I transferred my £570,000 final salary pension – and regret it'

bostonerimus

I have worked very hard and I don!!!8217;t want to see my pension flatlining or even shrinking. Apart from the Sipp, my wife and I only have a couple of other small pensions. With expert advice my plan now is to get my pension pot back on course over the next 12 years before retirement.

I'm not sure of the analytical skills of this engineer, some of his estimates seem way off

Reckoned he needed his SIPP to grow to £1.2m over 15 years to match the £28K above.

and I'd love to know how his SIPP has been invested for the last 3 years to see such poor growth. If he doesn't want to see his pension shrinking then he should have stayed with the DB plan. The apparent inability to deal with risk, probability and statistical variation makes me hope that I never have to use anything that he's designed or built.

dunstonh

- After those three years, his SIPP is now worth £570,000

3 years and only £10k growth? What on earth is he invested in!

Paul_Herring

dunstonh wrote: »

3 years and only £10k growth? What on earth is he invested in!

You appear to have missed the other £30,000 he put in; he's actually lost £20,000 over the three years.

Presuming, of course, the article is correct in this respect.

MK62

The transfer figures look to be in the ballpark IMHO (I can't read the full article - already used my freebie this week, so just using Paul_Herring's precis of it).....the real question here is as dunstonh put it "What on earth is he invested in"? Or possibly "What has he been doing"?

I suspect much of the real detail of what's actually happened here has been missed out, possibly in favour of the headline.

In the absence of any real detail, one can only assume a series of rather unfortunate investment decisions has been made over the last 3 years. That doesn't, of course, mean the the guy's original decision to transfer was a bad one, even if, with the benefit of hindsight over the last 3 years, he now regrets it.

However, if the point of the article is a cautionary tale of what can (though not necessarily will) happen, and is meant to make people think carefully about this if they are considering it, then I think that's probably fair enough.

TBC15

It would be interesting to know what the IFAs advice was on his transfer/ investments and if he followed it.

ukdw

bostonerimus wrote: »

For an engineer the guy in the article seems to be doing some weird maths...he thinks he'll need 1.2M to replace a pension of 28k/year stating at age 65, that's way off. Even if he just puts his 560k payment in a savings account and gets 2% it will grow to about 710k by the time he's 65 and then a 4% withdrawal gets him his 28k.

I agree that a 20x CETV multiplier is quite low.
Based on the last 3 years of exceptional FT100 growth I would also be disappointed if I had made a small loss - rather than a >25% gain. However I wouldn't yet be completely disappointed with the decision to transfer out.

If we assume that the £1.2m is an absolute figure, 15 years of 3% inflation and a Safe Withdrawal rate of 3.5%, then I can see where £1.2m pot would be required.
To get to £1.2m in 15 years you would need an absolute growth of about 5.4% PA, or real terms growth of about 2.4% which isn't that unreasonable.

Calculations
Years 15
Inflation 3%
Inflation multiplier 1.56 (1 + Inflation) ^ years
Pension year0 £28,000
Pension reqd in Year15 £43,623
Safe withdrawal rate 3.5%
Pot needed for SWR £1,246,374

Pot year0 £570,000
Annual growth (abs) 5.4%
Real growth 2.4%
Growth multiplier 2.2 (1 + growth) ^ years
Pot after 15 years growth £1,254,539

If I was in the engineers position I wouldn't be too upset - as I would still have most of my pot left.

I would however seriously consider moving my investments to something more likely to achieve >5% absolute growth over the next 12 years.
Whilst 5% wouldn't achieve the £1.2m required - I would console myself with the fact that I could use either a PCLS or UFPLS to make up for some of the lost years growth.

Also I would still be looking forward to the flexibility of being able to start accessing a bit of my pot in only 2 years time if I wanted to - rather than having to wait another 12 years.

goRt

Paul_Herring wrote: »

For those who have used their free "premium" article this week, or can't be bothered registering:

- 53 yr old male, married, "three young children"
- 3 years ago, left employer, was offered to swap a deferred £28,000pa (from 65) pension for £560,000 'today' (presuming that was 3 years ago.)
- he put the £560,000, plus another £30,000 from "another pension" (presumably a DC) into a SIPP.
- Home worth £800,000 with an interest free £300,000 mortgage on it
- Reckoned he needed his SIPP to grow to £1.2m over 15 years to match the £28K above.
- After those three years, his SIPP is now worth £570,000

£300k interest only mortgage - where's the plan for that, interest rates are only going to go one way and property prices are likely to go the other!

ukdw

goRt wrote: »

£300k interest only mortgage - where's the plan for that, interest rates are only going to go one way and property prices are likely to go the other!

The article says " interest-only mortgage debt of £300,000, the option of taking lump sums to reduce mortgage debt is appealing."

So I presume they were planning to use the 25% PCLS of £1.2m to pay off the mortgage - which may well have been the IFA's main justification for giving a positive recommendation.

PeacefulWaters

goRt wrote: »

£300k interest only mortgage - where's the plan for that, interest rates are only going to go one way and property prices are likely to go the other!

It's an interest free mortgage apparently. Get in!

kidmugsy

Pun wrote: »

Scaremongering. Compensation for misselling doesn't come from the taxpayer, so unless you are heavily invested in PI insurers, or companies which may have to pay redress, you don't need to worry your little head about it.

Only a fool would assume that no politician hungry for votes will decide to stick to precedents.