How much to live on

Albermarle

[Deleted User] said:

I would say keep the DB pension. Nothing like a guaranteed pension income for life, especially if there is any form of index linking attached. Each to his own of course.

I am just very grateful that all my pension income is guaranteed for life with with index linking.It certainly removes any stress and uncertainty associated with income dependent on investments.

DB income may be seen as less flexible but as far as I am concerned it is something with which I can easily live.

On the Pensions forum it is often said that the 'sweet spot' is to have enough guaranteed income ( DB + state pension) to cover all normal day to day expenses. Then have a DC pension or other investments savings for the finer things in life, larger irregular expenditures, maybe gifts to family etc . Also it can be left as a legacy ( if there is any left of course) .
If the markets go through a rough patch you can cut back the withdrawals, as your guaranteed income covers the main bases.
Of course it is not necessarily easy/possible for most to reach this sweet spot, but it is an interesting concept all the same. 

[Deleted User]

Of course, it may only be possible for people with sufficient resources to achieve the so called 'sweet spot'.

As a teacher for 4 decades paying a mortgage and living life there was rarely an opportunity to save, let alone set up a private pension.

My DB pension serves me well and what is left of my lump sum provides additional security. 

As a single person with no dependants I do not have to concern myself with gifts to family or legacy issues.
Nor do I need to worry about 'rough patches'. However, I accept that for some people having both  DB and  DC pension provision can be an advantage.

I am more than happy just having a guaranteed income.. It is also sufficient income for me to add to savings most months.

Clowance

Thanks for all replies, we are not transferring the DB pension but he seemed to think it may be better to combine several smaller DC pensions, which I am not convinced about anyway. He did say we could pay the income from the DB pension (not the tax free lump sum) back into another pension to avoid 40% tax which may or may not be useful. Incidentally when I have been trying to work out if  the tax free lump sum was really completely tax free, I found it almost impossible as everywhere I looked said only 25% tax free, it wasn't until I realised the rules were different for DB pensions to the more common DC ones that it became clear. 

Organgrinder

Clowance said:

Thanks for all replies, we are not transferring the DB pension but he seemed to think it may be better to combine several smaller DC pensions, which I am not convinced about anyway. He did say we could pay the income from the DB pension (not the tax free lump sum) back into another pension to avoid 40% tax which may or may not be useful. Incidentally when I have been trying to work out if  the tax free lump sum was really completely tax free, I found it almost impossible as everywhere I looked said only 25% tax free, it wasn't until I realised the rules were different for DB pensions to the more common DC ones that it became clear. 

I am currently doing just that.

I currently have three pensions in addition to my part time working. At the moment I am liable for approx £4k at the 40% tax rate so I make sure I put an amount into my DC pension to ensure I pay no tax at 40%.

This means that upon retirement I will have grown my DC pension pot to over £80k and have approx £60k in ISAs. (This is somewhat more than I had planned for originally from memory). I'll also have a DB pension of about £23k leading to a pension of £35k once the state pension kicks in.

This has meant a potential full retirement on the above figures at just over 60. I'm a teacher and our contribution rates are in my opinion sufficiently low that I have been able to put money in to my DC pot and my ISAs through a combination of stoozing (currenly £35k), offsetting the mortgage and using pension income.

As already mentioned, everyone's circumstances are different. As someone with children, using my DB pensions in a way that reduced the pension but grew the available assets made perfect sense. No point in me having a potential £43k pa pension at SPA and no savings to leave, compared with a forecast £120k in assets but a £35k pension. Yes I'd have £6.4k pa more each year after tax - but it would take me far too long to have anything to pass on to my children.

Albermarle

Clowance said:

Thanks for all replies, we are not transferring the DB pension but he seemed to think it may be better to combine several smaller DC pensions, which I am not convinced about anyway. He did say we could pay the income from the DB pension (not the tax free lump sum) back into another pension to avoid 40% tax which may or may not be useful. Incidentally when I have been trying to work out if  the tax free lump sum was really completely tax free, I found it almost impossible as everywhere I looked said only 25% tax free, it wasn't until I realised the rules were different for DB pensions to the more common DC ones that it became clear. 

