Help & Advice with Pension / SIPP

neilvw

GazHol wrote: »

Yes to NI through employment.

Starting amount (up to 5th Apr 2016) is £124.34, another 8 years to get the full £155.65.

Of course, OH wants to know why 37 years contributions doesn't give the full £155...

Someone with 35+ years wholly under the new system where contracting-out doesn't exist would get the £155.65. Your OH was contracted out for most of their working life; during that time they paid lower NI and built up a private pension instead of part of the State Pension.

At 5 April 2016 their entitlement under the old and new systems was calculated:

Old-style: 30/30 x £119.30 + £5.04 SERPS/S2P/Grad = £124.34
New-style: 35/35 x £155.65 - COPE = less than £124.34 (most likely)

The higher of the two was £124.34 and they can build from there up to the maximum, as you say.

LoopySnooker

xylophone wrote: »

Another thought occurs - your wife reaches scheme pension age at 62 ( after female GMP age which is 60).

Will your wife find that when she draws her scheme pension, the pre 88 portion will not be index linked in payment, the post 88 only up to 3% CPI and just the excess by scheme rules?

Thanks. Out of interest, I requested a CETV online last night and it was approx £180k. Is there any way this would be a viable option to consider ?

xylophone

Thanks. Out of interest, I requested a CETV online last night and it was approx £180k. Is there any way this would be a viable option to consider ?

Do you mean that your wife would wish to consider a transfer out?

She would need specialist advice from an IFA with the necessary permissions (Pension Transfer Specialist).

There is some general information in this booklet which may be worth a read.

https://www.finalsalarytransfer.com/Uploads/1435150910Tideway-Guide-to-Final-Salary-Pension-Transfers.pdf

neilvw

Your wife's deferred DB pension will pay approx £4,300 pa from age 60 in 2018 (the GMP) and then this will increase to approx £6,900 at age 62 in 2020 if she doesn't take a lump sum then, or £5,200 if she takes the maximum lump sum of £35k.

The indexation in payment of the excess over GMP (£2,600 pa) is generous under her scheme rules but the indexation of the GMP itself is much less so and, as xylophone says, under the New State Pension regime your wife won't be getting any GMP indexation from the state via the now-abolished State Second Pension. And the pre-88 GMP, which will remain static, makes up nearly half of the total pension.

Assuming no tax-free lump sum
£3,100 pre-88 GMP - scheme will not index-link
£1,200 post-88 GMP - scheme will index-link with CPI capped at 3%
£2,600 excess - scheme will index-link with RPI in full up to 5%, and also cover the majority of the portion of any RPI increase above 5%

Doing some back-of-the-fag-packet sums, she would need a total pot of approx £240k to purchase annuities at 60 and 62 to match roughly the guaranteed benefits. As the linked report says, however, standard DB transfer analyses based on assuming investment growth and then buying annuities at scheme retirement age are rather perverse, as someone opting to transfer out of a DB scheme with a guaranteed income is unlikely to buy a guaranteed income with the transfer value (unless in some cases of serious ill health, perhaps).

So what an adviser would hopefully do is run an analysis of the drawdown income your wife might safely take in retirement and compare it with the DB income given up - and see if/when the pot would theoretically run out in a number of scenarios.

Your wife would be able to take a higher tax-free cash sum if she transferred (£45k v £35k), which is one other consideration.

Also look into the widow's pension available in the scheme - it will be 50% on the GMP but might be different for the excess.

LoopySnooker

Do you mean that your wife would wish to consider a transfer out?

It was just another thought/consideration. Based on the info above from neilvw, it would probably end up being a bad idea, as long as the DB pension scheme is secure enough for the next few years.

LoopySnooker

neilvw wrote: »

Your wife's deferred DB pension will pay approx £4,300 pa from age 60 in 2018 (the GMP) and then this will increase to approx £6,900 at age 62 in 2020 if she doesn't take a lump sum then, or £5,200 if she takes the maximum lump sum of £35k.

The indexation in payment of the excess over GMP (£2,600 pa) is generous under her scheme rules but the indexation of the GMP itself is much less so and, as xylophone says, under the New State Pension regime your wife won't be getting any GMP indexation from the state via the now-abolished State Second Pension. And the pre-88 GMP, which will remain static, makes up nearly half of the total pension.

Assuming no tax-free lump sum
£3,100 pre-88 GMP - scheme will not index-link
£1,200 post-88 GMP - scheme will index-link with CPI capped at 3%
£2,600 excess - scheme will index-link with RPI in full up to 5%, and also cover the majority of the portion of any RPI increase above 5%

Doing some back-of-the-fag-packet sums, she would need a total pot of approx £240k to purchase annuities at 60 and 62 to match roughly the guaranteed benefits. As the linked report says, however, standard DB transfer analyses based on assuming investment growth and then buying annuities at scheme retirement age are rather perverse, as someone opting to transfer out of a DB scheme with a guaranteed income is unlikely to buy a guaranteed income with the transfer value (unless in some cases of serious ill health, perhaps).

So what an adviser would hopefully do is run an analysis of the drawdown income your wife might safely take in retirement and compare it with the DB income given up - and see if/when the pot would theoretically run out in a number of scenarios.

Your wife would be able to take a higher tax-free cash sum if she transferred (£45k v £35k), which is one other consideration.

Also look into the widow's pension available in the scheme - it will be 50% on the GMP but might be different for the excess.

Many thanks for all the info, probably best if we leave the DB pension as it is.