Retirement benefits statement? whats best??

xylophone

Yes, i did, but im sorted on the GMP, i understand that part now, this is s separate question about the three options i have in front of me.
It may seem simple to you, but i thought that was what this forum was for? help for the 98% of us who don't find this simple?

Your initial query was about the GMP as it applied to a buy out of one part of your pension and to your DB CARE pension.

It is not easy to understand the ramifications of GMP ( and yours is complex) and I (and hyubh) did our best to explain what appeared to be your situation in this respect.

You then set out the options available to you and asked for comments as you were having difficulty in understanding how to choose the best option for your circumstances.

My post 15 said

If you are completely at sea, you might benefit from taking qualified, independent financial advice.

https://directory.moneyadviceservice.org.uk/en

You will pay a fee ( ring round several to establish) but it would assist you to understand your options and choose the most appropriate option for your circumstances.

If you are giving up paid work, you may wish to consider voluntary NI so as to bring your state pension up to NSP.

Given your current situation, it still seems to me that personalised, independent financial advice might well be advisable - apart from anything else you may need to consider the way your pension revalues in payment up to age 65 and post age 65, considering that you have pre and post 88 GMP.

And should you wish to transfer your DB pension/buyout pension with safeguarded benefits to a DC arrangement, (post 7 above) then it will be compulsory to take advice from an Independent Financial Adviser who is a pension Transfer Specialist.

Linton

paul_hannah wrote: »

........

Option 1 Combined tax free lump sum of £83k
includes pension savings of £41k
Plus an annual reduced pension of £12k

Option 2 Defined benefit tax free lump sum of £72k
Plus a reduced annual pension of £10k
Plus Pension savings of £41k

Option 3 Full defined benefit pension of £14k
Plus pension savings of £41k

I think I have unravelled it!

Lets look at Option 2 first:
For these purposes we can take the total DB to be worth 4 X £72K=£288K. Option 2 gives you the £72K tax free, the remaining £216K is used to pay for a £10K pension. The AVC is unaffected.

Now Option 3 makes sense:
The £288K is used in its entirety to pay for a DB pension of £14K which is a bit more generous than Option 2. The AVC is unaffecteed.

Option 1 is the most complex:
The AVC is used to pay for part of the DBs TFLS. This is usually beneficial.
So the total fund is £288K+£41K =£329K. 25% =£82K is taken as a TFLS. OK the numbers are slightly out but still very close. Perhaps because we dont know the exact pension values. The remaining £246K is used to buy a £12K pension which is much the same factor as the other options. So you lose the AVC.

Now which to choose. The ratio of calculated DB pension pot to pension paid is always around 21. This is rather low ( or rather generous to someone taking a pension). The figure suggests that in pure financial terms you would be better off taking the maximum pension rather than the lump sum.

However there are other factors, firstly tax and secondly as Kidmugsy points out the spouse pension and the option of transferring out the whole pension. I dont think there is much chance of them giving you a special deal based on your circumstances. The Transfer Value may be very different to the calculated pension value given above. It may be worth your while asking for a Transfer Value in case that is rather more generous.

Finally as said before you may well have other factors such as a need for cash now.

paul_hannah

Linton wrote: »

I think I have unravelled it!

Thanks!
I think I finally understand the three options!
You have explained them very well- thank you!
I've a friend on the pension board, I've asked him to raise the single life policy option on my behalf, as its a saving to the pension fund, and a legitimate point. After all, to have a spouses pension does reduce your annuity on any of the online calculators.
Thanks again

hennerz

Linton wrote: »

Now which to choose. The ratio of calculated DB pension pot to pension paid is always around 21. This is rather low ( or rather generous to someone taking a pension). The figure suggests that in pure financial terms you would be better off taking the maximum pension rather than the lump sum.

I've been using the transfer value as the value of the pension pot to produce this ratio, is that wrong? In the press we hear of CETV ratios of 30+ being good, but how do you make the judgement 'in pure financial terms' please?

Suffolk_lass

Don't be too disappointed if your pension provider will not refund contributions in respect of spousal benefits - they may well argue that you have had that benefit throughout your working life - with your wife benefitting from knowing your pension was there for her, throughout that time so you have potentially saved on not making separate costly provision for her.

In my DB scheme they will refund that part of the contribution after someone is divorced or widowed (if they do not remarry), at retirement date, but only from the date of the decree absolute or death.

Joey_Soap

My sympathies to the OP, however, in that boat I would take the maximum DB pension available as it is immediate and guaranteed income that is required. There are significant state benefits available to the person who is ill and their carer too. Make sure you get all you are entitled to.

Then, in the future, if/when you work again (as seems likely) your expenditure may well be quite a bit lower than you estimate so this will help you to build the pot of money you may otherwise feel you are missing by taking the maximum pension.

Hope that helps.

Linton

hennerz wrote: »

I've been using the transfer value as the value of the pension pot to produce this ratio, is that wrong? In the press we hear of CETV ratios of 30+ being good, but how do you make the judgement 'in pure financial terms' please?

If you are considering moving your DB pension as a lump sum to a SIPP, then CETV is what you need to consider. In the OPs case the concern was how much DB tax free lump sum to take. Here the CETV is irrelevent because we arent looking at a transfer. What is important is how much pension you are losing for what cash gain. In this case the ratio was less than 20.

A few years ago you would judge whether a ratio is good or bad by calculating how much money you would need to buy an equivalent annuity. On that basis as inflation linked annuities are around 3% (ie a ratio of 30-35) the lump sum provided by the OPs scheme was poor value.

These days you need to consider drawdown as an alternative. You can get some idea of what's involved by looking at cfiresim. These results tend to show that if you want to take a safe steady inflation matching income from a sensible portfolio of equity investments 3.5% of initial pot size is a reasonable figure, giving a ratio of a bit less than 30. If you are prepared to vary your drawdown in line with the market conditions, especially during a crash, you can perhaps go for 5-6%. But this would require more careful management. In my view it's something only someone confident with investing and managing large sums of money should take on.

The "pure financial terms" means that there may be some good reasons for taking a lump sum that arent included in this somewhat rough and ready analysis.

paul_hannah

Suffolk_lass wrote: »

Don't be too disappointed if your pension provider will not refund contributions in respect of spousal benefits - they may well argue that you have had that benefit throughout your working life - with your wife benefitting from knowing your pension was there for her, throughout that time so you have potentially saved on not making separate costly provision for her.

In my DB scheme they will refund that part of the contribution after someone is divorced or widowed (if they do not remarry), at retirement date, but only from the date of the decree absolute or death.

JTL dont give enhanced annuity for single life nor existing illness, i really think they should move with the times.