(Another!) High CETV - worth considering?

lovinituk

Just reading another thread but thought I would start my own instead of clogging up the other.

Looking recently at my DB pension it is currently offering of CETV of £504000. The current projected pension at NPA (60) is £14500 (I am currently 43).

That's a multiplier of just short of 35x which i gather from other posts is pretty good.

I understand I need to consider other benefits of the DB as well as the guaranteed annual pension, but is this worth looking in to further considering the relatively high CETV?

lexington013

Hi, I asked a similar question recently. My CETV was £ 445,000.
I'm currently 50 years of age and looking to retire at 55.
My DB pension kicks in at 65 with an annual pension of £26,000.
My multiplier is lower than yours.
I'm uncertain what to do, but am erring on the side of using a personal DC pension and savings to retire at 55 and take the DB annual pension at 63 with some % reduction for taking it 2 years earlier.
Still got a number of years to review it.
I'm sure others will give you there wisdom.
My partner has been given a CETV of £570,000. Her multiplier was similar to yours. She has consulted an IFA and ISPs planning on taking the transfer and moving it into a SIPP.

gibbo888

@ lovinituk

You sound in a similar position to me.
23k at 60
£750000 transfer
i have spoke to IFA today, and he is going to work out if its a good idea, when he has crunched his numbers, one thing he did say, which has been mentioned on my similar post last week was that actually the multiplier is a lot higher than you think, as (in my case) at age 45 the value in todays money is 16k, so a 47x multiplier.
just something else for you to consider.

marco_79

@ lovinituk


I'm also in the same boat as you.
My CETV is £770,000 and I'm 37. x 37 multiplier
MY DB kicks in at 60 and stands at £21k pa index linked now.
We are about to be transferred to a new company and the DB scheme will stop. The new company will have a DC.
My wife also has a pre-kids deferred DB with a CETV of £120,000 predicted to be £6k pa at retirement with the index link factored in. Currently £3.5kpa.


I think the risks are just too high to transfer out but worried its a decision I will regret in the future. I believe there some pretty big bubbles out there just now in the equity markets.


We want to retire at 60 with a combined income of £40k. With the wife and I both on DCs we have 23 years to make up £13k per annum between us.

jamesd

£21k is just 2.7% of £770k. Modern safe withdrawal rules give something in the 5-6% range while the UK stock market dividends alone are above 2.7% so you could match it with those without even touching the capital. Except you're far too young to take that income yet, being only 37.

While prices in some markets are quite high you don't have to use them. Plenty of other choices.

Your biggest problem would probably be the lifetime allowance since that's only a million Pounds, soon to be inflation linked. Given age 55 to take benefits you'd get there with growth of only 1.4% plus inflation. That means about a quarter in shares. Which means that even a 40% share drop would be only a 10% total drop.

Even using the somewhat outdated 4% rule that'd be around £40,000 a year from 55 before allowing for the state pension and spouse. With those and more modern rules something like £60,000 a year from 55 is more likely. Though since you only pay the lifetime allowance charge on money you take benefits from you could more sensibly put more than a quarter in shares now and build up a very big safety margin inside the pension, knowing that if things go badly you wouldn't pay the LTA charge due to the lower value.

Given the values some people might sensibly say that your real problem might be how to retire on £40,000 a year at 37.

You might usefully consider whether you want that and what income level you want to have until age 55 arrives.

Wondering about regrets is wise. You have a dramatically life changing offer available but fear might cause you to decide to work for 23 more years.

jamesd

So, I plugged some numbers into cfiresim.

Retirement year 2017, end 2077 (aged 97).
Investigate max initial spending, success rate 100%.
Portfolio value 770000
Fees 0.68
Spending plan Guyton-Klinger, floor defined value 30000
Pension SP1 8000 a year starting 2050 (state pension from age 70)
Pension SP2 same, for spouse
Add pension DB 6000 from 2045 assuming age 65 to take it.
Run simulation. Initial income 19,190.

95% success rate, 34,436.

99% 19,196. Median beginning third 28k, middle third 31k, final third 53k. That's saying you have plenty of income from the pensions towards the end but not enough now to have a 99% success rate because of risk in the earlier years. The earliest failure was 1962 from a 1906 start.

Around the same failure time with the 95% success rate.

So not enough assets yet to do it at 37 but we already know that given the assets I've used because none of them is available until age 55.

But do you really have other assets you might want to use?

I've used 75% equities for this because it's better than 25% for sixty year planning horizons and because I'm trying to illustrate just how much income potential there is and how early, to encourage you to explore for yourself. Sixty years is also a pretty long planning horizon that limits the number of historic return sequences available to use.

Of course many people would be startled at the idea of a 37 year old planning for sixty years of retirement, something like three times as long in retirement as working. While planning for it can be interesting you might not really want to retire so young even if you could. But reduced work or different work might be interesting at some point.

lovinituk

gibbo888 wrote: »

one thing he did say, which has been mentioned on my similar post last week was that actually the multiplier is a lot higher than you think, as (in my case) at age 45 the value in todays money is 16k, so a 47x multiplier.
just something else for you to consider.

Thanks. I've just looked at the multiplier based on the value in today's money and it is nearly 48x.

lovinituk

jamesd wrote: »

£21k is just 2.7% of £770k. Modern safe withdrawal rules give something in the 5-6% range while the UK stock market dividends alone are above 2.7% so you could match it with those without even touching the capital.

My figures from my OP give a similar % (£14500/£504000). I'm 43 now and plan to work until 55 or 60.

From the sounds of it, it really is worth considering this decent CETV.

I'm wondering though if I'm missing anything obvious? It wasn't that long ago the advice on here was never to transfer out from a DB. Are these high transfer values because of higher pension fund deficits and they just want people off their books?

marco_79

@jamesd

I think I may have misled you. I have no intention of retiring at 37. I was thinking we would need to work to work till 60 to get the new DC up the £13k + we need to reach the target. The £40k pa target we are hoping for is relative to todays value, not inflation adjusted in 23yrs. My DB will remain index linked up to 5% till retirement even though I will be a deferred member and pay my wife 50% should anything happen to me.

Our mortgage has 12 years to run so at 49yrs old will be another £250k asset. Our cash pot isn't great.

Sorry but I'm pretty new to all this and only started getting interested due to the company transfer and then end of the DB.

Ideally we retire at 55 but this would mean transferring out and some point. I guess the other worry is the CETV multiplier could fall.

@lovinituk

I think you are right that DB schemes just won't people off the books.