 to 1. At that ratio I was happy to forgive the safety of the DB, IE I considered there to be more potential to the upside in an investment environment that there was to the downside & I was prepared to take the risk.

The commonly used 4% of lump sum increasing with inflation each year takes 25:1 so you're slightly above that level. The catch is that the rule requires more at younger ages and you're probably not just 30 years from anticipated death yet. Provided there isn't a major market downturn that lasts for many years just after you retire you should be OK and probably end up with a higher income.

232607 wrote: »

A quick peek at the OP’s figures gives £6188 transferred to £174K, giving a ratio of 28.1 to 1. I’d say that certainly looks to be in the range of being fair

Using the 4% guideline it's £6,960 vs £6188 plus whatever that is increased to by waiting and taking it at normal retirement age. It's the sort of deal that I might take but most people aren't very experienced with investments and are risk averse. So it doesn't look like such a good deal that it's worth taking for most people, though knowing the income at normal retirement age would be nice.

So far as SL goes, you're right that transfer values in general are higher now and SL may just be playing the odds. The tough cases for drawdown are prolonged market downturns just after retiring. If that doesn't happen the person will probably end up better off with drawdown.

You seem to have a risk tolerance closer to mine than most people.

Sony_smartphone

Hi guys,, many thanks for all your input,, its great to get as much info from real people,,
In answer to Jamesd,,,
1.We both are 55, we both will get state pension at 66, and we both will get £112 per week,, (under current rates),,, I think the new rate of £148 each might apply to us both, but im not sure
2.how much would we need ,, well at the minute we,re living on £16,000 per year and its seems to be adequate, , we, re not really extravagant,, but we do want to travel abroad abit more.
3.My pension at 55 will be £6188 with no lump sum or £3900 with a lump sum of £26500....
If I leave my pension until I'm 60 the quote was full pension of £9497 pa. With no lump sum. Option 2 pension of £5754 and lump sum of £38362,,,death benefit with this is £4748 for the mrs if I pop my clogs,,
4.My wifes works part time and earns approx £6760pa. She, s happy enough with her job but has hinted she will maybe leave next year.
5.At the minute we dont have any money worries.
6.we dont have any debt..

kidmugsy

Sony_smartphone wrote: »

4.My wifes works part time and earns approx £6760pa. She, s happy enough with her job but has hinted she will maybe leave next year.

I hope you're filling a pension for her. If she's made no other contribution you could contribute £6760 x 0.8 = £5408 by Sunday. The provider grosses it up to £6760. When she stops work she could get that out tax-free if she draws it out in the right tax year(s).

There will be providers manning the phones over the weekend - I know that Hargreaves Lansdown are, I'll bet there are others too.

PeacefulWaters

Sony_smartphone wrote: »

3.My pension at 55 will be £6188 with no lump sum or £3900 with a lump sum of £26500....
If I leave my pension until I'm 60 the quote was full pension of £9497 pa. With no lump sum. Option 2 pension of £5754 and lump sum of £38362,,,death benefit with this is £4748 for the mrs if I pop my clogs

A.You have £100k in savings. Pay yourself £9k a year out of these savings. Or do some part time work!

B. Forget a lump sum from your pension. It's dreadful value.

C. Draw your pension at 60. Bigger income and far bigger protection for your wife should you die first.

4.My wifes works part time and earns approx £6760pa. She, s happy enough with her job but has hinted she will maybe leave next year

D. Pay 80% of her income each year into a pension (perhaps Cavendish online), get it grossed up with tax relief, draw it as income without tax (using her tax allowance) at some stage between finishing work and drawing state pension.

Ignoring giving yourselves inflation linked pay rises, A will cost you c£45k of savings. B will cost you c5k for each tax year she's still working but provide a higher income than simply drawing out of savings until she draws state pension. It would help if she could work beyond next year! B is a free money option.

This will diminish your savings, but not as rapidly as trying to live off a smaller pension from age 55 to death. It also protects your wife better. The downside is a small amount of income tax to pay when you start drawing your state pension.

Taking pension at 55 and your wife giving up work too will see your savings run out before age 66.

232607

jamesd wrote: »

No reason to shoot you down, it's worth considering. We already have the numbers to do an initial analysis, though they do ignore the potential for spousal pension or death benefits that may make transferring a worse deal than it seems.

In a later post the OP tels us there is a 50% spousal pension. This should be viewed in the context that transferring out results in 100% of the pension being retained in the event of his death. Moreover 100% is continuously retained until such time the pot is exhausted.
Also lets not forget by transferring you eliminate the potential loss of 10% of the pension in the event of the sponsoring scheme going bust.

This one doesn't have one of those very high transfer values.

The commonly used 4% of lump sum increasing with inflation each year takes 25:1 so you're slightly above that level. The catch is that the rule requires more at younger ages and you're probably not just 30 years from anticipated death yet. Provided there isn't a major market downturn that lasts for many years just after you retire you should be OK and probably end up with a higher income.

At 48 Y/O I am hopefully 30 years from death. I don't quite understand your logic when you say the transfer ratio should be higher due to my relative Young age, maybe you can explain.
If I'd stayed in it would have increased by salary rises which I estimated @ 3% when doing my calcs.
I certainly aim to beat this in an investment environment hence you could put a case forward for the ratio being lower.

