Keep the final salary or venture forth?

kidmugsy

jamesd wrote: »

In the UK there is the possibility of bills that are huge in relation to typical pension pot sizes: care needs later in life, whether due to dementia or frailty and other medical conditions. Regardless of standard or enhanced annuity rates I'm likely to preserve money in drawdown to provide for such possible needs even though I have no bequest motive at all.

I agree, though that then implies a further puzzle i.e. why people won't buy insurance vs care costs. I'd guess that the reason is almost certainly that they expect to freeload on the taxpayer. I wonder how many people who act for "bequest motives" are also the people who whinge endlessly about Inheritance Tax, and who complain that it's not fair, they ought to be allowed to freeload on the taxpayer while handing large lumps of capital to their children. (To be fair, on these threads it's often the greedy children doing the whining, rather than the old folk.) It seems to me that if the survivor of a couple needs care they should expect their house to pay the bill. But if one needs care early - 60s or 70s - the prospect for many couples will be bleak.

jamesd wrote: »

people clearly really are reluctant to spend capital to buy income. Or borrow to get capital to buy income that is greater than the borrowing cost, for that matter.

Partly it's to do with quasi-religious beliefs - (i) you must clear your mortgage as soon as poss, and (ii) you mustn't take on debt, however rational it would be; "always preserve your capital" is maybe a third one.

It's even odder when you consider the old advice that in your career it's your income that's taxed, and on your death it's your capital that's taxed, so as you approach death turn capital into income!

atush

kangoora wrote: »

Thanks, didn't know this. My 3 years worth of US social security payment will now be delayed until 66 (assuming good health). This will be 1 year before my UK pension. I'll probably start looking into it at 65 though, not having much faith in their systems, it'll probably take a year to get it put into payment

I thought it had changed to a min 10 years system? I thought I read this, but as I have 11 years did not check into it?

I am considering taking at both 62 and 67 (I think my age means it will be 67 years). Will make final decision based on health at 60/61 I think. Will probably leave it til age 67 but am not sure. I come from a famliy who die young and although I have improved my chances thru diet and lifestyle I dont know what dangers my genes hold. Might know byt then with all the advances.

As a side note, with 23and me coming to the UK, as genemapping improves, what effect will this have on annuities?

If you have a faulty gene, will that give you enhanced annuity status? Or will everyone knowing more abt their LE mean that there wont be any early death annuitants to boost the pot for the long lived?

kangoora

It is a 10 year system but because of the treaty I can treat UK NI payments as USA ones even though they don't count towards the money I get from USA SS (equalization I think). So, I'll have >10 years credited to me but only be paid out on the basis of the 3 years payments I made into the US SS system.

Still, I worked out it might be around $1k/month but dependent on other factors which I'll get into at the time. Knowing my luck it'll probably be worth 2 bob a month.

atush

1K a month is high, mine was only 480.

You can look it up and see online if you have your Soc Sec number?

kangoora

Doh, 1k per year, which i think isn't bad for only 3 years contributions

Sobryma

I am in a similar position and in the process of obtaining CETV for a deferred DB scheme I hold.

Factors I am considering are:

How well funded is the scheme?
Do you trust the former employer?
How profitable is the underlying business?
How distant is the pension?
How flexible is the pension for deferred members?

Of course it all will be irrelevant if the transfer value is poor.

One point re state pension there has been an increasing amount of press that very few people will receive the full state pension - particularly where they have been contracted out as is common with DB schemes.

Drp8713

How well funded is the scheme? Not your problem, pension is PPF protected.
Do you trust the former employer? This is not 80's, they are not going to run off, there will be a trust deed and rules.
How profitable is the underlying business? Pension is ringfenced, doesnt matter.
How distant is the pension? From what?

kidmugsy

Drp8713 wrote: »

How well funded is the scheme? Not your problem, pension is PPF protected.

Many people would lose quite a bit if their pension fell into PPF: I, for instance, would lose virtually all my inflation-protection. My wife would lose nearly 50% of her monthly widow's payment. So it really can be the member's problem.

And that's all quite separate from the losses of people who have seriously large pensions.

jamesd

kidmugsy wrote: »

I agree, though that then implies a further puzzle i.e. why people won't buy insurance vs care costs.

One reason for that is easy to understand: there are no such products on the market, so nobody can buy them even if they want to. A story or paper I read recently attributed this to them being considered a product that is too expensive to provide.

This leaves keeping a pot of money to use to buy an immediate needs annuity or use for drawdown as the available options at present, and it seems unlikely that this will change. Unfortunately.

kidmugsy wrote: »

I'd guess that the reason is almost certainly that they expect to freeload on the taxpayer.

Yes, I assume that many people have this view, perhaps in part because they don't conceive of being able to have a large enough pension pot and other assets to look after themselves in their choice of place.

kidmugsy wrote: »

I wonder how many people who act for "bequest motives" are also the people who whinge endlessly about Inheritance Tax, and who complain that it's not fair, they ought to be allowed to freeload on the taxpayer while handing large lumps of capital to their children.

Hopefully different groups to a large extent because inheritance tax affects those who could easily afford to provide for their care needs, without it substantially affecting the value of their estate.

In principle inheritance tax is unfair. After all, it's a second tax on money that has already been taxed. It's just pragmatically useful because it's taxing someone who is no longer around and reducing the benefit to people who've previously had no right at all to the money. Of course many taxes are taxes on money that has already been taxed, like those on savings accounts and dividends, where somehow the money had to be found to acquire those things and that money was presumably after tax money.

kidmugsy wrote: »

But if one needs care early - 60s or 70s - the prospect for many couples will be bleak.

Yes for many, though options like equity release to buy immediate needs insurance can be useful if the life expectancy in care is long. yet the reality is that it's typically only two or three years, which tend to substantially cap the long term cost in most cases. The insurance is useful to provide for the long life case.

kidmugsy wrote: »

Partly it's to do with quasi-religious beliefs - (i) you must clear your mortgage as soon as poss, and (ii) you mustn't take on debt, however rational it would be; "always preserve your capital" is maybe a third one.

Indeed.

kidmugsy wrote: »

It's even odder when you consider the old advice that in your career it's your income that's taxed, and on your death it's your capital that's taxed, so as you approach death turn capital into income!

Shhh, people might learn something and pay less inheritance tax!

jamesd

Sobryma wrote: »

very few people will receive the full state pension - particularly where they have been contracted out as is common with DB schemes.

Very few people will receive the full state pension because that is something like £265 a week.

The state pension today has three parts:

1. Basic state pension. A person who has paid in for 30 years or who has credits will get all of this whether they have been contracted out or not.

2. Additional State Pension, the earnings-related part provided from from SERPS and now S2P. This is what can raise the state pension from the basic level to the 265 level for a person who has been a high earner for a whole working life. A low earner could get around £190 from the combination of basic and additional state pensions. This is the part that is reduced by contracting out because the place you contract out into gets handed responsibility to pay the pension, replacing the state for that part. A person who has been contracted out for perhaps 1-20 years may find that they have no additional state pension entitlement at all, with all of the payment coming from the schemes they contracted out into.

3. Graduated Retirement Benefit from before SERPS, a few Pounds a week for those in the system then.

A person who starts out with their flat rate foundation amount below the flat rate just has their state pension increased by 1/35th of the flat rate until they reach the cap. So in practice most of those who were contracted out will get the full flat rate plus their work pension, while those who weren't contracted out only get the state pension and hit the cap sooner. Some retiring in the early years of the flat rate system won't have time to work enough years to get the full flat rate.