Newbie: losing sight of the wood for the trees...

Ldak

Hello All

First post here but have lurked intermittently and been equally impressed by the quality of insight offered and dismayed at the naivety of my own uneducated assumptions destroyed. Wondered if anyone might care to offer any thoughts on my situation/choices now it's time to decide and never having paid any attention to pensions in the past. I realise from other threads that I am more fortunate than many in have mostly DB pensions. I am happy to post numbers if suggested.

I am 61, not working since redundancy and not keen to restart.  Pension provision described below.

2 x DC pensions not in payment via one provider, currently contributing £40pm net to one of them
1 x  DB pension in payment (lump sum invested in an S&S ISA and a GIA with Trading212)
2 x DB pensions in deferment
Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

I've put a spreadsheet together to show me some options but struggling to progress to a decision. My dilemma consists of whether to take maximum pension from the DB pensions with £0 lump sums or maximum lump sums with minimum annual pensions and invest the lump sums.  My sheet suggests investing the lump sums gradually (probably take too many years to use them up!) via the existing DC pension (£2880pa plus 25% HMRC uplift) or opening a new one until £10k reached and cashing it in to put in an ISA for more ready tax free access(?), and achieving 4% annually, will break even with what the maximum pension would provide. Wouldn't bother but the 6% and 8% potential returns make it a much more attractive proposition.

Have considered taking a low demand job/self employment to enable more of the lump sums to be reinvested quicker.

Realise this post is terribly messy to read, sorry. Happy to reformulate.

Thought/pointers/gentle criticisms very welcome.

Thanks in advance for even looking.

Dazed_and_C0nfused

Under current rules becoming self employed and completing Self Assessment returns gives you the option of paying voluntary Class 2 National Insurance which could save you c£2.5k over the 4 years.

Although after this afternoon's comments from the Chancellor that option may not be around for ever.

As for the rest well you haven't give any indication of what each DB pension is paying/going to pay or how much is in each DC fund so not sure how much help anyone can give really.

Ldak

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

mgdavid

how much income do you need in retirement?

what other savings / investments do you have?

still paying off a mortgage or other loans (eg car)?

what are your life goals, ie do you want a pile of cash to spend on travel or pass to children while you're still around to see them enjoy it, or whatever?

Dazed_and_C0nfused

Ldak said:

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

You refer to the DC pensions having CETV values - are these actually DB pensions you have previously transferred or are planning to transfer?  If not where does the CETV come from?

Your State Pension figures don't make sense.  You originally said

Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

And have now said

State Pension forecast currently £7138.56 with 4 missing years NI contributions 

But a State Pension of £7138.56 is only £137.28/week so you would need an additional 7 qualifying years to get to the maximum of £168.60/week.

Are the DB3 figures correct?  The reductions for taking lump sums are different for each option which seems odd.  The £2157 option (c28 x pension given up) is more generous than the £1869 one (c24 x pension given up).

In either case they are more generous than DB2 (19 x pension given up) but obviously only a much smaller amount is available.  But do you have a reason to take the lump sum in the first place?

Ldak

mgdavid said:

how much income do you need in retirement?

what other savings / investments do you have?

still paying off a mortgage or other loans (eg car)?

what are your life goals, ie do you want a pile of cash to spend on travel or pass to children while you're still around to see them enjoy it, or whatever?

Thanks mgdavid, grateful for your input.

How much income/goals? Feel they are linked.

I believe my needs are modest but whom would sensibly seek a minimum estimate compared to the maximal available? I've wasted a lot of money in the past by not paying attention to money and would like to maximise this last opportunity of allocating funds if possible. I would like to slow travel for a couple of years in a self built motor caravan, so quite inexpensively despite occasional hotel/home stays/flights home and then find somewhere remote to have as much tranquillity with nature as possible. Having been made redundant since July 2014 and having had 3 months support from Jobseekers Allowance and nothing since, living off savings/wife's income, I'd like to minimise tax take going forward. Bit of a meltdown at that time if I'm honest and loss of faith: just reached 10 years clear of a normally very nasty type of cancer (50/50 type) but have an MRI scheduled next week for a new lump, but I digress from the issue at hand. Betting on my luck in that regard so don't feel I want to cash it all in and splurge but if it does not go well, will kick up the effort at looking at transferring the DB pensions to a DC for IHT transfer purposes (sensible?).  Have two kids, both comfortable and independent and will look at IHT opportunities otherwise in time.

