Pension/investment advice

atush

As far as I can see, taking a full lump sum would mainly be a benefit if A- the reduced pension is enough to live on well. And your OH isnt well provided for with pensions/savings of their own.

If they dont, taking a full LS takes some money out of the DB pension which can be left to th remaining spouse. To perhaps make up for their survivors pension being smaller.

Otherwise, decent commutation or not, i'd take the money that you need and leave the ret in the pension as above.

Thrugelmir

bluenose1 wrote: »

Seriously Bostonerimus the rent we receive is approx £550 per month per property and the interest only mortgage is approx £150 per month per property with a fixed rate for 3 years. So interest rates would have to go up a lot for us to be significantly affected. Our intention is to keep them until we are 65 then consider selling. They sell quickly in the area we have bought so even if we just recoup what we have originally paid we should have a good return on our investment.

There's an old saying. "Don't count your chickens until they hatch".

When it comes to investing. The only certainty is uncertainty. Hence the broad advice to diversify ones portfolio across a spectrum of investments.

bluenose1

Thrugelmir wrote: »

There's an old saying. "Don't count your chickens until they hatch".

When it comes to investing. The only certainty is uncertainty. Hence the broad advice to diversify ones portfolio across a spectrum of investments.

I take your point and agree we should have put more thought into additional annual police pension and investment in multi asset funds
(as per previous comments.) when my husband was retiring I had not given any thought to what we should do financially. I left it all to him and the advice he had from others and the police retirement course. He retired at 49 so his pension is frozen and not subject to any of the annual increases until age 55, which would have been a consideration on deciding his commutation.

Though my oh is adamant he wouldn't have done it any differently, saying that he is the one who originally wanted to keep it in Premium Bonds.

We don't just have the house income though, between us we will have £30k per annum in DB schemes and the house income actually allows me to pay £15k per annum from my salary into a DC scheme as I am hoping to retire myself age 55-57 and drawdown until my DB Pensions start.
I suppose only the benefit of time will show if we made the right decisions or not.

kidmugsy

bluenose1 wrote: »

I suppose only the benefit of time will show if we made the right decisions or not.

That tends to be the way of it - though the occasional post on here screams of entirely predictable lousy decisions.

triplea35

Trinity Phil, just an afterthought and going way off topic, but as your wife earns £9000 have you claimed Marriage Allowance. She can transfer £1190 of her personal allowance to you so will reduce your tax by £238 this year, and in the future whilst receiving pension. You also back date the claim from April 2015 so will also get it from the three previous tax years as a lump sum. HTH.
https://www.gov.uk/apply-marriage-allowance

bostonerimus

bluenose1 wrote: »

I take your point and agree we should have put more thought into additional annual police pension and investment in multi asset funds
(as per previous comments.) when my husband was retiring I had not given any thought to what we should do financially. I left it all to him and the advice he had from others and the police retirement course. He retired at 49 so his pension is frozen and not subject to any of the annual increases until age 55, which would have been a consideration on deciding his commutation.

Being a landlord can be a great diversifier, but it's work and concentrating on it too much can put you at the whim of the housing market and interest rates. I have a single rental property that I bought after I had good foundation of DC pensions and other investments. It's now paid off; the rent is $1600/month so $19.2k/year and I usually have expenses of about $5k/year which is mostly real estate taxes and maintenance. So it's not much work, provides income and stored capital gains, and I have other things to fall back on if it goes "pear shaped". The flat is worth $290k now so the net income is about 6.5% of that which is pretty good, but obviously I don't have to bother with a mortgage payment.

We don't just have the house income though, between us we will have £30k per annum in DB schemes and the house income actually allows me to pay £15k per annum from my salary into a DC scheme as I am hoping to retire myself age 55-57 and drawdown until my DB Pensions start.
I suppose only the benefit of time will show if we made the right decisions or not.

