Another difficult decision

teddysmum

kidmugsy wrote: »

It's guesswork. Even a couple of years' worth of 70s-style inflation would undermine not just the flat rate pension but also the capped RPI-linked one. Whereas the latter would be excellent protection from many years of 2%-5% p.a. RPI inflation.

I fully understand that, but making the wrong decision is so worrying.


My husband is less of a worrier and reckoned we'd be fine as things were , before the offer came, even if living to late eighties when taking the lump sum would break even.


Incidentally, my husband has just reminded me that the Heart Age test on the net, says my heart age is 83 already, but according to some daft tests (like the one counting how many times one can sit and stand in 30 seconds) a lot of us should have died years ago.:rotfl:

teddysmum

Re deferral, it's a pity he didn't do that on reaching 65, but we didn't know how long he would carry on working and still don't.

atush

It doesn't matter, if he defers now (you can do it once after you start) then it still works.

You can come off deferral once he retires. It isn't just 10.4% for a full year, it can be prorated by the week. So defer 6 months get 5.2% etc.

kidmugsy

teddysmum wrote: »

My husband pays income tax, but I don't

Then if you want to mull over the possibility of pension deferral, I suggest he would be the one to defer, not you.

Another possibility would be for you to contribute to a pension - say, a SIPP - and take advantage of the chance to draw it down tax-free, using up whatever portion of your Personal Allowance is still free for use.

But as for the big decision, I don't think there's much else to be said. You need a crystal ball.

teddysmum

atush wrote: »

You can come off deferral once he retires. It isn't just 10.4% for a full year, it can be prorated by the week. So defer 6 months get 5.2% etc.

That's interesting, as we are just accumulating his pension money, living off mine and his wages.


At the time he retired, we decided that deferral was not a good idea as it would take 10 years to make up for a year's loss and he only expected to work for a short while (It's been 18 months).We can't afford to defer when he is actually retired.


I'll have another look at the info and see if I can find a crystal ball in a charity shop. Of course ,if the latter works, I'm set up for life, giving predictions. :rotfl:

atush

It doesn't take that long to Break even, as the pension is indexed so rises each year.

Finst

Its a difficult decision, and one that I wouldn't give you advice or a recommendation on. That's the job for the independent financial advisor (who your husband's former employer has to pay for). Having said that, there are some thoughts that spring to mind:

1. On average, the Employer expects to "win" out of the deal, so the average person would "lose". But you are not the average person, and the most important thing by far that will decide whether you "win" or "lose" is how long your husband lives, which is neither predictable nor controllable.

2. RPI inflation is generally expected to average 1% above CPI inflation, which the Government target for is 2%. So while there is a lot of uncertainty, using 3% as a core guess would seem sensible

3. What's more important to you, more money now (eg to spend on holidays while you are both in good health), or the security of knowing that the pension will keep up with the cost of living, so you know that your living standards won't get squeezed later in life? Which of those two things would make you happier? If you take the deal, would you be prepared to reduce your spending in later life, or do you have generous children?

For me, the 3rd point is the most important, and its a very personal one. What is more important to YOU?

kidmugsy

If your husband does decide to defer his pension for a while, he would be wise to inform his occupational pension scheme, because that sometimes leads to a bigger occupational pension being paid than otherwise.

mania112

My recent figures (I haven't seen them posted anywhere else here)

RPI - 0.9%
CPI - 0%

It's harder to predict inflation than it is investment returns - current trends though are deflation - so it would be hard to say that taking the 37% day one increase isn't the more sound option

kidmugsy

mania112 wrote: »

My recent figures (I haven't seen them posted anywhere else here)

RPI - 0.9%
CPI - 0%

It's harder to predict inflation than it is investment returns - current trends though are deflation - so it would be hard to say that taking the 37% day one increase isn't the more sound option

Yeah, but they are considering a twenty or thirty year punt. You could argue that the two state pensions and the small TPS pension are inflation-protected, so why not diversify with a level pension for the bigger occupational one? But that could be the road to the poorhouse. On the other hand, I suppose demographics points to deflation/disinflation. But government's needing to renege on their debts (thank you, Mr Brown) points to inflation.

All this is so uncertain that I'm tending to side with the posters who imply that the trick is for the couple to decide exactly what it is they'd like to do - have more income soon, or later?