Equity percentage in the deaccumulation phase

Thrugelmir

Robert_McGeddon 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. 

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.

One of the BOE's mandates is to hold inflation at around 2% for financial stability. A 5% cap is unlikely to be broken. 

zagfles

Thrugelmir said:

Robert_McGeddon 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. 

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.

One of the BOE's mandates is to hold inflation at around 2% for financial stability. A 5% cap is unlikely to be broken. 

And that sort of thing could change easily enough. The govt has massive debts, one way to reduce them is allow inflation to do the work, rather than tax rises or "austerity" neither of which the govt or people seem to have the appetite for.

MarkCarnage

One of the BOE's mandates is to hold inflation at around 2% for financial stability. A 5% cap is unlikely to be broken. 

Maybe. But who would have forecast negative real and possibly nominal interest rates 10 or 20 years ago?

Would the BoE really put rates up as happened in the Volcker era? The stress tests on the mortgage market might be interesting...

The cap is also 2.5% for many pensions now.....not 5%. Quite easy to see that happening. 

Thrugelmir

zagfles said:

Thrugelmir said:

Robert_McGeddon 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. 

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.

One of the BOE's mandates is to hold inflation at around 2% for financial stability. A 5% cap is unlikely to be broken. 

And that sort of thing could change easily enough. The govt has massive debts, one way to reduce them is allow inflation to do the work, rather than tax rises or "austerity" neither of which the govt or people seem to have the appetite for.

Where's the inflation going to come from? Labour market is now globalised.  A significant change in less than 30 years. 

Unless people are more productive. Then there's little option but to maintain "austerity".  International lenders aren't going to fund the UK going on a spending spree. We've sold off many assets already. There's no easy answers.  Having a service based economy is the cause of many problems now. Like WFH.  Covid has brought forward change by some years. 

[Deleted User]

Inflation could come from the massive increases in money supply which have happened across the western world. If and when, following the recovery and growth in consumer confidence all these extra money starts chasing the limited supply of goods and services, we’ll see a spike in inflation. This may or may not happen. 

I wouldn’t put too much trust in Central Banks and their targets. The targets can change. Federal Reserve has just changed its interest rate policy to allow inflation to go above its target to help revive the economy. Canada did something similar. MMT is gaining popularity in certain political circles. Anything can happen. 

TBC15

Any thoughts on £/$ exchange rate?

michaels

Currently cable is a play on a brexit deal, the gradual strengthening reflects the view a deal is odds on - however if a deal happens there may still be room for a jump...on the other hand it may be a 'buy the rumour' situation and there may not be too much upside left?

Sea_Shell

We are currently at 52% Equities, 14% cash and 34% other.   

The cash is quite high at the moment, as we have a significant chunk in a 5 yr fixed rate deal, due to end next September (2.2%).

We'll take a view on what to do with that cash at the time, but will look to move a substantial chunk of it into our ISAs, but at the moment we don't know what % will end up in equities.

We'll probably end up at around 7% cash going forward, which would represent about 3 yrs spending buffer.

AlanP_2

Deleted_User said:

Inflation could come from the massive increases in money supply which have happened across the western world. If and when, following the recovery and growth in consumer confidence all these extra money starts chasing the limited supply of goods and services, we’ll see a spike in inflation. This may or may not happen. 

I wouldn’t put too much trust in Central Banks and their targets. The targets can change. Federal Reserve has just changed its interest rate policy to allow inflation to go above its target to help revive the economy. Canada did something similar. MMT is gaining popularity in certain political circles. Anything can happen. 

MMT gaining in popularity doesn't necessarilly mean that inflation will rise as they point that out as the "target" to focus on rather than the amount of money in the economy and the balance between Tax & Gov Expenditure as the traditional economic theories do.

Until the supply of goods and services is limited there is minimal upward pressure on prices and thus on inflation, and at the moment in the UK we are a long way off that.

NOTE: The economists who advocate MMT are explicit that it is only applicable to nations that issue and control their own currency as they cannot technically become bankrupt. The point being that the US / UK / Japan etc. can't end up in the same position as Greece etc. in the Eurozone, and many EM countries that have currencies explicitly linked to the $ did a few years ago where they needed to borrow heavily and were forced to "balance their books" by the lenders.

Whether MMT is a sensible, sustainable approach for the UK / US in the years ahead who knows but there is a lot of it that makes inherent sense to me. If there are no benefits to having your own currency issuing capability why didn't we join the Euro? If we don't have the same limitations why do we have to conform to the same fiscal / monetary policies?