Questions about combining DC pensions crop up regularly on the Pensions forum.
In brief summary, it is unlikely to be significantly financially advantageous or disadvantageous, as it is the investments in the pensions that drive the growth ( or not), not the pension providers them selves.
However it can make admin easier, especially when you are coming up to the time to start withdrawing.
Some older pensions have less withdrawal options than newer ones, and maybe old IT/websites.
Plus there can be variation in charges.

Albermarle

[Deleted User] said:

Of course, it may only be possible for people with sufficient resources to achieve the so called 'sweet spot'.

As a teacher for 4 decades paying a mortgage and living life there was rarely an opportunity to save, let alone set up a private pension.

My DB pension serves me well and what is left of my lump sum provides additional security. 

As a single person with no dependants I do not have to concern myself with gifts to family or legacy issues.
Nor do I need to worry about 'rough patches'. However, I accept that for some people having both  DB and  DC pension provision can be an advantage.

I am more than happy just having a guaranteed income.. It is also sufficient income for me to add to savings most months.

A common scenario is an employee in the private sector, who has built up some years in a DB scheme before the DB scheme was stopped ( as most of them have been due to the high cost for the employer). They then maybe spent the last 10 to 20 years of their career in a DC scheme.
So they have a DB and DC scheme by default effectively.

helensbiggestfan

It's horses for courses really isn't it.  Everyone's circumstances are different, we all have different needs, desires and goals.  There is no one size fits all solution.  And even if you think you've found that "sweet spot" life has a nasty habit of throwing curved balls and you then have to rethink your strategy.  

When my husband got sick we were under enormous financial pressure.  I am not going to go into all the details but trust me - being long term sick or disabled has a detrimental effect on one's finances.  And for those who think the State will see you through, then I have bad news, it won't.  Not unless you are already more or less on the breadline.  If you have any money at all then the State will turn its back on you and it will bleed you dry.  

The best piece of life  advice I was ever given is by an old aunt who was also a widow.  She told me "do not put your faith in the State because just when you need it most, it will desert you". How right she was.  

When  disaster struck I had to take drastic action, first selling our holiday home in Spain, then selling the family home.   When faced with having to place my husband into care I was left to navigate the maze alone.  Family couldn't help because no one had any experience in dealing with such matters.  So I took legal and financial advice. I completely overhauled everything in order to salvage as much as I could.   POAs, wills, advance directives, mental competency examinations, the lot.  It was an extremely complex and stressful situation for anyone to navigate, the pressure was relentless. 

I don't know how anyone can prepare themselves in advance for such an ordeal because obviously rules and regulations change.  But I would strongly advise anyone if it does happen to you then don't place your trust in Adult Social Services.  You will be given confusing and conflicting advice and you will flounder. It would be better to take proper legal advice.  It cost me around £1500 at the time (2013) but it was worth every penny.  I was able to protect myself and my children to a certain degree. 

helensbiggestfan

I have just taxed and insured my old jalopy.  Shopped around and saved £35 on the insurance.  Not much but every little helps.  😉.   I could have gone slightly cheaper and saved even more but decided to upgrade a couple of the terms.....for example extra personal accident cover, which would pay for physio etc - not that I want to have an accident.........

Last time I was involved in a prang (not my fault) I suffered quite severe seat belt injuries and bad whiplash.  In fact I still have some long term issues as a result.  I have to have regular chiropractic treatments to straighten me out,  The Quasimodo look isn't a good one. So I decided to increase my cover.  I'm not getting any younger and my old bones aren't as good as they were.  Lol. 

As a result of the move I have ended up with two fridge freezers.  I have decided to keep both for now.  I am getting winter ready, steadily stocking up the freezers with any bargains I come across, plus garden produce and some batch cooking. Got to fight back against the rising food prices. I've also stocked up on OTC comfort meds for any winter ailments.  I was never in the Girl Guides but I fully embrace their "Be Prepared" motto. 😁

Organgrinder

Albermarle said:

[Deleted User] said:

Of course, it may only be possible for people with sufficient resources to achieve the so called 'sweet spot'.

As a teacher for 4 decades paying a mortgage and living life there was rarely an opportunity to save, let alone set up a private pension.

My DB pension serves me well and what is left of my lump sum provides additional security. 

As a single person with no dependants I do not have to concern myself with gifts to family or legacy issues.
Nor do I need to worry about 'rough patches'. However, I accept that for some people having both  DB and  DC pension provision can be an advantage.

I am more than happy just having a guaranteed income.. It is also sufficient income for me to add to savings most months.

