DB Valuation - Maths query

Thrugelmir

AndyGB93 said:

I count myself among them, I couldn't believe a) the transfer value which seems extremely large to me and b) what my simple (and obviously flawed) calculations were coming out at.

Take any 5 figure number, compound it annually by a measure of inflation over 30 years and it will be a considerable sum in total.  Compounding is the most overlooked aspect of investing or inversely paying down a mortgage. The heavy lifting really kicks in at the latter years. 

Thrugelmir

2nd_time_buyer said:

Despite the 'safe' advice often being to stay-put with DB pensions. The reality is, as you get older, the value of money to you diminishes – there is less and less to enjoy spending it on e.g. is £1000 at 55 when you are fit and active worth the same as an inflation adjusted £1000 when you are 90 and can barely get out of a chair?

That's why people age at different rates. Much of it is in the mind and an attitude to life.  My mother was still taking keep fit classes for the over 65's until she was 86.........

AlanP_2

Thrugelmir said:

2nd_time_buyer said:

Despite the 'safe' advice often being to stay-put with DB pensions. The reality is, as you get older, the value of money to you diminishes – there is less and less to enjoy spending it on e.g. is £1000 at 55 when you are fit and active worth the same as an inflation adjusted £1000 when you are 90 and can barely get out of a chair?

That's why people age at different rates. Much of it is in the mind and an attitude to life.  My mother was still taking keep fit classes for the over 65's until she was 86.........

Not quite 90s but my in-laws are both over 85 and have 4 overseas and 5 UK holidays booked for next year (post-Covid hopefully) including one to Japan.

We went with them to Spain in November 2019. They don't drive abroard anymore so for a week I hired a car and we travelled around the area then we flew home.

They stayed for another week so that "they could do decent walks without us slowing them down and limiting their options". The 4-8 mile ones we had been doing with them were the warm up act as far as they are concerned.

2nd_time_buyer

Thrugelmir said:

2nd_time_buyer said:

Despite the 'safe' advice often being to stay-put with DB pensions. The reality is, as you get older, the value of money to you diminishes – there is less and less to enjoy spending it on e.g. is £1000 at 55 when you are fit and active worth the same as an inflation adjusted £1000 when you are 90 and can barely get out of a chair?

That's why people age at different rates. Much of it is in the mind and an attitude to life.  My mother was still taking keep fit classes for the over 65's until she was 86.........

That's a good point. I hope that doing lots of things when I am 'younger' will help me to maintain fitness and a good mental state when I am older. If the money runs a bit thin, well I think I could get by on little over the state pension. 

Sometimes it seems the biggest risk to people's retirement plans is outliving their life expectancy. To me, it would be a nice problem to have. 

Bimbly

NedS said:

I honestly have no idea how much importance or value I will place on having good care home provision "when I'm 90... How should I account for that when front loading drawdown having cashed in my DB pensions?

Do you own a property? It's at this point that I think equity release could come into its own. This is my plan.
Even with a spouse, they can continue to live in their home while equity release pays for care home fees.
If you are planning to leave the house as an inheritance, my feeling is that your children will prefer to see you well looked after.

DT2001

AndyGB93 said:

Having read other threads I'm conscious that asking questions about transferring out of a DB scheme can result in some harsh responses, so let me say up front that I am aware of the requirement to get professional advice and as I am still only 51 it will be a few years before I can do anything anyway and who knows what the rules will be when I hit 55 anyway !. This is purely a question about my calculations, if they are correct or have I misread/misunderstood something.

So my question:
I am lucky enough to have a deferred final salary pension from 20 years with a building society/bank that starts paying when I hit 62 (I left the company 10 years ago). I have just got the transfer out value and a projected pension value from the scheme today and by my calculations I would have to draw the pension until I am 105 to draw out the value of the pension if I were able to transfer it out today, are my calculation correct ?

The figures I have from the scheme are:

Guaranteed transfer value                                       £645,264.41

   which includes:
   Scheme pension built up before 6 April 1997

      transfer value of GMP                                          £27,153.52

      other rights                                                           £192,629.33

   Scheme pension built up after 5 April 1997

      value of Post 5 April 1997 rights                           £425,481.56

Retirement Pension Forecast (at 62)

Option 1 (Full pension) -                                              £ 15,168.64 a year

Option 2 - (Lump sum and reduced pension)              Lump Sum £ 77,430..41 / Pension £ 11,614.56 a year

So to my mind the transfer value (£645,264) divided by the forecast pension (£15,168) means that even without any capital growth I would have to draw an equivalent of the pension each year for just under 43 years after retirement before I exhausted the funds available. Given that the ONS predicts my life expectancy to be 84 and gives a 4% chance of me reaching 100 I think it is worth thinking about. But what have I missed, what have I misunderstood ? Any comments would be gratefully received.

Do you know how the GMP works in your scheme?
You’ll have had 20+ years of growth when this is revalued at 65 giving you a potential step up. Also you could have a SP reduction at 67.
Might make some/no difference to your figures but worth checking.

If you took option 2 some schemes give surviving spouse benefit based on pension before lump sum.

TVAS

We are rather negative about life expectancy. We all think we will drop down dead at 65. We also think we can live on a smaller income because we are no longer working when in reality we will spend more on travel, days out, supporting our adult children and spoiling our grandchildren. I intend to make regular gifts to my Kemi and my Eli) niece and nephew during my lifetime to avoid IHT and see what they do we the dosh so if they make a mess of it I know that income payments would be better than a lump sum.

Why are we still talking about this pension, the transfer value is high for a reason. It would not surprise me if it had 66.67% spouse pension and could also have a fixed rate increase in payment. It would have been helpful if this information was provided.

At the end of the day one has to decide does one want a no risk guaranteed increasing income knowing that the spouse will be provided for on death OR invest in the stock market bearing the risk and cost.