Final Salary scheme massive transfer value has turned my head!

jamesd

BobQ wrote: »

If he follows the advice and moves £580K into a SIPP or whatever. He will either need to manage these financial investments for himself (does he feel capable of doing this?) or pay an IFA to manage it for him. Clearly you cannot judge the former but how much might he pay an IFA to manage a pot of that size and what drawdown costs might he incur to take an income of about £16-£18K a year?

IFA charges are variable and hourly basis rather than percentage would be sensible for this sort of thing. But some of the investment approaches used with drawdown strategies are very simple mixtures so maybe no ongoing support would be needed.

BobQ wrote: »

Given his condition, if his health deteriorates affecting his ability to deal with his affairs (say eyesight deteriorates) will he really want the hassle? Will the financial costs outweigh the additional pension he might get? After the onset of a more debilitating condition would he be in a good position to choose an annuity?

So much extra margin that the costs are unlikely to be significant unless he gets a really bad deal. Eyesight can deteriorate due to things like retinopathy but that's usually pretty well managed these days. Heart/circulatory disease, kidney failure and that sort of thing can be tougher to deal with. Then there's the ever (un)popular ED and other neuropathy side of things.

It's always worth evaluating the annuity situation if health deteriorates significantly, though the drawdown rate would also be adjusted to allow for the shorter planing horizon. When the annuity starts to look quite interesting it'd be an interesting buy to protect against unexpectedly long life. While I'm not keen on the value for money of annuities at normal retirement ages vs state pension deferral, that picture can change a lot if there is ill health or just getting older.

jamesd

MrBeans wrote: »

You have £16,100 RPI linked. That is not to be traded in lightly. If the pension scheme you're in is a secure one my instinct says stay with it.

That's one of the reasons why the transfer value is so high. The drawdown income numbers also include inflation adjustment every year. Or if using the Guyton and Klinger rules, a higher starting income level than the old 4% rule in exchange for being willing to reduce income if markets do happen to do badly, or increase more than inflation if they do well.

Worth remembering that the historic returns of the UK market over more than a hundred years have averaged at a bit over 5% plus inflation and he's only being offered 3%. That 3% is guaranteed but drawdown usually does way better than the worst cases used for sensible planning.

kidmugsy

Large numbers of people might be well suited by an option to transfer out part of the CETV, and leave the rest behind. I wonder whether DB schemes would get more takers for a transfer if they were able to offer that option.

Thrugelmir

jamesd wrote: »

which means about 5% below the long term UK stock market average - you'd be ahead of what the DB scheme is offering.

What's it been over the last 15 years though. 100 year averages mean very little in what is now a different world.

ischofie1

Why are you assuming he'd be 100% invested in UK markets?
How does it look if he took a global approach?

mgdavid

MrBeans wrote: »

........
Though if you're sure you have 10 years max, cashing in and spending £50K a year having fun could be an option.

with additional emphasis on the 'SURE'.
What happens if medical science improves over 10 years and you are given a further 10 or 15 years after that, what will you live on then if you've taken short-term options?

jerrysimon

kidmugsy wrote: »

(i) Are you saying that a reduction of £4k p.a. in pension buys you an extra lump sum of £46k? No wonder you're not tempted.


(ii) Have you both got estimates of your eventual State Retirement Pensions?

Thanks for the reply. Indeed its rubbish around £12 for every £ of pension I think

Yes my state pension is payable at 66.5 years but opted out so around £6k my wife's is at 67 but is higher around 7k. We will be pretty well off if we live another ten years and get to claim it.

kidmugsy

jerrysimon wrote: »

my state pension is payable at 66.5 years but opted out so around £6k my wife's is at 67 but is higher around 7k. We will be pretty well off if we live another ten years and get to claim it.

Bridging the gap until your State Pensions begins: if you wanted to be frugal after a transfer, you could, say, draw £11k p.a. income tax-free, and use up about £12k p.a. of tax-free lump sum, and that way you'd be getting £23k annually tax-free. But you'd presumably want to enjoy your capital a bit more than that.

Mr.Generous

Really interesting thread, I have a final salary pension pot I paid into for 28 years, paid AVC's from my 20's until made redundant at 48. I didn't realise you could take the cash out and make your own provision. If I wanted the cash to buy houses to let out for a pension income I take it I'd be taxed to death? Rental yields of 8% the norm round the north west.

jerrysimon

kidmugsy wrote: »

Bridging the gap until your State Pensions begins: if you wanted to be frugal after a transfer, you could, say, draw £11k p.a. income tax-free, and use up about £12k p.a. of tax-free lump sum, and that way you'd be getting £23k annually tax-free. But you'd presumably want to enjoy your capital a bit more than that.

Don't quite understand that ? Unless you mean if I transfer my pension out into a SIP.

I will get 17k per year and pay tax on 6k of that. My wife will get 2k with no tax and we will have about 56k lump sum tax free. Both pensions are DB final salary based but reduced for taking them early if left where they are until we were both 60 would br 20k and 3k. So the lump sum could be used to bridge the 10 plus year gap though we could use that for house maintenance holidays etc. Then the 13k state pension kicks in but taxed of course