Can I /you get hit by LTA twice ?

zagfles

GunJack wrote: »

which scheme? whichever pension fund it's in at the time(so deducted from the pot?), or whichever scheme it was originally built up in?

The scheme that the BCE occurred on, if the LTA is breached or has already been breached.

Again, if the recipient is liable after death, does it come out of whichever scheme it's currently held in, i.e. out of the pot?

No, it seems. Paid from outside. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm087000

However it'll make no difference tax wise as there's no income tax to pay on income from a beneficiary's drawdown where the member dies under 75 (unless designation over 2 years later, in which case LTA doesn't apply). And if over 75 there's no BCE on death.

That's my understanding anyway!

jamesd

zagfles wrote: »

It's not just gilts - try getting returns on cash investments that keep pace with inflation. Interest rates are lower than inflation. Safe investments lose money. You have to take a risk just to avoid the real value of investments falling.

I can do it easily with FSCS protection because I have an offset mortgage. For limited amounts regular savings accounts can do it.

zagfles wrote: »

So what was the massive catastrophy that hit Japan that made it's stock market halve in value over the last 30 years then? Not wars, not a depression, not rampant inflation, not a loony extreme govt. The stockmarket of one of the richest, most successful and innovative countries in the world has halved over the period of a typical retirement.

An entirely normal reversion to mean of an over-valued market. See the last paragraph of the first post of Drawdown: safe withdrawal rates for a quick summary of the relevant research on how to protect yourself, which of course I acted on myself.

During that bull run Tokyo home prices became so inflated that 25 or 35 year mortgages weren't enough and multi-generational mortgages were introduced. You might remember news stories about Japan buying up trophy US properties because they were so cheap by comparison.

zagfles wrote: »

It could happen to the UK, the US, Europe, anywhere. Or even everywhere with such a globalised world. Where would that leave your "safe withdrawal rate"?

NB I don't predict this or even think it's very likely, but discounting it as some armageddon scenario is ludicrous.Eh?

The SWRs would pay as expected and allow above inflation increases because it's much less challenging than the cases which set the SWR.

Nobody with even moderate knowledge about SWRs would think it's an armageddon scenario.

How about doing a little reading about SWRs, starting with my earlier link which was to What Returns Are Safe Withdrawal Rates REALLY Based Upon? Going beyond that, the US Dow fell by 89% between the 1929 peak and 1932 trough with the great depression accompanying it until WW2 and that's not even the case which sets the US SWR.

The UK worst case starts just before WW2 and includes much physical destruction, huge costs and national debt with food rationing until July 1954, 16 years in. With milk restrictions into the 80s limiting cheese production this retiree would expect to be dead before food restrictions ended.

The US worst case was high inflation in the 1960s and Bill Bengen of the 4% rule has written that it's what concerns him most. Looking at historic UK inflation and using the BoE calculator to buy in 1983 what £1 bought in 1970 would cost £4.58. That's comparable to bonds as well as equities dropping to just 21.8% of their initial value. That's far worse than a 50% equity drop in say a 50:50 portfolio that retains 75% of its value.

Hopefully that's given you a better idea of just how nasty your scenarios need to be before SWRs fail. And Mick70 appears to be considering lopping off another 1% or so.

zagfles wrote: »

You're assuming the OP invests in equities and possibly bonds, not gilts. If he invests in gilts, then he'll likely be worse off than using his DB scheme! It's why the CETV is so high!
Obviously if the govt defaulted on gilts then that would affect everything, annuities, DB pensions, and supposedly ultra-safe investments. But the OP won't be getting a better deal from his CETV if he uses it to buy gilts or annuities will he?!

I'm assuming a varied mixture that includes some gilts and also buying roughly guaranteed income with state pension deferral and annuity buying. And lots of international investment.

Mick70

On withdrawal rates - If the 1.7m pot grew to say 2m by time I retired (7 year @2% only growth ) , I would only want to take out 55k pa (60 max) , 25% of it being tax free element , which at first would be just under 3% Of the pot value , and increase this annual drawdown by inflation rate only each year . Off top of my head I forecast my withdrawals up to 75 would Peak at 3.5% .. Was only when I got hit with LTA at 75 they would suddenly go up to about 5%. Hopefully that’s fairly safe / conservative approach .

zagfles

jamesd wrote: »

I can do it easily with FSCS protection because I have an offset mortgage. For limited amounts regular savings accounts can do it.

:rotfl:OP probably has no mortgage and if he does would probably pay it off from his pot. Regular savers - seriously? There are hardly any left, loads of banks have stopped doing them, and the few that are left have massively cut their interest rates, best is 2.75% AFAIK, and only allow a trivial amount eg £250 a month. Not really something that would use up much of 1.7M !!

An entirely normal reversion to mean of an over-valued market.

Some say the current market is over-valued. It's easy to see overvaluation in hindsight.

See the last paragraph of the first post of Drawdown: safe withdrawal rates for a quick summary of the relevant research on how to protect yourself, which of course I acted on myself.

During that bull run Tokyo home prices became so inflated that 25 or 35 year mortgages weren't enough and multi-generational mortgages were introduced. You might remember news stories about Japan buying up trophy US properties because they were so cheap by comparison.

Bit like London in recent years? Loads of properties owned by rich foreigners. And Nationwide were advertising some sort of multi-generation mortgage recently.

The SWRs would pay as expected and allow above inflation increases because it's much less challenging than the cases which set the SWR.

Nobody with even moderate knowledge about SWRs would think it's an armageddon scenario.

That seemed to be your claim. Only armageddon would result in the OP getting less than his safe DB scheme. You know better than the market for safe investments.

