CETV quotes

Previn

Hi,

Currently 49 years old, planning to retire maybe at 51 with around £620k of SIPP/ISA funds etc
I also have a final salary pension which no longer accepted payments as of 2010. Today's current value is £4446 p/a with a 2.5% cap on RPI increases based on age 65 retirement
We are able to generate cetvs from the online portal & these were the transfer quotes I got for....
age 50 - £64k
age 55 - £86k
age 60 - £116k
age 65 - £156k

The final one seems reasonable as it is 35* yearly payment but the earlier quotes seem to be reduced much more than I expected.
I'm happy managing a transfer into SIPP & was hoping to move this DB when 55 but not sure its worth it now.

Could anyone take a look over those numbers & let me know their thoughts?
Much Appreciated!

mgdavid

it seems relatively small compared with your other pot - but if left 'as is' makes an excellent 'plan B' when added together with SP. Should the world markets go t1ts up sometime in the next 15 years, you know you won't starve. 100% certainty has a certain charm about it.

LHW99

For transferring a final salary pension you have to pay to get independent financial advice, and many advisers won't do it as its generally not a good idea.

Previn

I understand the risks & that there has to be IFA consultation but I think it's worth exploring.
I have children & grandchildren & the opportunity of being able to pass that money on to them is a big benefit.
The quotes for early transfer suggest I'd need returns of 6%+ a year to make it worthwhile which seems unrealistic so there must be something else that I should be taking account of I think....

mgdavid

You don't have to die in order to pass money to your children and grrandchildren.
If you do it whilst alive you get the added bonus of seeing them use and enjoy it.
I would expect the DB pension to pay a reduced pension to your wife if you pre-decease her, have you factored this in?

jamesd

Previn wrote: »

Could anyone take a look over those numbers & let me know their thoughts?

The amounts appear to be growing at 6.087% each year.

I don't know whether the amounts are all in today's money, so inflation would be added on top of those increases.

Either way, the 6.087% target for growth from conventional investments appears higher than really desirable compared to the company and pension fund bearing the risk.

kidmugsy

If you want to leave some money then at age 65 take out life insurance that pays the children and grandchildren directly, rather than entering your estate.

One attraction of transferring would be if you thought the scheme was in financial trouble, but you've not mentioned that so I suspect it isn't.

A second attraction of taking the CETV early would be the hope of buying better inflation-protection than RPI capped at 2.5% (and collared at 0%). But at present, long Index-Linked Gilts pay about 0.9% p.a. less than RPI, admittedly without the cap but also without the collar, so that hope might be forlorn. You might even decide that the deferred pension and some ILGs held in an ISA or pension might complement each other quite well: the pension covers you for RPI inflation below 2.5% p.a.including negative inflation, the Gilts cover you (albeit imperfectly) for RPI inflation above 2.5% p.a. Between them they might form the "bond" part of your portfolio.


Having attended to the bond part of your portfolio you could invest the rest of your portfolio in different assets e.g. cash (in high interest current accounts and regular savers), a little precious metals perhaps (e.g. gold sovereigns), and probably predominantly equities e.g. in passive "tracker" funds or ETFs. Regular commenter jamesd is a fan of VCTs and P2P: maybe a dabble there would suit you too and add a bit more diversification. His suggestions on these two topics are scattered through many threads.

jamesd

The combination of VCT and P2P can beat that 6.087% a year rate but I don't think that the 10-12% before bad debt losses that is available from some P2P is something that should be relied upon for the next fifteen years. VCTs, yes, but not P2P. I think that increased competition and transition to a more broadly accepted market will result in continued gradual decrease in P2P returns.

Even when the rate can be beaten there's merit in having a fair chunk of income growing with someone else taking the investment risk. With 650k of other money to invest the leave it where it is option for the 64k is nice diversification.

Previn

Thanks for the replies

From a maths point of view, I worked out what each option would look like if it was never spent i.e just an ever increasing pot of saved money. The theoretical transfer takes place on 50th birthday for £64k & is invested.

For different return rates over inflation....

0% - DB pot is larger at age 79
1% - DB pot is larger at age 83
2% - DB pot is larger at age 89
3% - DB pot is larger at age >100

Not sure if there's a better way of doing it, if anyone has any ideas let me know...Assuming this is reasonable then it depends what you think average returns will be in future & how risk averse you are. 2% above inflation seems more than doable but will have a think about it over next few months....(not allowed for any costs in all this btw)