Commutation Rates

kidmugsy

Audaxer wrote: »

I've read that but I'd still be concerned that they could claim that you had recycled it into your wife's pension.

That seems a very remote possibility to me. Especially as I have yet to read of a single case of anyone being penalised for violating the recycling rules on his own pensions.

Audaxer

Thrugelmir wrote: »

My personal concern with SWR's is the word safe. As with most things investment related. On a personal level. Expect the unexpected. Don't assume. There's not a given right to a positive return.

Income and capital rentention is a tall challenge. Even the original studies had a run down of capital. Over 30 years the capital would be severely dented by inflation in any event.

I'm cautious as well, but my DB pension commutation rate is 'only' 17.2 which I had thought was quite good until I read about others. I'm still taking at least part of the lump sum as I want it to spend rather than use existing savings or investments. The index linking on my DB pension is also limited to RPI but capped at 2.5% which isn't very good if inflation is more than that. The other concern about DB pensions is that they could go bust - although you will be covered by the Pension Protection Fund, I think if most contributions are before 1997, like mine, you would get no annual increases. Taking all these things into account, with a commutation factor of 26, I would say it is definitely worth seriously considering taking the tax free lump sum.

Thrugelmir

Audaxer wrote: »

The other concern about DB pensions is that they could go bust

In one regard. Given they will indirectly hold the same investments as you do outside the wrapper. Then long term detoriation in market performance will ripple far and wide.

nkb21

Thanks all for your comments and responses.

Until I got into reading these forums, I was (and still am to a large degree) rather naïve when it came to Pensions and Investments. I only had around one month from the point of being (surprisingly) given notice of redundancy, to actually leaving. I had to make my decision on pension options (as well as weighing up many other life decisions) during this time so it’s been comforting to know that the option I quite blindly took, wasn’t at all a bad.

Unfortunately, being pension naïve until recently, neither my wife nor I had made any provisions whatsoever for her pension. As she was from the “mums stay at home and bring up the children” school, she has only ever been a low earning self-employed worker. My pension and our SP’s when the time came, was all we anticipated retiring on. We have now (pre Apr this year) opened a SIPP for the wife and started to contribute the £2880 annually into it. We’ll continue this at least until she’s 60 (12 years away).

Thankfully, I also managed to max out my own allowable pension contributions for 2017-18, whilst I was still a HR tax payer (again something I learned I could do from these forums).

Reading these forums was one of the best decisions I’ve made since taking redundancy and I am eternally grateful for all the fantastic information and opinions, so many incredibly knowledgeable individuals in this community share.

AlanP_2

You can also open a SIPP for yourself and pay in the 2880/3600 amount each year.

You'll get 25% tax free so effectively a 6.25% return assuming you are a BR taxpayer.

repeat for both of you until 75.

nkb21

Yep, opened one pre Apr to max my contributions whilst still a HRTP.

Audaxer

nkb21 wrote: »

Thanks all for your comments and responses.

Until I got into reading these forums, I was (and still am to a large degree) rather naïve when it came to Pensions and Investments. I only had around one month from the point of being (surprisingly) given notice of redundancy, to actually leaving. I had to make my decision on pension options (as well as weighing up many other life decisions) during this time so it’s been comforting to know that the option I quite blindly took, wasn’t at all a bad.

Unfortunately, being pension naïve until recently, neither my wife nor I had made any provisions whatsoever for her pension. As she was from the “mums stay at home and bring up the children” school, she has only ever been a low earning self-employed worker. My pension and our SP’s when the time came, was all we anticipated retiring on. We have now (pre Apr this year) opened a SIPP for the wife and started to contribute the £2880 annually into it. We’ll continue this at least until she’s 60 (12 years away).

Thankfully, I also managed to max out my own allowable pension contributions for 2017-18, whilst I was still a HR tax payer (again something I learned I could do from these forums).

Reading these forums was one of the best decisions I’ve made since taking redundancy and I am eternally grateful for all the fantastic information and opinions, so many incredibly knowledgeable individuals in this community share.

I think you definitely made the right decision. That is an excellent DB pension you have, not only with the commutation rate, but the fact that you managed to get an unreduced pension at age 51. If I had taken my DB pension at 51, that would have been 9 years early and would have been subject to actuarial reduction of around 5% per year.