A common scenario is an employee in the private sector, who has built up some years in a DB scheme before the DB scheme was stopped ( as most of them have been due to the high cost for the employer). They then maybe spent the last 10 to 20 years of their career in a DC scheme.
So they have a DB and DC scheme by default effectively.

This scenario is I would say a great one for many.

Whilst you don't get a fixed income, it is possible to avoid that income jump when the state pension kicks in and plan for a steady income throughout retirement.

If you have a target income in mind for your retirement, it makes a great deal of sense to me to work on a scenario where you subtract the state pension to find hopefully a figure your DB pension will cover. Then see whether a combination of your DB pension and some form of either drawdown or fixed term annuity from your DC pot can cover the shortfall in income between your desired retirement age and the state pension. You can factor in any money you wish to keep in investments/savings too.

DB pensions are great in principle, but can be very restrictive especially with the rise in the state pension age to 67. Where maybe you had planned a retirement at 60, those extra 2 years mean a potential £24k shortfall. The flexibility of a pot of money to fill that gap is very helpful.

I found myself in the position where I had a mortgage to pay until 68. Realistically the only way I could pay this would have been to carry on working. Or so I thought.

I had 2 DB pensions with very generous commutation factors. I took tax free lump sums to pay off the mortgage. 

In addition, taking the pensions early has allowed me to build my DC pot.

It means a much earlier retirement.

The big question is, will I be better or worse off? This for me is where it got fascinating. The longer I waited to take my DB pensions, the poorer the commutation rates.

I can't remember exactly but essentially I'd have to live till 82 to be worse off but have managed to be in a position where not only can I retire at 60, but have released money that I can put in savings or as stated earlier, pass on to my children. DB pensions outside of a lump sum can only really do that if you live long enough to invest the difference.

Nebulous2

Organgrinder said:

Clowance said:

Thanks for all replies, we are not transferring the DB pension but he seemed to think it may be better to combine several smaller DC pensions, which I am not convinced about anyway. He did say we could pay the income from the DB pension (not the tax free lump sum) back into another pension to avoid 40% tax which may or may not be useful. Incidentally when I have been trying to work out if  the tax free lump sum was really completely tax free, I found it almost impossible as everywhere I looked said only 25% tax free, it wasn't until I realised the rules were different for DB pensions to the more common DC ones that it became clear. 

I am currently doing just that.

I currently have three pensions in addition to my part time working. At the moment I am liable for approx £4k at the 40% tax rate so I make sure I put an amount into my DC pension to ensure I pay no tax at 40%.

This means that upon retirement I will have grown my DC pension pot to over £80k and have approx £60k in ISAs. (This is somewhat more than I had planned for originally from memory). I'll also have a DB pension of about £23k leading to a pension of £35k once the state pension kicks in.

This has meant a potential full retirement on the above figures at just over 60. I'm a teacher and our contribution rates are in my opinion sufficiently low that I have been able to put money in to my DC pot and my ISAs through a combination of stoozing (currenly £35k), offsetting the mortgage and using pension income.

As already mentioned, everyone's circumstances are different. As someone with children, using my DB pensions in a way that reduced the pension but grew the available assets made perfect sense. No point in me having a potential £43k pa pension at SPA and no savings to leave, compared with a forecast £120k in assets but a £35k pension. Yes I'd have £6.4k pa more each year after tax - but it would take me far too long to have anything to pass on to my children.

I retired at 59. By a quirk of transferring my pension from one public sector scheme to another, I didn't have an automatic lump sum at all. Moving from a more expensive area to a cheaper one provided a lump sum, intended to fund me through to state pension age. Staying on at work until 67 would have meant I was earning more in DB pension and state pension than I had ever earned in my life. I chose not to take a lump sum, and the public sector pension has had a couple of decent CPI increases since I retired. So I've no regrets about that decision. 

I quickly decided I wasn't ready for retirement and took a part-time job. I also discovered that I was reluctant to spend my capital, despite that being what it was earmarked for. I've been paying a fair bit of my earnings into a DC pension. 

Looking at stopping completely early next year, likely to have over £40k in a DC pension, and most of my lump sum intact. I will also have added another £1500 or so in DB pension. 

Once we reach State Pension Age I think it is likely that we will not spend all our income. 

So I'll have a similar outcome to you - by a different route. There's more than one way to skin a cat, as the saying goes!