Have £18k in a Trading212 ISA, £13k in a Trading212 GIA and £2k in a Funding Circle IFISA.

Paid off mortgage when I saw redundancy coming down the line. Phew! No other debt fortunately.
Thanks again for looking.

Ldak

Dazed_and_C0nfused said:

Ldak said:

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

You refer to the DC pensions having CETV values - are these actually DB pensions you have previously transferred or are planning to transfer?  If not where does the CETV come from?

Your State Pension figures don't make sense.  You originally said

Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

And have now said

State Pension forecast currently £7138.56 with 4 missing years NI contributions 

But a State Pension of £7138.56 is only £137.28/week so you would need an additional 7 qualifying years to get to the maximum of £168.60/week.

Are the DB3 figures correct?  The reductions for taking lump sums are different for each option which seems odd.  The £2157 option (c28 x pension given up) is more generous than the £1869 one (c24 x pension given up).

In either case they are more generous than DB2 (19 x pension given up) but obviously only a much smaller amount is available.  But do you have a reason to take the lump sum in the first place?

Sorry for the confusing terminology, I am learning, honest...

The CETV label should have read Transfer value. They are not transferred DB pensions. Royal London is the provider.

State pension: Sorry, again, unclear. £137.28 assumes NO further contibutions. I will add the missing years and hopefully continue with Class 2 nics going forward to achieve £168.60.

DB3: Man you're good!  Just noticed the £1869 quote is dated 18/10/2018, the others are 10/3/2020.

It's provided by BT and they are much better they were at responding now they've taken quotes in house from Accenture but still quite slow.  ITV (DB2) are excellent I've found.

Much obliged again Dazed... 

Knebworth 1979? OMG!!! There now...hehe

Ldak

Dazed_and_C0nfused said:

Ldak said:

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

You refer to the DC pensions having CETV values - are these actually DB pensions you have previously transferred or are planning to transfer?  If not where does the CETV come from?

Your State Pension figures don't make sense.  You originally said

Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

And have now said

State Pension forecast currently £7138.56 with 4 missing years NI contributions 

But a State Pension of £7138.56 is only £137.28/week so you would need an additional 7 qualifying years to get to the maximum of £168.60/week.

Are the DB3 figures correct?  The reductions for taking lump sums are different for each option which seems odd.  The £2157 option (c28 x pension given up) is more generous than the £1869 one (c24 x pension given up).

In either case they are more generous than DB2 (19 x pension given up) but obviously only a much smaller amount is available.  But do you have a reason to take the lump sum in the first place?

Sorry, Dazed, forgot to answer a reason for lump sum. No reason other than to finance motor van acquisition/outfitting it.  Could do that from shares sales but would like to keep in the stock market now I've joined it.  I don't see the need for bonds as income "buffers" as I think my DBs effectively will do that.

Thanks.

Dazed_and_C0nfused

Ldak said:

Dazed_and_C0nfused said:

Ldak said:

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

You refer to the DC pensions having CETV values - are these actually DB pensions you have previously transferred or are planning to transfer?  If not where does the CETV come from?

Your State Pension figures don't make sense.  You originally said

Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

And have now said

State Pension forecast currently £7138.56 with 4 missing years NI contributions 

But a State Pension of £7138.56 is only £137.28/week so you would need an additional 7 qualifying years to get to the maximum of £168.60/week.

Are the DB3 figures correct?  The reductions for taking lump sums are different for each option which seems odd.  The £2157 option (c28 x pension given up) is more generous than the £1869 one (c24 x pension given up).

In either case they are more generous than DB2 (19 x pension given up) but obviously only a much smaller amount is available.  But do you have a reason to take the lump sum in the first place?

Sorry, Dazed, forgot to answer a reason for lump sum. No reason other than to finance motor van acquisition/outfitting it.  Could do that from shares sales but would like to keep in the stock market now I've joined it.  I don't see the need for bonds as income "buffers" as I think my DBs effectively will do that.

