PCLS to pay off mortgage? Convert DB to DC?

furrygiraffe

Thrugelmir said:

Is a £270k mortgage affordable?  From a lenders perspective not yours I should add.

There's no guarantees what your DC scheme will be worth in 5 years time. 

If the DB scheme pays out £4k pa and the CETV is £400k.  Then the pension may well be the far better option in the longer term. 

On lender affordability im fine as I have a high income, I just don’t have much money to put down as a cash deposit. My age means time is against me from a mortgage perspective and I want to act sooner than later

i presume the CETV will rise the closer I get to its payout date? 

As for the DC, you are right, there are no guarantees, but everyone is in the same boat there. 

I also realise, despite everything, that I am still in a fortunate position compared to most people. There are many who would wish to have as much pensions as I have

Linton

furrygiraffe said:

Thrugelmir said:

Is a £270k mortgage affordable?  From a lenders perspective not yours I should add.

There's no guarantees what your DC scheme will be worth in 5 years time. 

If the DB scheme pays out £4k pa and the CETV is £400k.  Then the pension may well be the far better option in the longer term. 

On lender affordability im fine as I have a high income, I just don’t have much money to put down as a cash deposit. My age means time is against me from a mortgage perspective and I want to act sooner than later

i presume the CETV will rise the closer I get to its payout date? 

As for the DC, you are right, there are no guarantees, but everyone is in the same boat there. 

I also realise, despite everything, that I am still in a fortunate position compared to most people. There are many who would wish to have as much pensions as I have

This may not be the case.  The CETV is dependent on a range of factors two of which are the amount of income provided and the prevailing interest rates.  When interest rates are high the fund needs less money now to provide the future income and so CETVs will be low.  But at the moment interest rates are extremely low, hence the amazingly high CETVs sometimes available.  No one knows what the situation will be in 5 years time, never mind 13.

hugheskevi

A CETV of c£400,000 for a £16,000 p/a pension payable at age 63 is not very good, and that value issue would be the main reason I would not be thinking of taking the CETV in your position. This is particularly the case as by age 55 the mortgage will be below £100,000 so there doesn't appear to be a pressing need at that time.

I would investigate how much would be paid if it were to be commenced at age 55.

I would also be planning to take a mortgage with a very long term to reduce monthly costs in the short-term. Given an initial mortgage of £270,000 which by age 55 will be below £100,000 having received about c£100,000 from your DC PCLS you are presumably planning overpayments - I'd be thinking about the merits of that before any DB CETV. You may find your circumstances suit a DIY Pension Mortgage (ie plan to pay mortgage off via pension)

Age 63 is a very specific target retirement date, and is coincidentally the same at the DB pension NPA. It may worth considering how influential the DB NPA is (and how much it should be) on that ambition.

furrygiraffe

hugheskevi said:

A CETV of c£400,000 for a £16,000 p/a pension payable at age 63 is not very good, and that value issue would be the main reason I would not be thinking of taking the CETV in your position. This is particularly the case as by age 55 the mortgage will be below £100,000 so there doesn't appear to be a pressing need at that time.

I would investigate how much would be paid if it were to be commenced at age 55.

I would also be planning to take a mortgage with a very long term to reduce monthly costs in the short-term. Given an initial mortgage of £270,000 which by age 55 will be below £100,000 having received about c£100,000 from your DC PCLS you are presumably planning overpayments - I'd be thinking about the merits of that before any DB CETV. You may find your circumstances suit a DIY Pension Mortgage (ie plan to pay mortgage off via pension)

Age 63 is a very specific target retirement date, and is coincidentally the same at the DB pension NPA. It may worth considering how influential the DB NPA is (and how much it should be) on that ambition.

Just looked at valuation, so at date of leaving in 2011 the payout is £8700 pa, with a CETV given of £400k. I’m pretty sure the last statement said that it was expected to be £16000 per annum at age 63. That CETV was for purposes of divorce, no incentives given for you transfer voluntarily, what CETV would you expect?

i wasn’t planning overpayments on the mortgage, but at a term of 20 years. I never thought of still paying a mortgage post retirement, hence this thread, your post gives me something to think about

With regard to taking DB at 55, the problem is my income by then will be close or exceeding £100k, and my problem there will be the combination of withdrawal of personal allowance and child maintenance gives me an effective tax rate of 77%. At that point I would be putting all future pay rises and bonuses into the DC rather than taking more income,
so reducing/clearing the mortgage appeared to be the most efficient way of getting more disposable income

All pensions at my employer target 63 (old DB and new DC), it’s kinda standard here that staff retire at 63 but not mandatory 

furrygiraffe

Linton said:

furrygiraffe said:

Thrugelmir said:

Is a £270k mortgage affordable?  From a lenders perspective not yours I should add.

There's no guarantees what your DC scheme will be worth in 5 years time. 