Using the 4% guideline it's £6,960 vs £6188 plus whatever that is increased to by waiting and taking it at normal retirement age. It's the sort of deal that I might take but most people aren't very experienced with investments and are risk averse. So it doesn't look like such a good deal that it's worth taking for most people, though knowing the income at normal retirement age would be nice.

I agree that this option isn't for the risk adverse.

So far as SL goes, you're right that transfer values in general are higher now and SL may just be playing the odds. The tough cases for drawdown are prolonged market downturns just after retiring. If that doesn't happen the person will probably end up better off with drawdown.

Yes I'm sure SL are playing the odds but they wouldn't be doing this unless the cards were stacked in there favour....The cards being the current high CETV's.
What people should be aware of is that current CETV's won't be at this level for ever. Some people may put off doing a transfer thinking they can complete nearer retirement age. They may be very disappointed when the get an updated CETV.

You seem to have a risk tolerance closer to mine than most people.

No doubt you have a high risk tolerance like myself albeit I only take risk so long as I understand the risk and can mitigate it in some way. I'm currently contributing heavily into the DC & having run the projected calcs it looks like I'll be able to go at 55. Understand what you say regarding prolonged downturn after I retire. I aim to mitigate against this by taking 3 years income out of the pension when I retire, thus giving me a "window" for which I wouldn't need to withdraw money in a down turn. I will then further draw out in upturns to maintain/increase this window.
I Intend to stay invested during retirement & I do not intent to change my investment stratagy from what it is now, that being:-

A) Mainly high volatile global equities spread over all sector.
A little (15%) in property as the only diversifier.
C) keeping to index trackers where possible to keep costs down. It helps that we get a good group discount from SL that we keep for life.

Any thought appreciated!!

Regards

jamesd

I agree with you about spousal pensions. One significant advantage of drawdown is that it provides a 100% spousal pension as a built in part of the deal.

At 48 you should be hoping to be at least 40 years from death. The reason the lump sum would need to be higher is to pay the money for longer. But if not yet entitled to it, the years between current age and the age at which it can be taken reduce the lump sum size.

The 4% guideline is valid for 30 years of retirement, it drops gradually for longer periods, so something like 3.5% would be the sort of level to use for 40 years. But then there are some added rules that can be used to increase either by one and a half to two percent.

Agree that CETVs are likely to be abnormally high at the moment and that it won't last forever. I think we're in an interesting window of time where many more transfers than usual make sense.

One year of margin in cash has been shown to increase success rates. Three might be a bit much but one alternative you might consider is P2P. For this purpose, think of it as a sort of term annuity, with the amount you invest being used to provide you with a stream of interest and capital repayments for the term of the loans, less something to allow for early repayments. The advantage over cash is that your money is invested and there are P2P options that provide equity-like returns.

232607

jamesd wrote: »

I agree with you about spousal pensions. One significant advantage of drawdown is that it provides a 100% spousal pension as a built in part of the deal.

At 48 you should be hoping to be at least 40 years from death. The reason the lump sum would need to be higher is to pay the money for longer. But if not yet entitled to it, the years between current age and the age at which it can be taken reduce the lump sum size.

The 4% guideline is valid for 30 years of retirement, it drops gradually for longer periods, so something like 3.5% would be the sort of level to use for 40 years. But then there are some added rules that can be used to increase either by one and a half to two percent.

Agree that CETVs are likely to be abnormally high at the moment and that it won't last forever. I think we're in an interesting window of time where many more transfers than usual make sense.

One year of margin in cash has been shown to increase success rates. Three might be a bit much but one alternative you might consider is P2P. For this purpose, think of it as a sort of term annuity, with the amount you invest being used to provide you with a stream of interest and capital repayments for the term of the loans, less something to allow for early repayments. The advantage over cash is that your money is invested and there are P2P options that provide equity-like returns.

I have to say I don't really agree with the concept that the CETV should be higher because I'm transferring out at an early age. The CETV is based on very safe Gilt Yield returns and by taking the pot to a more adventurous investing environment, I'm planning on increasing the pot in real terms compared to if I transfered at a later date.

Understand that 4% withdrawal is a figure commonly taunted at being safe for not running out of money. Ultimately this is just a notional figure & the true value is based on how well you remain invested. My plan is to take 5% pa @ 55 but reduce this % @ 65 when I have a section 32 pension "kick in", then further reduce at 67 when the state pension "kicks in".

Fully agree with your comments on P2P & it's something I have my eye on. It's ideal for short term investing & can give equity type returns without the volatility.
This is an area that a lot of people may be over looking.
I read somewhere that P2P may be brought into mainstream approved investing.
Do you think there may be a time in the near future when the pension Co's roll out a fund based on P2P?

Regards.

Sony_smartphone

Hi,, I've given more details of my situation in earlier posts,, pension value at 60
and when we, d get our state pensions etc..all comments have been very welcome and I, m definitely learning a lot from all your experience, , I've recently read a thread on "Flexi access drawdown " I think this might be a possibility going forward,,, my D.B pension pot is sitting at £175k,,, if I take my 25% tax free approx £43k I reckon we live ok on £16k pa,, this would do us for almost 3 years, then maybe look at drawing more out of my remaining pot, taking just enough to ensure to stay under my personal tax allowance, , and then topping it up as required from our savings until our state pensions kick in,,,,, does this plan seem ok or am I missing something,,,:cool::beer: