How much to live on

Kim1965

I have read about a new type if pension, sort of combination of dc and db. Does anyone have any info on how they work? Are they purely for company pension schemes? If no one knows what im on about i will try to find the article. 

hugheskevi

Kim1965 said:

I have read about a new type if pension, sort of combination of dc and db. Does anyone have any info on how they work? Are they purely for company pension schemes? If no one knows what im on about i will try to find the article. 

Collective Defined Contribution (CDC)?

Rather than every person having their own DC pot, a CDC scheme has a single pooled fund. Employers and members contribute, and each member has a target pension based on the contributions. Employers do not stand behind the fund in the way they do for a DB scheme.

Pensioner members and those approaching retirement are cushioned from volatility by the rules of the CDC scheme whilst younger members are subject to more volatility. For example, in a year of poor performance no pension increases may be paid to pensioners, whilst the target pension of younger members is reduced.

Professional managers invest the scheme's assets appropriately, enabling more risk to be taken across the collective investments than would be appropriate for a single member.

To date, only Royal Mail is proceeding with a CDC scheme but there is a lot of interest in seeing how it will work in practice. It is thought that this may be a very useful vehicle for decumulation in particular. 

Kim1965

Thankyou, so in effect these are not open to individuals unless they work for a largish company. No good for single self employed.
 Looks a good compromise given the reduction of db schemes in the private sector. 
 

Albermarle

New one on me, but sounds like a good idea. You see on the Pensions board many posters in inappropriate 'one size fits all' Lifestyle type default funds in their workplace pension. It is always up to the individual to make any changes and the large majority do not, so some kind of indirect help in managing the fund choices more appropriately sounds like a good idea.

There could be some practical issue for members who do want to do their own thing, and what happens if you leave and want to transfer out as you do not have an individual pot.

Also maybe the charges are higher ?

DairyQueen

hugheskevi said:

Kim1965 said:

I have read about a new type if pension, sort of combination of dc and db. Does anyone have any info on how they work? Are they purely for company pension schemes? If no one knows what im on about i will try to find the article. 

Collective Defined Contribution (CDC)?

Rather than every person having their own DC pot, a CDC scheme has a single pooled fund. Employers and members contribute, and each member has a target pension based on the contributions. Employers do not stand behind the fund in the way they do for a DB scheme.

Pensioner members and those approaching retirement are cushioned from volatility by the rules of the CDC scheme whilst younger members are subject to more volatility. For example, in a year of poor performance no pension increases may be paid to pensioners, whilst the target pension of younger members is reduced.

Professional managers invest the scheme's assets appropriately, enabling more risk to be taken across the collective investments than would be appropriate for a single member.

To date, only Royal Mail is proceeding with a CDC scheme but there is a lot of interest in seeing how it will work in practice. It is thought that this may be a very useful vehicle for decumulation in particular. 

As a postscript...

CDC schemes are common in the Netherlands and that country was the source of the RM initiative.

After several delays the RM CDC Scheme is now scheduled to begin next year. The good news for RM employees is that the company is proposing to pay a standard 13.6% of salary with employee contribution of 6%. Contributions can be increased to 15% and 10% respectively.

The detail is not finalised. For example, there is still no confirmation that contributions will be permitted for/by current employees whose benefits under the former final and career average DB schemes are in payment (i.e. they have reached NRA for those schemes but are still working for RM).

I understand that it is proposed that employees will be able to transfer if they wish but, again, not yet confirmed.

Highly unlikely that individuals will be able to join such a scheme any time soon but, as you say, corporates will be looking closely at how the RM 'experiment' pans-out. 

arnoldy

So most of us with a private sector DB are going to be 20% worse off, for the rest of our lives, after the currently predicted inflation of the next 2 years.

[Most private sector DBs will be capped at a blended rate of about 3% (most pensions have elements that are capped at 0%, 2.5%, 5%). And inflation is predicted to be >>10% over the next couple of years.]

If inflation becomes embedded those of us with defined private DB will slowly quite quickly sink into poverty - as happened in the 1970s.

marycanary

arnoldy said:

So most of us with a private sector DB are going to be 20% worse off, for the rest of our lives, after the currently predicted inflation of the next 2 years.

[Most private sector DBs will be capped at a blended rate of about 3% (most pensions have elements that are capped at 0%, 2.5%, 5%). And inflation is predicted to be >>10% over the next couple of years.]

