How much to live on

otb666

Miss you already Baron_Dale frightened myself by going on Energy Board having adjusted budget to 205pm from 120pm for gas and electric (previously 80pm) Now the prices have doubled again for 2 year fixes So come feb24 will have to certainly start reduce spending, frightening times Glad got this forum to rant Also cant eat bread as undiagnosed  celiac

henry24

Possibly a silly question but on one of my pension statements it's saying if I die or transfer out it's worth £110000 is that the same as the amount I would get if I was to retire now. It also has a GAR saying at 65 I will get £6200 per year but if I claim before 65 I lose the GAR so looking like another 4 years for me 

blue.peter

henry24 said:

Possibly a silly question...

Sorry, but I don't see a question. If you have one, what is it?

FWIW, what you're describing sounds (mostly) like a perfectly ordinary defined contribution pension. A fund accumulates and, when you retire, it's designed to buy an annuity. But if you die before retirement, that same fund is returned - by default, typically to your estate. There might be an option for you to nominate a beneficiary to receive the death benefit or to write it under trust. Either of these options is likely to (a) speed up the payment and (b) keep it out of your estate for Inheritance Tax purposes. If this is of interest, you should talk to your provider about it.

You might well have an open market option available. This is the right to buy your annuity from any insurance company of your choice, and can result in your being able to buy at a more favourable rate than the original pension provider offers. (This is pretty much a certainty if your plan was started after 1988, and somewhere between possible and probable if it's older.) Having said that, I note your reference to a GAR. This is likely to be very valuable, so don't give it up without very careful thought.

With regard to the GAR, if you want to retire earlier than 65, it's worth checking with your provider to see if they offer GARs at earlier ages. It's often (though not always) the case that they offer a range of rates, with the rate offered being age-dependent. And they might be more flexible now than they were when you started the plan.

It's also worth checking with your provider if you want to take advantage of the freedom to take your fund entirely as cash. Although probably not allowed by the contract terms, your provider might have decided to relax on the point when the law was changed to allow it.

henry24

What I'm trying to ask is whether the transfer value is what my 25% tax free amount is based on

blue.peter

henry24 said:

What I'm trying to ask is whether the transfer value is what my 25% tax free amount is based on

Sorry, but I can't be certain. This is something that can vary from one plan to another, and depends on the underlying contract structure. If you want a definite answer, you'll need to ask the provider.

Typically, though, I'd expect the transfer value to be the real (as opposed to nominal) present value of the plan. In this case, yes, 25% of the TV would be what you could expect to take if you were to draw the benefits now.

Where the TV and nominal fund values differ, I'd expect them to converge to the point where they're equal at the normal retirement date under the plan.

Kim1965

All depends on your other pension provisions and attitude to risk. Are you a very savvy investor? Are you just blinded by the pound notes offer?
If income is whats needed,,  the GAR looksgreat, your probably not going to get 6.2 k from 110k on drawdown to last very long. 

henry24

Kim1965  I've just turned 60 and after reading this thread I've been checking to get some idea on whether I could retire but with the above pension I lose the GAR if I take it before 65. I also have another pension from the late 70s also with a GAR that I could take now as well as a 15 year railway pension from 65. My thinking is maybe claim the pension that I can now save it until I'm 63 then use it with my savings until the other ones pay out at 65

Kim1965

henry24 said:

Kim1965  I've just turned 60 and after reading this thread I've been checking to get some idea on whether I could retire but with the above pension I lose the GAR if I take it before 65. I also have another pension from the late 70s also with a GAR that I could take now as well as a 15 year railway pension from 65. My thinking is maybe claim the pension that I can now save it until I'm 63 then use it with my savings until the other ones pay out at 65

Again if your not a knowlegeable investor, the gaurenteed options may be best, managing a pot of money may lead to sleepless nights. Generally it is said you can only draw 4% of your casj pot safely (if you   know whst your doing). Do your Gars offer more than that? is there any inflation proofing?
Do you need a cash lump sum, does your final salary scheme give a lump sum and what is the commutation rate? Lots to consider. 

Xbigman

Assuming a DC scheme, 110,000 will only get you an income of about £4000. That GAR is therefore very valuable. In those circumstances you don't take a lump sum, you take the extra income. And you don't retire until the GAR is applicable. Obviously personal circumstances vary a lot.

If you bring this subject up on the main pensions board you will get more comprehensive advice.

Darren

hugheskevi

It is important to consider exactly how the GAR is calculated and what is guaranteed.

If it is simply a single-life (ie no survivor benefits) annuity with no index-linking and no guarantee period then the guarantee doesn't look especially generous - especially if you have any medical conditions. However, if the guarantee is for joint life (50%) benefits, with uncapped RPI increases and a 5 year guarantee period than the guarantee is extremely valuable.

Is the guarantee of £6,200 p/a based on what you would get from a pot of £110,000 if you were aged 65 now, or is there an assumption of growth of the £110,000 between now and age 65? What are the options for a tax-free pension commencement lump sum? Are you able to contribute more funds which will benefit from the guarantee? These things will be important to determine exactly what rate is guaranteed and how investment performance and retirement options affects that.