To commute or not to commute?

pvt

Coming up to retirement and sitting on a DB pension that I can either draw on, or transfer out at a commutation rate of about 22.7, and manage it myself .

Think I'll be awfully lucky if I live another 23 years.

What sort of rate of return should I expect if I look after the pot myself? Is 3.5% per annum after fees an unrealistic expectation for a mediummy risk kinda guy?

And as the pot would be close on £1m, would I be better spreading it between multiple providers?

I know I will need some proper help from an IFA, but initially just want to assess my options and also work out if I need to apply for LTA protection.

bigadaj

What's the value of the pension and the transfer value.

AnotherJoe

IMO if you dont expect to live 23 years then 3.5% would be far too conservative unless the plan is to leave it all to someone and you just want to draw down the growth.

You could draw at 5% and even if there was no growth that would pretty much see you out.
And in most case, 20 years at 5% you'd still have a fair wodge left possibly as much as half. And perhaps drawdown even higher to start with (helps with LTA) and spend it whilst you are in best health and able to make most of it. Lets say 6% first 5-10 years dropping after that,

Also, if you are in ill health (or just say aged 75+) you could get a good rate on an annuity. So perhaps half and half it. Annuity with half to give you a guaranteed amount, drawdown the rest for luxuries.

An IFA is probably best bet to advise you, it maybe your existing DB pension is the best, end of the day you'll have several options to choose from and it will be subjective depending on your attitude to risk and outlook for life expectancy.

I would try to find one that will do it for a fixed fee rather than a percentage, I generally think percentage is a bad deal, its the same work if you've got (say) £1M or £2M so why pay twice as much for the same amount of work ?

pvt

bigadaj wrote: »

What's the value of the pension and the transfer value.

approx £44k (and 50% spouse's pension when I peg out) - and with commutation rate of 22.7 that would make a txfr value of circa £1m.

pvt

AnotherJoe wrote: »

And perhaps drawdown even higher to start with (helps with LTA) and spend it whilst you are in best health and able to make most of it.

Curious about this but - why does drawdown at a higher initial rate help with the LTA issue?

bigadaj

pvt wrote: »

Curious about this but - why does drawdown at a higher initial rate help with the LTA issue?

I believe because it is measured at age 75 as well.

Have you looked at annuity rates for your circumstances, I'm not suggesting that you would accept them but might be useful to determine what the real risk free rate on the potential lump sum might be.

So the db pension is effectively a drawdown rate of 4.5% but with total loss of capital, is your intent to leave this as inheritance?

Assuming no return then drawing down at the rate of the db value gives you over 22 years, so again depends on your age, life expectancy, that of your wife and whether you have a great need to spend lump sums.

Even taking your conservative rate of return and an actual withdrawal rate as defined by the db scheme it's likely that there will still be a very large six figure sum left by the time you peg it.

kidmugsy

How good is the inflation-protection on the DB pension?

pvt

kidmugsy wrote: »

How good is the inflation-protection on the DB pension?

Good question. Other than minimal regulatory guarantees for the later accrued years, it is discretionary. However, in recent years the company has funded discretionary increases, but there is no guarantee they'll continue.

kidmugsy

pvt wrote: »

Think I'll be awfully lucky if I live another 23 years.

Why?

(I hate this software (American?) insisting on wordy replies.)

mgdavid

pvt wrote: »

.....
Think I'll be awfully lucky if I live another 23 years.
........

suggests health issues?
what provision are you making for care home fees / medical costs?

PS - what's your age now?

pvt

mgdavid wrote: »

suggests health issues?
what provision are you making for care home fees / medical costs?

PS - what's your age now?

Not particularly unhealthy. My pessimistic comment was a little tongue in cheek and based on life expectancy figures that suggest about a 50% chance of my surviving to age 83.

I'm 60 now.