Some ideas please

MoneyWorry

Not really looking for advice, but some general ideas re retirement planning, I am 58 later this year, employed, earn £20k a year and am auto enrolled. My pensions so far are

1) Standard Life Personal Pension invested 80% with profits and 20% a selection of other funds. Has a retirement date of 60 years. Current value is £134800 plus potential £43000 final bonus. I currently pay £60 a month into this. There is no GAR, but there is a guarantee that a minimum payment will be made as long as I purchase an annuity. Standard Life would pay me a level annuity of £620 per month if I retiired today.

2) Small occupational final salary pension of £2600 per annum from age 65

3) I currently pay into an auto enrolled pension of 3% with an employer match. Have not been there very long so total fund is only worth £1500.

4) My state pension forecast is showing £145.85 per week as at March 2017 so I do not have to work many more years to qualify for a full state pension.

5) I have about £5k Isa savings earmarked for retirement.

I'm not very sure how to make best use of the funds. I definitely don't want to work full time till my SPA of 66 and 8 months yet I want to get the most I can as a monthly income.
My first thought was to take an annuity at 60, no lump sum, with a 1% uplift each year instead of RPI and either reduce hours or look for something part time, but not sure that is the best use of the fund. I have become probably over cautious having suffered a couple of sudden redundancies.

Will take on board any suggestions. Apologies in advance as I know the sums to play with are not that large

kidmugsy

MoneyWorry wrote: »

My first thought was to take an annuity at 60, no lump sum, with a 1% uplift each year instead of RPI

Noooooo. With a DC pension you really mustn't annuitise what would otherwise be the tax-free lump sum unless you have a GAR that is extraordinarily attractive. The compelling reason is that it is tax-free and can be kept tax-free by bunging it into ISAs.

1% uplift per annum: people differ but that would leave me permanently worried about inflation. Inflation is how governments renege on their debts: it occurs as a result of policy, not as a result of the whims of the Gods. So between now and the end of your life it is very likely that there will be a government that opts for inflation.

In general: sixty is an awfully young age at which to buy an annuity, and the present is an awfully unattractive time to buy a level annuity or one that incorporates a low escalation rate. Or so it seems to me. Could you face the prospect of using drawdown until you are, say, seventy-five or eighty, and buying an annuity then?

Last thought: what if you crystallised or transferred the pension now - would you still get all or most of the terminal bonus?

kidmugsy

Here's a thought. Some companies - the Pru was an example - used to sell "with profits" annuities. Do SL?

MoneyWorry

Thank you. Yes, I might not be adverse to drawing down initially. I originally always thought of drawdown as being more suitable for those who were not worried about the pot eventually running out.

xylophone

You could book an appointment with Pensionwise if you are unsure of the options with your DC pensions.

https://www.pensionwise.gov.uk/en

You could see an IFA.

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

It seems that you plan to have sufficient contributions for full NSP (whether by contribution or voluntary contribution) and this will be inflation protected in some shape or form - currently the "triple lock" is in place.

https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7812

You expect a DB pension when you are 65 - is part/all of it inflation protected?

Have you worked out your income requirement in retirement?

MoneyWorry

My small DB pension will be protected by RPI. I plan to work until I am eligible for the full state pension. I had considered seeing an IFA, but am I right in thinking the fees would be around 3% of my total personal pension fund. I do appreciate they could potentially save me more than that over the rest of my lifetime.

xylophone

https://www.moneyadviceservice.org.uk/en/articles/guide-to-financial-adviser-fees

You would need to do some research.

There is some reading here re drawdown

https://www.youinvest.co.uk/articles/sharesmagazine/79185/dummy%E2%80%99s-guide-income-drawdown

https://www.hl.co.uk/partners/search/drawdown-guide?theSource=PCHLD&Override=0&adg=G+HLBD+HLD&gclid=EAIaIQobChMI_JqE17vR2gIVbL7tCh2o3QfNEAAYASAAEgK-S_D_BwE

MoneyWorry

Thank you for your replies so far. I now have thought of a outline with I think makes more efficient use of the funds.


Year 1 @ 60 - reduce hours or part time. Fill gap with savings
Year 2 @61 - take part TFLS. Replenish savings. Fill gap between full time and part time. Invest any residue.
Year 3 @62 - enter drawdown. Maybe further reduce hours.
Year 4 @63 - potentially go for retirement if funds allow
Year 6 @65 - access DB and any other occupational pensions
Year 7 @66 and 8 months. Receive SP and convert remaining pension fund into an annuity.


Would someone be able to critique this for me?

kidmugsy

It might be worth checking the Actuarial Reduction for drawing your DB pension early. Often the reduction is big enough to put people off but not always.

Malthusian

MoneyWorry wrote: »

My small DB pension will be protected by RPI. I plan to work until I am eligible for the full state pension. I had considered seeing an IFA, but am I right in thinking the fees would be around 3% of my total personal pension fund.

Fees depend on the IFA and what you negotiate with them. For a fund of £180k-odd it may be in that ballpark, but it would pay to shop around.

I do appreciate they could potentially save me more than that over the rest of my lifetime.

Correct.

There is nothing an IFA can tell you that you couldn't find out for yourself with enough research, but you said you want to retire, not study for a new career as a financial adviser with one client.

How much income would you need to live on?

1) Standard Life Personal Pension invested 80% with profits and 20% a selection of other funds. Has a retirement date of 60 years. Current value is £134800 plus potential £43000 final bonus. I currently pay £60 a month into this. There is no GAR, but there is a guarantee that a minimum payment will be made as long as I purchase an annuity. Standard Life would pay me a level annuity of £620 per month if I retiired today.

When you say "minimum payment" do you mean you are guaranteed a minimum level of annuity, or does this payment go into the fund value?

If the £620 per month is the "minimum payment", that's not much of a guarantee. That represents a rate of 4.2% for a level annuity based on the current fund value. A person aged 60 can get a standard level annuity paying 4.8%.

We need more detail about what the guarantee is.

kidmugsy wrote: »

Here's a thought. Some companies - the Pru was an example - used to sell "with profits" annuities. Do SL?

It hardly matters as the OP can transfer their pension to whichever annuity provider they like. If there's a "guarantee" relating to a level annuity, it wouldn't apply if they bought a With Profits annuity.

With Profits annuities start at a lower level than a conventional annuity and then you have to cross your fingers and hope the insurer pays bonuses.

Like most With Profits policies they require a deeply weird risk profile where you want the guarantees that an annuity brings but are happy for your income to go down, with no control, if the insurer's With Profits fund doesn't perform as expected. Unlike most people whose policy is dependent on investment performance, you have no power to transfer to a different fund manager if they underperform. As it's an annuity you're stuck with your chosen insurer for life.

So on the one hand you are saying you want guaranteed income for life and don't want to be dependent on the performance of the stockmarket, but on the other hand you're willing to forfeit some starting income and gamble your prospects of future increases on the future stockmarket performance of a single insurer's With Profits fund.

IMO they are an exam question, not something you would actually go and buy.

MoneyWorry

From Standard Life
Your plan guarantees a minimum payment from your with profits investment as long as you buy an annuity either from us or on open market. We aim to increase the amount that's guaranteed. Each year we set the growth rate for unit prices and in Feb 2017, it was 0.5%. We can also include a final bonus. The guarantee will also extend to the with profits part of future regular payments. If the guarantee terms are not complied with, we could reduce the with profits unit price. We would do this if your with profits investment was worth less than the guaranteed minimum amount. The amount of final bonus could be less than if the gurantee terms apply.

Does this help?