Equity percentage in the deaccumulation phase

zagfles

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

You seem to be missing the point. It's not about worrying that the DB scheme won't be able to meet its obligations, it's about how to hedge against the DB pension losing real terms value because inflation exceeds the contracted cap on inflation increases.

NottinghamKnight

zagfles said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

You seem to be missing the point. It's not about worrying that the DB scheme won't be able to meet its obligations, it's about how to hedge against the DB pension losing real terms value because inflation exceeds the contracted cap on inflation increases.

It may well be about both.

michaels

zagfles said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

You seem to be missing the point. It's not about worrying that the DB scheme won't be able to meet its obligations, it's about how to hedge against the DB pension losing real terms value because inflation exceeds the contracted cap on inflation increases.

So if they can quote you a transfer value you could go to the online calculators and work out how much per year a fully indexed annuity would be if you spent the fund on that instead?

Thrugelmir

zagfles said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

You seem to be missing the point. It's not about worrying that the DB scheme won't be able to meet its obligations, it's about how to hedge against the DB pension losing real terms value because inflation exceeds the contracted cap on inflation increases.

It's a raid on pension funds themselves. Liabilities need to be funded. Currently even schemes linked to CPI hold RPI Gilts as an investment. As provides around a 0.8% gross return p.a. 

Everyone knew the change was coming. Just not when. Attractive CETV's have a logic behind them. 

zagfles

michaels said:

zagfles said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

You seem to be missing the point. It's not about worrying that the DB scheme won't be able to meet its obligations, it's about how to hedge against the DB pension losing real terms value because inflation exceeds the contracted cap on inflation increases.

So if they can quote you a transfer value you could go to the online calculators and work out how much per year a fully indexed annuity would be if you spent the fund on that instead?

Not sure how knowing that would help. Although a transfer out and buying a fully index linked annuity might be an option although unlikely to be good value and lots of hassle.

DB will do badly in a high inflation environment, so need the DC to do well in a high inflation environment to hedge. So looking for investments that are likely to do well when inflation is high, but hopefully also not lose value in normal times.

Robert_McGeddon

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

Yes.  Not a large monthly amount but very handy! I have no intention at this point in converting it to a SIPP etc.

Thrugelmir

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

Yes.  Not a large monthly amount but very handy! I have no intention at this point in converting it to a SIPP etc.

I'm refering to the actual scheme itself.  At the last triennial valuation was the scheme in deficit?  Is the employee having to make additional contributions to rectify this. How stable is your employer financially. DB schemes run and run for years. Long after you've retired and drawing the benefits. 

zagfles

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

Yes.  Not a large monthly amount but very handy! I have no intention at this point in converting it to a SIPP etc.

I'm refering to the actual scheme itself.  At the last triennial valuation was the scheme in deficit?  Is the employee having to make additional contributions to rectify this. How stable is your employer financially. DB schemes run and run for years. Long after you've retired and drawing the benefits. 

Hedging against inflation is even more important if the scheme goes into the PPF, as inflation protection is far worse than most schemes https://www.ppf.co.uk/what-it-means-ppf

michaels

zagfles said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

Yes.  Not a large monthly amount but very handy! I have no intention at this point in converting it to a SIPP etc.

I'm refering to the actual scheme itself.  At the last triennial valuation was the scheme in deficit?  Is the employee having to make additional contributions to rectify this. How stable is your employer financially. DB schemes run and run for years. Long after you've retired and drawing the benefits. 

Hedging against inflation is even more important if the scheme goes into the PPF, as inflation protection is far worse than most schemes https://www.ppf.co.uk/what-it-means-ppf

That could be a real biggie if we did see any 70s/80s style inflation

Robert_McGeddon

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

Thrugelmir said:

Robert_McGeddon said:

zagfles said:

Deleted_User said:

Just a note that these percentages don’t mean a lot unless you specify your family’s DB income. Including state pension and whatever other bits you may have. Thats part of your FI allocation. 

Indeed. We have a solid base of DB pensions plus state pension, but the DB pensions have inflation risk, as like most (nearly all?) DB pensions they are not fully inflation protected. The inflation increases are capped, partly at 3% and partly at 5%.

I've just done some frightening analysis on the effect the inflation levels of previous decades would have on our DB pensions, after 10 years at 1970-1980 inflation rates, the DB pensions would be well under half their real value, a DB pension of £10,000 with an inflation cap of 5% would be worth £4300 in real terms after 10 years of 1970's inflation, and with a 3% cap only £3500. So somewhere in between for us, maybe £4000.

Every so often something is posted on the MSE forums that gives me a jolt.  Thank you, zagfiles, you hit the mark with this post. Whilst my DB is relatively small I had not considered the impact of capped inflation increases in the longer term. I will do so from now on.

There's no guarantee that returns from equities will exceed inflation over any given time frame. 

Agreed. However I,m not seeing a connection with what I posted. Why should I be concerned what my DB pension is invested in? It's not within my gift.  As long as it continues paying out (and isn't affected by zagfiles' inflation observation)  I don't see why I should get animated.

Is your DB scheme fully funded? 

Yes.  Not a large monthly amount but very handy! I have no intention at this point in converting it to a SIPP etc.

I'm refering to the actual scheme itself.  At the last triennial valuation was the scheme in deficit?  Is the employee having to make additional contributions to rectify this. How stable is your employer financially. DB schemes run and run for years. Long after you've retired and drawing the benefits. 

I have no worries on any of these points. Zagfiles' comment on capped RPI (if it applies) is of far greater long-term concern to me.