If the DB scheme pays out £4k pa and the CETV is £400k.  Then the pension may well be the far better option in the longer term. 

On lender affordability im fine as I have a high income, I just don’t have much money to put down as a cash deposit. My age means time is against me from a mortgage perspective and I want to act sooner than later

i presume the CETV will rise the closer I get to its payout date? 

As for the DC, you are right, there are no guarantees, but everyone is in the same boat there. 

I also realise, despite everything, that I am still in a fortunate position compared to most people. There are many who would wish to have as much pensions as I have

This may not be the case.  The CETV is dependent on a range of factors two of which are the amount of income provided and the prevailing interest rates.  When interest rates are high the fund needs less money now to provide the future income and so CETVs will be low.  But at the moment interest rates are extremely low, hence the amazingly high CETVs sometimes available.  No one knows what the situation will be in 5 years time, never mind 13.

Great points... of course interest rates/gilts affect all this. Thanks

Albermarle

Just looked at valuation, so at date of leaving in 2011 the payout is £8700 pa, with a CETV given of £400k. I’m pretty sure the last statement said that it was expected to be £16000 per annum at age 63

Normally DB pensions increase with inflation every year , often by RPI. So if we assume that is the case then the pension today would be £8700 + 9 years inflation , so maybe around £11000. or a bit more ? Then if there is an assumption made about the next 13 years inflation of 4% that takes you up to £16,000 ?

Anyway if the CETV is recent then it should be compared to the pension payable today at 63 = something around £11,500 so a multiple of around 35 , which is quite good but not spectacular . Normally I would be a bit negative about DB transfers but as you understand what you are giving up and understand the investment risk and the property/divorce situation it looks worth considering. Finding an IFA to do it though is a challenge nowadays.

hugheskevi

Just looked at valuation, so at date of leaving in 2011 the payout is £8700 pa, with a CETV given of £400k. I’m pretty sure the last statement said that it was expected to be £16000 per annum at age 63. That CETV was for purposes of divorce, no incentives given for you transfer voluntarily, what CETV would you expect?

A multiplier of about x30 income (as at current date) would be reasonable, x40 would be good.

I wasn’t planning overpayments on the mortgage, but at a term of 20 years. I never thought of still paying a mortgage post retirement, hence this thread, your post gives me something to think about

Paying it off either in single payment via a DC pension lump sum, or from pension income, is very tax efficient and well worth considering as a higher rate taxpayer. Given you are quite close to minimum pension age it is even more attractive due to not having to lock up money for too long.

furrygiraffe

Albermarle said:

Just looked at valuation, so at date of leaving in 2011 the payout is £8700 pa, with a CETV given of £400k. I’m pretty sure the last statement said that it was expected to be £16000 per annum at age 63

Normally DB pensions increase with inflation every year , often by RPI. So if we assume that is the case then the pension today would be £8700 + 9 years inflation , so maybe around £11000. or a bit more ? Then if there is an assumption made about the next 13 years inflation of 4% that takes you up to £16,000 ?

Anyway if the CETV is recent then it should be compared to the pension payable today at 63 = something around £11,500 so a multiple of around 35 , which is quite good but not spectacular . Normally I would be a bit negative about DB transfers but as you understand what you are giving up and understand the investment risk and the property/divorce situation it looks worth considering. Finding an IFA to do it though is a challenge nowadays.

The CETV was done this year

furrygiraffe

hugheskevi said:

Just looked at valuation, so at date of leaving in 2011 the payout is £8700 pa, with a CETV given of £400k. I’m pretty sure the last statement said that it was expected to be £16000 per annum at age 63. That CETV was for purposes of divorce, no incentives given for you transfer voluntarily, what CETV would you expect?

A multiplier of about x30 income (as at current date) would be reasonable, x40 would be good.

I wasn’t planning overpayments on the mortgage, but at a term of 20 years. I never thought of still paying a mortgage post retirement, hence this thread, your post gives me something to think about

Paying it off either in single payment via a DC pension lump sum, or from pension income, is very tax efficient and well worth considering as a higher rate taxpayer. Given you are quite close to minimum pension age it is even more attractive due to not having to lock up money for too long.

Probably being thick here, but I didn’t understand the last bit about how taking pension income at 55 would be tax efficient bearing in mind I would still be working?

hugheskevi

furrygiraffe said:

Probably being thick here, but I didn’t understand the last bit about how taking pension income at 55 would be tax efficient bearing in mind I would still be working?

It wouldn't be

What I meant was that a key drawback of planning to use pension to pay off a mortgage when younger means the money is tied up for many years, and things can change but the money will be inaccessible. Once you are over minimum pension age that isn't a concern - if things change, eg job loss, etc, the pension is accessible. That makes pensions much more attractive when close to or over minimum pension age.