Transfer a Final Salary pension or not.

Victor_Meldrew

Thanks for all the replies. Something to chew on!

To add further details:

The pension fund is giving free IFA with a reputable company. So obviously I will take this advice (under no obligations).

Actuarial reduction is 4% a year under 60 ie 5x4=20% at 55.

I am an experienced investor with a 100k portfolio at present.

Could get 13k without tax free lump sum.


Having 95k in bank with 280k pot to drawdown looks very tempting - I would have to choose investments wisely though!

Victor_Meldrew

Thrugelmir wrote: »

What's your proposed investment strategy?

Would be to take a very low income for the first 5 years or so while still working, then a larger income until 67, when I get full state pension so that I can take a lesser income again - all depends on how pension has grown (or not).


I wouldn't be investing in solely high risk funds obviously, but a mixture of funds tending to moderate/lower risk. I think 3-4% after charges is reasonably achievable?

jamesd

Victor_Meldrew wrote: »

I can take my final salary pension at 55. ... 9.2k (rises with CPI/RPI?) with 60k tax free lump sum.

Or I can transfer out with a value of £375k - which gives approx. 95k tax free lump sum and £280k left for drawdown.

My quick question is - is the transfer out to flexi-access drawdown a better option than the 9.2k from the final salary scheme? I wouldn't need to draw much for the first few years while I'm still working and I reckon I could beat that 9.2k easily. Or am I being daft?

Assuming you were to invest the whole 375k in a 65% equities : 35% bonds mixture and use the Guyton-Klinger drawdown rules from a 40 year plan you could start on 5% of capital increasing with inflation usually, variable. So 18,750 to start.

State pension on top.

Factoring in the state pension at say 8500 a year that'd take you to about 27250 from state pension age.

If you wanted to start closer to that 13 years before state pension age a crude calculation is 13 years of 8500 decreasing capital by 110500 leaving 264500 and 5% of that is 13225. 8500 + 13225 = 21725 starting at 55.

Spending reductions as people get older are normal and you could deliberately plan to do this and start at 9% of the 264500 so 32305. This will drop unless you see a better than average combination of investment returns and inflation.

You could usefully defer claiming your state pension to get more guaranteed income. The increase is 5.8% per year of deferring and the higher amount increases with CPI.

Since you're expecting to work for another five years that'd further increase what's achievable.

While working don't forget the excellent treatment of pensions for those 55 and older. It's possible to pay in 24000 net, have that increased to 30000 by basic rate relief and take out 7500 as a tax free lump sum, leaving 22500 taxable in the pension for later. 7500 is a specific number: the maximum tax free lump sum you can take out every rolling 12 months (not tax year) without getting into more fiddly lump sum recycling rules. This example assumes at least 30000 gross pay and enough unused annual allowance.

Using more complicated recycling rules, a 95k tax free lump sum taken this tax year would allow an increase of 28500 combined vs expected pension contributions over this tax year and the two before and after it and still be within the rules. That's 9500 this year and the next two if there wasn't an increase in the last two years. Beats the 7500 if you have enough pay and need something out of the pension contributions to help with living costs.

Thrugelmir

cisamcgu wrote: »

Now, ignoring inflation and assuming a 2% return on the investments (2% of £300K is £6K) I think you could happily beat £10K a year for the rest of your natural life.

Hence Buffett's quote.

"If past history was all that is needed to play the game of money, the richest people would be librarians.”

jamesd

Thrugelmir wrote: »

Hence Buffett's quote.

"If past history was all that is needed to play the game of money, the richest people would be librarians.”

The context of that matters: he was discussing individual share price chart technical analysis, which aims / claims to be able to predict short term future changes in the value of a single share from the shape of the line on the chart.