Maybe everyone should short gilts and buy equities :rotfl:

How about doing a little reading about SWRs, starting with my earlier link which was to What Returns Are Safe Withdrawal Rates REALLY Based Upon? Going beyond that, the US Dow fell by 89% between the 1929 peak and 1932 trough with the great depression accompanying it until WW2 and that's not even the case which sets the US SWR.

The UK worst case starts just before WW2 and includes much physical destruction, huge costs and national debt with food rationing until July 1954, 16 years in. With milk restrictions into the 80s limiting cheese production this retiree would expect to be dead before food restrictions ended.

The US worst case was high inflation in the 1960s and Bill Bengen of the 4% rule has written that it's what concerns him most. Looking at historic UK inflation and using the BoE calculator to buy in 1983 what £1 bought in 1970 would cost £4.58. That's comparable to bonds as well as equities dropping to just 21.8% of their initial value. That's far worse than a 50% equity drop in say a 50:50 portfolio that retains 75% of its value.

Hopefully that's given you a better idea of just how nasty your scenarios need to be before SWRs fail. And Mick70 appears to be considering lopping off another 1% or so.

I'm assuming a varied mixture that includes some gilts and also buying roughly guaranteed income with state pension deferral and annuity buying. And lots of international investment.

You don't seem to have included Japan. Would would the SWR be over the last 30 years if the world's stockmarkets had done the same as the Japanese stock market? Obviously no-one would have invested only in Japan, but in our increasingly globalised world it wouldn't be surprising to see less difference between the performances of different geographical sectors, reducing the benefits of geographical diversification providing a hedge.

There are also political risks. In other European countries in the last decade pensions have been nationalised (eg Hungary), there've been capital levys (eg Cyprus), don't think it couldn't happen here particularly with the hard left takeover of the Labour party and their membership. They didn't win this time, but they came close 2 years ago - it's quite possible we'll get a loony hard left govt some time in the next 20 years or so. They'll see large pension wealth as much more of a target than DB schemes which all their mates in the public services have. Not to mention possibility of trashing of the currency - something an RPI protected DB scheme might save you from.

None of the above is armaggedon, it's stuff that has happened recently round the world, and is happening now.

jamesd

Mick70 wrote: »

On withdrawal rates - If the 1.7m pot grew to say 2m by time I retired (7 year @2% only growth ) , I would only want to take out 55k pa (60 max) , 25% of it being tax free element , which at first would be just under 3% Of the pot value , and increase this annual drawdown by inflation rate only each year . Off top of my head I forecast my withdrawals up to 75 would Peak at 3.5% .. Was only when I got hit with LTA at 75 they would suddenly go up to about 5%. Hopefully that’s fairly safe / conservative approach .

It's well below the UK safe withdrawal rate so it should work for some cases worse than anything seen in the last century plus.

jamesd

zagfles wrote: »

That seemed to be your claim. Only armageddon would result in the OP getting less than his safe DB scheme. ...
None of the above is armaggedon, it's stuff that has happened recently round the world, and is happening now.

Please stop lying about what I've written. YOU are the only person who has mentioned armaggedon as being required.

By contrast I write about "worse events than two world wars, rampant inflation or the great depression" and described a UK government default worse than the past ones as a possible example. That's not the war at the end of history or anything close to it.

Instead of trying straw man arguments you might try learning more about SWRs.

jamesd

zagfles wrote: »

Some say the current market is over-valued. It's easy to see overvaluation in hindsight.

It's also easy enough to see when it's happening, using the cyclically adjusted price/earnings ratio mentioned in that last paragraph I referred you to. In post 3 I introduce Guyton's work on how to use this to reduce sequence of returns risk and I've acted on it myself.

Even the FCA managed to commission a report which did it a few years ago and got us the currently reduced projected investment growth rates.

What such things can't do is say just when a drop will happen, which is why the first version of that paragraph was added in Apil 2017 and the greater than 25% a year chance of a US crash hasn't delivered one yet and might not for many more years.

Mick70

Mick70 wrote: »

On withdrawal rates - If the 1.7m pot grew to say 2m by time I retired (7 year @2% only growth ) , I would only want to take out 55k pa (60 max) , 25% of it being tax free element , which at first would be just under 3% Of the pot value , and increase this annual drawdown by inflation rate only each year . Off top of my head I forecast my withdrawals up to 75 would Peak at 3.5% .. Was only when I got hit with LTA at 75 they would suddenly go up to about 5%. Hopefully that’s fairly safe / conservative approach .

come on fellas, make up and move on..
any comment on that as a strategy ?

Andrew31

Yeh You 2 get a room.

Mick get a financial adviser!

Malthusian

Mick70 wrote: »

come on fellas, make up and move on..
any comment on that as a strategy ?

Only comment needed is that the dispute illustrates why ordinary retail investors shouldn't automatically assume that what is good for an experienced DIY investor down the pub is good for them, regardless of whether you agree with Jamesd's outlook on the future or Zagfles'.

Jamesd once told someone with Power of Attorney for their 97-year-old father that she should spank the funds he needed to pay his nursing home fees into P2P loans paying 12% (which means the Lendy / Collateral end of the market). I mention this 2-year-old bit of ancient history simply to illustrate how easy it is to get "advice" down the pub that works for the experienced regular but won't work for the inexperienced enquirer because of their different risk profiles and general understanding, not to mention circumstances.

In short, the fact that Jamesd would transfer out doesn't necessarily mean you should. People down the pub say what they would do, only a paid professional can give advice on what you personally should do. Unless you are paying them money and they are liable for the outcome then they are talking about what they would do.