Coming out of final salary early

Flu_strength_Darren

Im on a downer with my work, no pay rise for 4 years and cant see me getting one for the next 4 either.
My pension as a result is not increasing by much at all, about £400 ( costing me € about 3500 a year in contributions) a year. Its worth £10000 a year at my last statement.i plan on stopping work at about 57 so have 7 years left. So i reckon will be worth approx £13000 by 57.
Transfer values at work have been coming in at 35x.
Pension only thing keeping me at current job, but with no payrises im looking at going, however unlikely ill be walking into another final salary.
New workplace pension is employee pays 6% employer pays 10%.
I am aware it cones with a risk, but i cant help but think id be better transfering the 350k or so and invezting it for 7 years and joining the other scheme which i will also be getting about 50k in 7 years.
Is this even possible?? I know my resentment with payrises is clouding my judgement but my pension increase next 7 years is depressing.
Single house paid, sipp with 60k
Another reason for looking at transfer if i snuff it its all gone, youngest gets about 3k a year.
Would be transfering at 57 anyway and if values reduced???
Any thoughts?

kidmugsy

Wife? Health? Estimated size of State Retirement Pension? Experience at managing your own investments?

Flu_strength_Darren wrote: »

Its worth £10000 a year at my last statement.

Meaning what? Does it mean that if you keep contributing to age XX then you'll get £10k (index-linked)?

Terms of index-linking? If relevant, terms of widow's pension?

Flu_strength_Darren

Divorced. Good health at moment.full state pension. Some knowledge of investment but if i did transfer would have prof help with investment.

£10000 a year is what ive accrued so far, last year was£9600.
People allready taking pension i know say get guaranteed 2.5% a year.

dunstonh

I am aware it cones with a risk, but i cant help but think id be better transfering the 350k or so and invezting it for 7 years and joining the other scheme which i will also be getting about 50k in 7 years.

The problem with inexperienced investors and large investment amounts is that minor movements in the markets can be very large monetary amounts.

Lets say a typical crash occurs of 25%. On £400k that is a loss of £80,000. How are you going to react to losing £80,000?

And be honest because I have seen plenty of people say they understand and it doesnt phase them but when the media start their scaremongering and go on about the worst since whenever or since records began and get silly people on the news saying silly things, the heart takes over from the head.

And 7 years is not a full economic cycle and given where we are now, you are likely to see the worst half the cycle and not the best half. What are you going to do after 7 years?

Brynsam

Why transfer it? If you are absolutely sure that another £400 a year is costing you £3,500 in contributions (?gross ?net), think about leaving active membership and letting the pension 'grow' in deferment while you invest the £3,500.

crv1963

Let logic have a chance! You pay £3500 pa into the scheme and then get £400 pa back when you take the pension, with if I have read correctly annual increases on said pension. You are thinking of swapping this guaranteed return for putting £3500 pa into a DC scheme with no guarantees?


Ok once you die the pension dies with you, I understand wanting to leave a large sum to heirs, but this is your pension, you have worked for. How would you feel if there is a large drop in the markets or the professional advisor fees ate into your "pot" during a slump?


How would your heirs feel if all your pot was gone, through slumps, drawing down too much income and you were left at the mercy of state pension and benefits? "I did I for you but it didn't work out" sounds a bit hollow!


Stick with the FS scheme, start a PP, SIPP or other savings if you want to build up a sum for heirs, with luck and reasonable health they may inherit your house, goods and any savings. I understand wanting to leave something for others, especially children but although they have different difficulties to our generation, mainly housing, they can't and probably don't expect to inherit vast sums of money.


Don't sacrifice your standard of living in retirement to improve theirs in working life. Our heirs know that we are going to live the best lifestyle we can with what we have and anything leftover when we're gone is shared equally between them.

Bravepants

So your £3500 gives £400 per annum back, guaranteed (and presumably index linked?).



Typical DIY investments in a 60%/40% equity/bond split could be drawndown at 3.5% to 4% per annum (called the Safe Withdrawal Rate determined historically and statistically) to provide income without running out of money (depends on sequence of return risk), assuming annual growth above 3.5% to 4% taking into account annual fees and charges on your funds, and inflation.

(Have a think a minute and note how complicated and uncertain everything I said in the above paragraph actually is!)

Now for your Final Salary pension you get £400 per annum back (index linked, thus increasing by inflation each year?). That's (400/3500)*100% = 11.4% return on your £3500 contribution, nearly 3 or 4 times the safe withdrawal rate of your DIY investment! Bargain! AND you don't have to worry about the stock market, you don't have to worry about inflation, you don't have to worry about fees and charges, you don't have to worry about the temptation to spend more than you need. Why have all the worry and stress when you should be enjoying retirement?

If you have a DB pension, hang on to the b*gger for dear life!

Dox

Bravepants wrote: »

If you have a DB pension, hang on to the b*gger for dear life!

Couldn't agree more - although the suggestion above (opting out of the final salary scheme without transferring out, and investing your £3,500 a year contributions elsewhere) might be worth thinking about, given that the pension will increase in deferment (the period between leaving active membership and drawing your benefits from it). You need to check your facts carefully before doing this: how does it revalue in deferment (likely to be CPI up to a given maximum % per year - you need to check what that maximum is), does it affect the amount of life cover you currently have and how about any survivors' benefits (e.g. if you remarry)?

Flu_strength_Darren

Irregardless of what to do with amount allready accrued; im paying 3500 for about 400 increase in final salary pension.
If i left the scheme, transfered or deffered, current workplace pension i can pay 3500 and get just under 8000 into it.
7 years is 56kish plus any investment increases or extra 2800 per year increase in final salary???

Flu_strength_Darren

I believe, its CPI maximum of 4% increase, no change to life insurance.
Only dependent benefit is 3k per year for 5 years to youngest child (divorced)

Linton

Flu_strength_Darren wrote: »

Irregardless of what to do with amount allready accrued; im paying 3500 for about 400 increase in final salary pension.
If i left the scheme, transfered or deffered, current workplace pension i can pay 3500 and get just under 8000 into it.
7 years is 56kish plus any investment increases or extra 2800 per year increase in final salary???

Payments into SIPPs have the same tax effect as payments into DB schemes. Is the £3500 you pay curently the gross amount or the resultant reduction in your take home pay?

I dont see how paying £3500 into a SIPP would get you £8K. Even if you were a higher rate tax payer £3500 net would get £5833 into your SIPP. Are you earning more than £100K/year?

How do you work out that £56K would safely get you more than £2800/year inflation linked? It seems a little ambitious.


Your numbers dont make sense to me.