If inflation becomes embedded those of us with defined private DB will slowly quite quickly sink into poverty - as happened in the 1970s.

Thank goodness for the triple lock.  Margaret Thatcher's 1980 Social Security Act broke the link between pensions and earnings that did so much to impoverish pensioners. To my mind, it is very worrying that Liz Truss is modelling herself on Thatcher. Truss and Rishi I took money from deprived areas Sunak are compassion free zones. 

hugheskevi

arnoldy said:

So most of us with a private sector DB are going to be 20% worse off, for the rest of our lives, after the currently predicted inflation of the next 2 years.

[Most private sector DBs will be capped at a blended rate of about 3% (most pensions have elements that are capped at 0%, 2.5%, 5%). And inflation is predicted to be >>10% over the next couple of years.]

If inflation becomes embedded those of us with defined private DB will slowly quite quickly sink into poverty - as happened in the 1970s.

It is even worse when combined with frozen income tax thresholds.

Say someone has a State Pension of £7,500 p/a and an occupational pension of £8,000 p/a and no other income, benefits, etc. Currently, they pay £586 of income tax, leaving them with £14,914.

If inflation is 10% and their State pension increased by that, and their private pension increases by 3%, their State Pension income is £8,250 and DB pension is £8,240. They now pay £784 in income tax, leaving them with £15,706. Their net income has risen by 5.3% - and despite a significant real terms cut, the amount of income tax paid has increased significantly.

EmmaRogerssss

[Deleted User] said:

Good morning all. Just a little update from me. This will be the last for a little while as I have decided to visit these boards far less often in the coming months.

As for the 'upgraded me' the cosmetic dental work is complete and my wardrobe sorted and updated! I have also ordered a further two pairs of spectacles (One pair being subscription sunglasses) both pairs at half price. I now have several pairs to suit my mood and dress!

My outfit for the family wedding in October is now complete . I have paid for the cruise in October. I will arrange hotel. accommodation and trips for my week n Vancouver next March early in January. I have already paid for the flight. Final payments for the Cyprus villa next May and the cruise in September 2023 are not required for months yet. I will also book the flights to Paphos when BA makes them available.

On a more practical note I have also spent time arranging a funeral plan, buying a burial plot and updating my will. Sounds a bit morbid but with all that sorted I can concentrate on living!

Finances are fine even though my savings will have taken a big hit as the result of my recent 'upgrades' and putting recent plans into action. However it is all manageable. I have a part-time teaching contract until December 31st. I will then make a decision about making retirement full or continuing with the semi-retirement. The extra-income will provide a further buffer, although not essential.

Outstanding plans for the summer holiday include painting one spare room, keeping  the garden as tidy as possible.(the long period of dry weather has left me with a brown patchy lawn but it will return when the rain finally comes!)

Plans for spare time activities include increased amount of reading, to finally get around to doing my Art, French and German courses for which I have  had the books and DVDs for nearly 2 years! On top of all this  doing some exercise,(I may return to the swimming pool 3 or 4 times a month, not been since pre-Covid times!), keeping the house clean and tidy and likewise for the garden. Along with my part-time contract, I will be busy but happy.

For years I was someone who never seemed to have a lot of spare money and who made some foolish financial decisions.
However, I did manage to buy my house and keep fairly solvent.
I am very fortunate that I paid into an index linked DB pension(although for most of the time I had no idea what that meant!). I will also have paid enough NI to ensure an almost full (bar a few pence!) new state pension from 2024. 

So now to the future with a few thousand spare in the bank and a future retirement income that should be fine.

Thank you all for your past comments and inspiration. As I said, I will occasionally check-in, but now want to concentrate on the future and avoid the 'what ifs' and 'if onlys' as well as the occasional 'envy' that reading these boards can sometimes cause in myself.

To all of those who worry about retirement don't let those worries hold you back. Budget and plan. You really don't need the huge amounts sometimes suggested by the 'other place'. Remember maximising financial gain should not be the be all and end all of everything.

Best wishes to you all!
 

Could you recommend agency or service you are going to use in Cyprus? I went to Paphos last year and now planning a new family trip. Just want to check up prices

[Deleted User]

I have used The Villa group and Getaway Villas without problems for nearly 20 years.