Good commutation? Bad commutation?

hyperhypo

Interesting PPF table ...i've not come across this before. I suppose i've always considered my own particular scheme was relatively generous ....at c. x 24 at age 63, but the equivalent PPF data (using spousal protection) more so at c. x34 at the same age. Quite a difference.

More food for thought. Might be better to forego the PCSL entirely.  The DB scheme has benefit of a 10% RPI index cap too (discretionary above 10%) so must be case for exposing as much annual DB pension to that potential benefit for the remainder of the lifetime of RPI (2030?).

Brynsam

Albermarle said:

SMcGill said:

The points made here about generating a tax free lump sum from a DB pension also apply in the other direction. I looked into commuting my DB tax free lump sum into pension income and the rate was nearly 30.

£30 tax free pounds to buy £1 taxable income p/a. Meh.

Put like that it looks unattractive but if the pension is inflation linked it looks significantly better .

...and of course any spouse's pension is almost always based on figures which assume the member took no tax free cash, since it is only the member's pension (rather than any survivors) being commuted.

NedS

hyperhypo said:

More food for thought. Might be better to forego the PCSL entirely.  The DB scheme has benefit of a 10% RPI index cap too (discretionary above 10%) so must be case for exposing as much annual DB pension to that potential benefit for the remainder of the lifetime of RPI (2030?).

I see high inflation as a huge risk to anyone with mostly DB pension income that is capped at a low value. I have 3 DB pensions, one capped at 2.5%, one at 5% and one uncapped. Assuming your 10% RPI converts to 10% CPI at some point, I'd place significant value on that affording you decent protection against long term higher inflation. I can remember a period of inflation rates of 10-15% and my mother complaining how much the price of butter had gone up each week. Many of us still working have expereinced it first hand, to a lesser extent, over the last 10 years where prices have risen faster than our wages.

zagfles

NedS said:

hyperhypo said:

More food for thought. Might be better to forego the PCSL entirely.  The DB scheme has benefit of a 10% RPI index cap too (discretionary above 10%) so must be case for exposing as much annual DB pension to that potential benefit for the remainder of the lifetime of RPI (2030?).

I see high inflation as a huge risk to anyone with mostly DB pension income that is capped at a low value. I have 3 DB pensions, one capped at 2.5%, one at 5% and one uncapped. Assuming your 10% RPI converts to 10% CPI at some point, I'd place significant value on that affording you decent protection against long term higher inflation. I can remember a period of inflation rates of 10-15% and my mother complaining how much the price of butter had gone up each week. Many of us still working have expereinced it first hand, to a lesser extent, over the last 10 years where prices have risen faster than our wages.

Yup, a decade of 1970's inflation would more than halve your real pension value even with a 5% cap.

colmel16

one thing i notice looking at both mine and my OH LGPS forecasts (both circa £1000 pa) is that they both offer tax free lump sums without taking into account the fact that without any other income the payments would be tax free anyway.

NedS

colmel16 said:

one thing i notice looking at both mine and my OH LGPS forecasts (both circa £1000 pa) is that they both offer tax free lump sums without taking into account the fact that without any other income the payments would be tax free anyway.

The ongoing payments are not tax free. They are taxable, but may fall within your personal tax allowance with no tax due to be paid if you have no other income. There is a difference, and LGPS can not possibly take it into account without knowing what your personal tax allowance is and how much other taxable income you may or may not have.

colmel16

i may be cynical but when the default setting is to offer the tax free cash , it does make you wonder if they are looking at it as a benifit to you or the scheme. It would be interesting to know how many pensioners live beyond the 12ish pension years it takes to start being the wrong decision especially when the early retirement is taken .

NottinghamKnight

colmel16 said:

i may be cynical but when the default setting is to offer the tax free cash , it does make you wonder if they are looking at it as a benifit to you or the scheme. It would be interesting to know how many pensioners live beyond the 12ish pension years it takes to start being the wrong decision especially when the early retirement is taken .

It's supposed to be cost neutral you would imagine but cohort life expectancy will no doubt be significantly greater than 12 years, but it's not as though people are forced to take the money, they think a bird in the hand which is the wrong view for most. 

NedS

hyperhypo said:

What would folk do with a PCLS commutation rate of x24 at age 63?

I'm going to take it ..i think..or perhaps half of it.as 50% of the total PCLS will bridge my income gap between start of DB at 63 and SP at 67.

Or leave it alone and drawdown the money to supplement DB from my DC savings?

Having trouble working this one out .....

When considering these, I start by looking at what percentage return would I need to make if I simply invested the lump sum to match the guaranteed pension I'd just given up. You'd need around a 4.2% return after fees, rising with inflation, which is probably achievable from a diversified income portfolio given you most likely have a 25 year investment window. So I'd consider a rate of 24:1 slap bang in the middle of the 12:1 no way, and the above cited 48:1 no-brainer. The decision will more likely depend on other factors.

hyperhypo

Ned... I'll probably end up taking some of pcls...crystallise remainder of sipp for the cash and some taxable drawdown over next 4 years..to help fill income gap between dB and sp.  Might try to align reduced dB to my personal allowance as values are similar.