I'm actually doing an experiment where I took a CETV of $35k from a small DB plan I had and just put it in a 60/40 multi asset fund to see if I could match the DB pension. I calculated that I would need a 6% annual return from age 53 to age 83 to match the DB pension plan....I only did this because the pension was small and I have another larger DB pension as well. I'm 4 years into the plan and so far the average annual return id 7.4%.....so I'm ahead, for what it's worth, there's a long time to go.

Trinity_Phil

triplea35 wrote: »

Trinity Phil, just an afterthought and going way off topic, but as your wife earns £9000 have you claimed Marriage Allowance. She can transfer £1190 of her personal allowance to you so will reduce your tax by £238 this year, and in the future whilst receiving pension. You also back date the claim from April 2015 so will also get it from the three previous tax years as a lump sum. HTH.
Yes we have...been getting Martin's weekly emails for a few years now and took his advice a couple of years ago and did this :beer:

Trinity_Phil

I have now got my pensions estimate through and they are only listing 3 options...

1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with pre-taxed lump sum payout of £136,010
3) Annual Pension of £19,714 and tax free lump sum of £131,432.

Can I not ask for a different option, as previously discussed, of approximately £65k lump sum, or are they likely to be my only options ??

Deneb

Trinity_Phil wrote: »

I have now got my pensions estimate through and they are only listing 3 options...

1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with pre-taxed lump sum payout of £136,010
3) Annual Pension of £19,714 and tax free lump sum of £131,432.

Can I not ask for a different option, as previously discussed, of approximately £65k lump sum, or are they likely to be my only options ??

Assuming (as appears from your figures) you are a member of the PPS 1987 with transitional protection.

The estimate just gives you three figures based on:

1) Taking the full annual pension with no lump sum
2) Commuting the maximum available to you under the pension scheme rules, which due to the commutation rates will cause you to breach HMRC limits, meaning that some of your lump sum will be subject to tax, and the amount quoted is what you would receive after taxation.
3) Commuting to the maximum lump sum that you can take without falling into the HMRC breach, by staying within 25% of the notional total value of your pension.

The published scheme commutation tables state:

The tables provide figures for each £100 of pension [commuted] only as a convenient unit. You do not have to commute exact units of £100. Fractions of £100 are calculated proportionately.

Prior to receiving my pension, I had to complete a local administrative form to claim my pension, along with my notice of intention to retire.

The form gave me these options:

1) Do you wish to commute part of your pension: Yes/No
If yes:
2) Percentage of pension to commute (maximum 25%)
or
3) Amount to be commuted (lump sum to be received in pounds, up to maximum 25% of pension)
or
4) I wish to commute the maximum available whilst avoiding the HMRC breach.


So I could specify a proportion to commute between 0% and 25%, or any amount of lump sum that I wished to receive between £0 and the maximum stated in your estimate.

I'm sure your federation office and/or local pensions administrator should be able to advise you further.

MK62

Trinity_Phil wrote: »

I have now got my pensions estimate through and they are only listing 3 options...

1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with pre-taxed lump sum payout of £136,010
3) Annual Pension of £19,714 and tax free lump sum of £131,432.

Can I not ask for a different option, as previously discussed, of approximately £65k lump sum, or are they likely to be my only options ??

Depends on your scheme....no harm in asking though.


As to the current options, I wouldn't bother with option 2 unless you really need the extra £4.5k over and above option 3 - it's an expensive way to get that £4.5k though.



So the choice would come down to option 1 vs option 3.
After you account for the unavoidable extra income tax on option 1, the commutation rate on option 3 is about 27:1, which is pretty good tbh.
Basically it comes down to £131432 in a tax free lump sum versus an extra £4884 (after tax) in index linked extra annual pension.


There is simply no way to know today which option would end up being the best over the next, say, 30 years.
The extra pension comes with certainty......you know it will match CPI whatever happens.
The lump sum, if invested, might match or better that extra pension, but it might also fail to match it....no way to know at this point. It would also mean better provision for your wife in the event of your untimely demise, though at 53 you will hopefully have many years left yet.