Transfer valuation from DB Pension - advice

Mick70

Assuming Royal London would accept the transfer anyway ( couldn’t work out how to edit my post ��)

jsinc

Mick70 wrote: »

There is no option for partial transfer , it’s either all or nothing.
There is a 3month window to seek advice and IF go ahead have all forms etc filled in and accepted by the trustees . It does state the value is not 100% guaranteed but just an offer.
Thing is I set up a basic spreadsheet over 30-35 years , from age 50 , £26,200 per annum rising at say 2% rpi each year and the grand total of all that and the 80k lump sum I think came out nrly £1.4M which I was surprised at , and it’s guaranteed income .
Now with the £1.7M transfer a chunk of that is going to end up as LTA tax and so there may not be as big a difference between the two as most initially think .
I did post my dilemma a couple of month back but at the time did not have definite figures .
I know it’s a nice dilemma but as my wife has no pension it’s a decision I need to get right .
Thanks for replies and advice folks , it does help people like myself who struggle a bit regarding DC pensions and not as clued up ,it’s much appreciated .
Mick

It's comfortable income with zero investment or inflation risk for maybe the next 40+ years (1 in 4 chance of reaching 94 as a man age 49) vs. being up for risk and trying to maximise household income (potentially a lot more, or less) and legacy.

I'm not you, so my preference isn't relevant. But there's nothing wrong with welcoming the simpler DB option, putting money aside for wife's pot and retiring asap. If DC returns go well I think many would struggle to get close to spending it all anyway.

I don't understand LTA rules well enough to comment, but when assessing DC withdrawal rate x whatever you're left with do consider the longer timescale. Tables here (p.12 of pdf linked on the page) suggest common 4% static suggestions may prove very optimistic: http://www.morningstar.co.uk/uk/news/149651/how-much-can-you-safely-withdraw-annually-from-your-pension-pot.aspx

Like all research it makes assumptions. So more for ballpark and relative effect of allocations, retirement period, fees, failure tolerance etc. And there are other views, such as jamesd' outline: https://forums.moneysavingexpert.com/discussion/5466114/drawdown-safe-withdrawal-rates and/or factoring in higher spending wants at 55 vs 85 which may favour DC.

Mick70

Should have said my aim is to retire at 58, when my wife turns 60 so that we can retire together.
2 children but both will be in their early to mid 20s at that stage .
If stick with DB and it triggers at 50 was going to use that to help build up my new Dc pot so have both when ready to retire . Obviously if go down Dc route it’s irrelevant.
I’m assuming with the LTA that it only triggers once you use your DC pension for the first time and so the LTA may well be higher by then ?

mallymal

Hi mick
I don’t currently work in pension but did until retiring a year ago.
Our scheme, like yours, was DB (defined benefit).
As far as I was aware, 55 was the youngest retirement age, not just in our scheme, but based on uk legislation. So do please look into that with them....

Mick70

Hi mal , I have protected rights luckily so the DB pension def triggers at 50, I already have that confirmed in writing , but with the DC transfer option then yes I could pay into that from50 but not access it until 55 onwards

Preacher64

mallymal wrote: »

Hi mick
I don’t currently work in pension but did until retiring a year ago.
Our scheme, like yours, was DB (defined benefit).
As far as I was aware, 55 was the youngest retirement age, not just in our scheme, but based on uk legislation. So do please look into that with them....

I’m in Network Rail’s RPS60 scheme and, as a protected person from BR days, could have taken my DB pension from 50 so it is quite possibly correct.

jamesd

Mick70 wrote: »

The package will be a £79k lump sum and an annual pension of £26,200 which will rise with RPI each year. Spouse pension is £15,500..

However , I have also received a transfer valuation of £1.7M and i think i only have 3 months if want to take this option.

I wrote this in reply to your previous post with 1.4m CETV:

jamesd wrote: »

You are being offered a fantastically good transfer value that is some 53
times the defined benefit pension income. It's a life changing offer. It's so good in part because the income can be taken at 50 but after transfer not until 55. even at 50 if needed you could use borrowing and repay at 55.

Here's what might be expected from income drawdown if you were to use the Guyton-Klinger rules, which imply 5% of capital as initial income after allowing for charges.

the part up to £1,030,000: £257,500 PCLS and £772,500 taxable
the rest: £370,000 before LTA charge, no PCLS available. At least 25% LTA charge on income but you look likely to be a higher rate tax payer so 55% lump sum seems better.

Total for income generation: £424,000 after tax (£257,000 + 45% of £370,000) plus £772,500 taxable.

That's 0.05 * £424,000 = £21,200 tax free + 0.05 * £772,000 = £38,600 taxable. Total after tax £21,200 + £12,000 + 0.8 * £26,600 = £54,480 net a year.

That compares very favourably with the DB pension with huge margin before it would get as low and a 100% spousal pension.

The higher rate tax payer assumption won't apply until you get your state pension so paying 25% instead of 55% on some of the over LTA money may be better, see annuity buying later.

The G-K starting income I used is for 60% equities, 40% bonds and I suggest that you stick with that and cut income risk instead. You can do that by spending £20,000 every year or two on buying a level annuity. They only pay about 4% of capital at age 55, so £1,000 a year for each £20,000 buy. Gradual buying is for inflation protection and so you gradually get more income per Pound spent as you get older and to increase total guaranteed income as you get older. Level is because spending tends to drop as people get older and the lack of inflation increases gradually cuts real income.

Adding in state pension later and at 55 you could start on £60,000 or so a year after tax.

With the higher CETV it's only got better. Provided you can bridge the time between 50 and 55 and 60k a year variable is sufficient you could retire at 50.

The three months to act just means you'd need to get another CETV then, possibly having to pay. But 50 seems to be a hard deadline.

It's a stupendously good offer.

k6chris

jamesd wrote: »

I wrote this in reply to your previous post with 1.4m CETV:



With the higher CETV it's only got better. Provided you can bridge the time between 50 and 55 and 60k a year variable is sufficient you could retire at 50.

The three months to act just means you'd need to get another CETV then, possibly having to pay. But 50 seems to be a hard deadline.

It's a stupendously good offer.

Do you need more money, or would risk free income give you a more peaceful retirement?

GSP

Think of this as an opportunity before the doors shut.
Here you have the prospect of more than doubling the amount of money you would receive over your db pension.
The money is also more flexible. It could be if annuity rates suddenly rise you could buy more of these and still have money left to do as you choose.
With the db, safety yes, but starting off at £26.2k and very slowly working your way up with this with inflationary increases by the time you are 80 you may have £40k, but getting too old to spend it.
I would grab the CETV with both hands and enjoy yourselves in the not too distant.

shinytop

k6chris wrote: »

Do you need more money, or would risk free income give you a more peaceful retirement?

Others may be different but I wouldn't be at peace with a risk free £26k when I could have had the risk of having to reduce my £50k to £40k for a couple of years in a downturn (or whatever the numbers are).