The Double Pension Effect

Paul_Herring

Nikond4 wrote: »

Not to mention that those in the nice gold plate public sector pension scenerios have had in excess of 12% to 15% plus paid into their "pots" by the employer ...............the tax payer

I'm sure those ellipses could, quite cromulently, be replaced by a single comma.

Thrugelmir

Nikond4 wrote: »

Which is why many take the pensions early as it doesnt pay them to keep working with some having more income from their pensions than if they worked. .

That's totally inaccurate. As not possible to achieve. Schemes have capped limits. Either 2/3 or possibly 75% for some.

Remember people that contribute to DB pension schemes now pay full rate employees NIC and increased levels of contributions. Coupled with the fact that 1% pay rises are squeezing the worth of the benefit.

Nasqueron

ratechaser wrote: »

I suppose the obvious thing to point out is that if you've got a partner well into the 40% tax band, whereas you are firmly in 20% territory, is she maximising her own pension contributions - if not then that £350 you're paying into a separate pension could be better off going into her pension - that's £87.50/month additional tax relief you'd gain.

Of course it then comes down to your own perspective on how financially independent you want to be as an individual rather than within your partnership...

Partner is in the 40% but as she's effective self employed (a partner) and so has to maximise her own pensions as well as having 2 or 3 of her own (including one of those where you have to pay for advice to close it!)and to be honest, probably better I keep it separate for the moment. I could do with the updated pension statement this year to see what sort of prediction they're coming up with for a pot and then make some decisions but thank you for your advice

rosy

fred246 wrote: »

When I wrote this thread I was imagining a teacher or a nurse asking for pension forecasts for retirement at say age 60. Occupational pension £16k. State pension from 66 is £8k a year. Forget it I can't live on £16k a year. I can live on £24k a year though. Savings of 6 X 8 =£48k would make it possible. Is there nobody in that sort of position?

I completely see the sense in using savings this way. My worry would be if the state pension goalposts changed in those 6 years when relying on it to provide a third of your income after that. I'm being very over cautious as SP criteria / value probably unlikely to be significantly altered over that time frame. If you are very risk averse you'd maybe spend the first six years feeling a bit anxious about it though...

Happier_Me

fred246 wrote: »

When I wrote this thread I was imagining a teacher or a nurse asking for pension forecasts for retirement at say age 60. Occupational pension £16k. State pension from 66 is £8k a year. Forget it I can't live on £16k a year. I can live on £24k a year though. Savings of 6 X 8 =£48k would make it possible. Is there nobody in that sort of position?

I'm sort of in this situation but it's complicated by a husband that is reliant on DC pension savings only and the desire to retire at around 55, which is too early to take my DB due to the actuarial reductions.

I'm 44 years old, a long term LGPS member and I have a DB pension built up at 60 of £12k per year plus £20k, in today's money. I'm still paying in to the scheme but the world of local government has changed for me, insofar as I have no idea whether my job will exist or not next year... and just as importantly, whether I can continue to work in the environment I'm currently in without it permanently damaging my health. So I work on the 'in the bag' pension value for planning purposes and anything else I accrue is a bonus.

We will be living on ISA savings between the ages of 55-58 and then DC/private pension savings until 60, when my DB kicks in. Husband will draw down from his work DC around £16.5k a year (tax free allowance plus 25% lump sum) until 68ish when he aims to have enough left in his pot to top his state pension income up to the allowance personal allowance until around the age of 80, when we anticipate our spending will naturally reduce a little as we slow down.

At 68 ish my state pension kicks in and I will have that guaranteed double pension... add in a second state pension and we are close to achieving £30k per annum guaranteed income as a couple (ignoring tax).

I feel very fortunate to have accrued so much into a DB scheme by the age of 44, but I'm one half of a couple and so my planning isn't just limited to my own circumstances.

hugheskevi

You obviously don't understand how DB schemes work, as it's not possible to retire on higher income than you earned. The majority of public sector schemes have changed the accrual method and it isn't as generous as it was. Granted, these are still very good pensions.

It is possible, albeit unlikely.

The Civil Service since 2007 has operated a Career Average scheme with an accrual rate of 2.3% / 2.32%. If an employee works 43 years and receives CPI increases each year they would get as much from their pension as their salary.

For the situation to apply at the current time, some combination of (i) transfers-in (2) someone who has experienced a salary reduction or increases by less than inflation, whilst their final pay is based on a previous salary or (3) someone who has their pension enhanced due to serious ill-health. There are probably other scenarios, these are just to immediate ones that come to mind.

enthusiasticsaver

Obviously there will always be exceptions but our IFA told us the average time spent in a care home is 20 months. Presumably some people never go in and I know of one who spent 12 years in one so there are anomalies but you cannot plan for £100,000 of care home costs. If we need it our house will have to be sold to cover the costs.

Shedman

enthusiasticsaver wrote: »

Obviously there will always be exceptions but our IFA told us the average time spent in a care home is 20 months. Presumably some people never go in and I know of one who spent 12 years in one so there are anomalies but you cannot plan for £100,000 of care home costs. If we need it our house will have to be sold to cover the costs.

The figure of average care home stay of less than 2 years is bandied about a lot but can be misleading (and any way which average - mean, median or mode as that makes a difference). It is skewed by the figures for the local authority funded residents - who tend to go into homes as a last resort (LAs try to keep people at home as long as possible) and so are likely to be in far worse health at the point of entry so don't last as long as self funders.

For self funders the average is probably closer to 4 years from some surveys that I looked at when assessing care home annuities for MiL, with quite a long right hand tail on the skewed distribution curve (high level of under 2 year stays followed by quite a gradual slope with outliers of 20 years plus. The thought of 20 years in a care home is not one I want to contemplate !!)

Malthusian

Other obvious scenario for someone retiring on more than their earnings; person goes part-time or busts themselves down to a lower pay grade for an easier life, then draws their pension which is still based on their career average or highest-ever salary, both of which will be higher than their earnings at the point they retire.

Or they may be drawing private pensions at the same time as the DB one, and/or the State Pension if they worked for long enough.

Or they may have a generous lump sum on top of their annual pension, which they take the rest from (not necessarily sustainably).

Nikon's grouse is likely to be based on one of their friends saying outright that they have more income in retirement than in work (how else would Nikon know?) and I see no reason to disbelieve their friend.

Pension_Geek

hugheskevi wrote: »

It is possible, albeit unlikely.

The Civil Service since 2007 has operated a Career Average scheme with an accrual rate of 2.3% / 2.32%. If an employee works 43 years and receives CPI increases each year they would get as much from their pension as their salary.

For the situation to apply at the current time, some combination of (i) transfers-in (2) someone who has experienced a salary reduction or increases by less than inflation, whilst their final pay is based on a previous salary or (3) someone who has their pension enhanced due to serious ill-health. There are probably other scenarios, these are just to immediate ones that come to mind.

Yes, but if someone works for 43 years, you could hardly say they have 'retired early'. Even if they started work at 16 this would take them to age 59. If the civil service pension age for such a person was 60, then its a year early, but if not, then there would be a reduction applied for the early retirement.