Thanks.

It might be worth looking at the inflation element of the DB pensions to see how quickly you would earn the lump sum amount through the extra pension if you opted for the higher pension.

And don't forget that once you have DB1 & DB2 in payment any extra pension is really only worth 80% of the amount being paid as you will be paying 20% tax on it.

Ldak

Dazed_and_C0nfused said:

Ldak said:

Dazed_and_C0nfused said:

Ldak said:

Thanks Dazed_and_C0nfused for your time to reply.

I found out about the Class 2 contributions savings idea when I rang the Future Pensions Centre and ran an idea through the HMRC "Am I self employed calculator". First run it said yes, second run no, third run maybe...so gave up. I think I am going to find something that qualifies as a definite yes. Looks like a mixture of bookkeeping and gardening income should do it.

Re the Chancellor's comments:indeed!  More speed less haste required then 8-)

DB numbers below if you'd consider looking them over.

DB1 £8087.40 (in payment)
----------

DC1 £27250.02 CETV (contributing £40 pm net)

DC2 £7731.79 CETV (no further contributions possible)

----------
DB2 £9506.05 pa + £0.00 lump sum or

DB2 £7043.76 pa + £46957.74 lump sum

----------
DB3 £2157.12 pa + £6471.34 lump sum or

DB3 £1869.15 pa + £12461.03 lump sum or

DB3 £2388.90 pa + £0.00 lump sum

----------
State Pension forecast currently £7138.56 with 4 missing years NI contributions (£740-$780 per year required to top up if not using Class 2/self employed NICs)
Sorry for the poorly formatted question previously.

You refer to the DC pensions having CETV values - are these actually DB pensions you have previously transferred or are planning to transfer?  If not where does the CETV come from?

Your State Pension figures don't make sense.  You originally said

Less than maximum state pension due in October 2023 but plan to add 4 missing years to maximise it. 

And have now said

State Pension forecast currently £7138.56 with 4 missing years NI contributions 

But a State Pension of £7138.56 is only £137.28/week so you would need an additional 7 qualifying years to get to the maximum of £168.60/week.

Are the DB3 figures correct?  The reductions for taking lump sums are different for each option which seems odd.  The £2157 option (c28 x pension given up) is more generous than the £1869 one (c24 x pension given up).

In either case they are more generous than DB2 (19 x pension given up) but obviously only a much smaller amount is available.  But do you have a reason to take the lump sum in the first place?

Sorry, Dazed, forgot to answer a reason for lump sum. No reason other than to finance motor van acquisition/outfitting it.  Could do that from shares sales but would like to keep in the stock market now I've joined it.  I don't see the need for bonds as income "buffers" as I think my DBs effectively will do that.

Thanks.

It might be worth looking at the inflation element of the DB pensions to see how quickly you would earn the lump sum amount through the extra pension if you opted for the higher pension.

And don't forget that once you have DB1 & DB2 in payment any extra pension is really only worth 80% of the amount being paid as you will be paying 20% tax on it.

If I understand you correctly...and stretching my arithmetic skills....

Lump sums will immediately depreciate through inflation whilst the higher pensions will appreciate by inflation and therefore have a .crossover.'

Would I calculate CombinedMaxLumpSums / ((CombinedMaxPensionNow - CombinedMinPensionNow) * 80%) = x.xx years.
But how do I account for inflation in that?

I was hoping/trusting that investing the lump sums and taking dividends/interest would produce smallish income that would be free of tax by use of an ISA/IFISA and/or the dividend/capital gains allowances currently available.
Any help appreciated.

Dazed_and_C0nfused

The basic principle is correct.

You can have a one off lump sum which may well lose value due to inflation depending on what you do with it.

Or you can have the higher pension amount which will be £x in year one but £x plus (normally) some inflation element in year two.  And so on.  The longer you live the better the extra pension is. 

The inflation increase will be dependent on the DB scheme rules, some will be more generous than others.

The lump sum from DB3 is more generous than from DB2 so it would take much longer to recoup from the extra pension.  But it is a much smaller lump sum than DB2 would provide.