A Paupers Pension Tale (Not many nuts to dig up)

hugheskevi

harlequinnyc said:

I am surprised to hear that the commutation rate is terrible. I thought that this seemed a good deal, so I will relook at my figures in relation to that. Do you mean it's a bad idea, as I would be paid more long term with the higher pension than the difference in the lump sums? As, this would only apply if I live long enough?

Yes, that is right. Although as it is labelled as a tax free lump sum, most don't ever get far beyond that and take a lump sum thinking it is a good deal. Which it is - but for the scheme

At age 60, you can expect to live about 25-30 years. So exchange annual pension for a capital lump sum of x12 will usually be a bad deal. Even taking into account basic rate tax and ignoring indexing, after 15 years you would have received more from the pension after tax than you would have received from the tax free lump sum.

Your NHS probably has a guarantee that your partner will receive a minimum of 5 years of payments if you die shortly after taking it, reducing the worst possible outcomes.

I will definitely now focus on a SIPP rather than an ISA. My OH (who has workplace and very small private Royal London pension he was sold years ago) should also look into opening a one for himself, so we can use his full allowance to put more in, if we can? 

You are a couple, so plan as a couple, not as two individuals. It will be more efficient.

Just remember cash/savings/premium bonds is great for flexibility and meeting short term sudden income requirements, but terrible as a long-term investment. Investment ISAs are good for longer term investing to meet income or large expenditure requirements before age 55. Pensions are great for everything after age 55.

Albermarle

My OH (who has workplace and very small private Royal London pension he was sold years ago) should also look into opening a one for himself, so we can use his full allowance to put more in, if we can?  

Your OH already has two DC pensions ( assuming the workplace one is a DC pension) so why open a third one ? Probably easier just to add to the current workplace pension. Normally they accept lump sums as well as regular contributions and they will have a choice of investment funds within the pension.

I am surprised to hear that the commutation rate is terrible. I thought that this seemed a good deal, so I will relook at my figures in relation to that. Do you mean it's a bad idea, as I would be paid more long term with the higher pension than the difference in the lump sums? As, this would only apply if I live long enough?

12:1 is a poor commutation rate . Nowadays there is a reasonable chance you will reach 90 .

A more typical commutation rate is 20:1 or even a bit higher . In this case the decision becomes a bit more 50:50 depending on personal circumstances.

bluenose1

harleyquinnc - 
Like myself you are focusing on income required until SP age, cos after then we will hopefully have more income than we know what to do with. I have similar DB  pension etc to yourself from 60.
If you take the 12:1 commutation rate at 60 then 7 years of it you will only be getting back what you would get between 60 and 66 without the inflation proof aspect, so to me it wasn’t worth doing.

If I were in your current  situation if you had savings you could live on I would put all this years net income into a SIPP. Even if you pay tax on it you will get 6.25% back. Then the £2,880 per year.
I have put mine in as cash to draw out over next 5 years  as didn’t want to take any risks, though obviously have to weigh up effects of inflation.
Not sure what age your oh want to retire etc but  would be looking at his works pension first to make additional contributions if possible. In mine we can make additional voluntary contributions which get salary Sacrifice. Therefore for every £68 I put in my pension pot increases by £100.
I have made use of small pots rule to withdraw from my SIPP and put in again for the advantage of 6.25%. 

My oh has a decent DB pension and we are the lucky ones who have got them by default without even realising in some instances. Though good to top us as best you can via additional contributions / SIPPs etc. 

Can’t remember who recommended it on here but I have really liked https://www.guiide.co.uk/ to profile my pension requirements etc. 
Much simpler to use than all my War and Peace spreadsheets, though  I still examine them daily.
Good luck, sounds like making a bit more will be the icing on the cake for yourself.

philiphodges

Thanks very much for highlighting our site, Guiide. When I see an uptick in traffic from MSE, I assume it has been mentioned in the forums here. I hope anyone who gives it a try finds it useful. We are adding a lot more features over the summer and it will always be free to subscribers to use to help with their pension planning needs.

blocpartyfan

What a helpful thread; very humble and authentic. Thank you.

Terron

harlequinnyc said:

I have just read John Edwards's recommended DIY Pensions book and am trying to digest these posts but a lot of it does seem to apply to DC pensions and I have a DB, which according to his book, it is the gold standard and if you have one, you are lucky and don't have much to worry about, right? I am learning a little but going around in circles at the same time and think I may be confusing myself unnecessarily.

That is not entirely accurate. A DB pension with full inflation proofing is the gold standard, but not all DB pension have that. Neither of mine do One will increase with inflation up to a cap of 5%, the other has increases entirely at the discretion of the trustees, which usually means none at all.

barnstar2077

A quick update from me.  After much deliberation I have dropped down to a four day week!

My work is constantly moving itself towards the Amazon business model, and the pressure to do more and account for every second of the day is taking it's toll.  Some of my friends at work are likely to be leaving soon due to these changes (not by choice) which has been a further blow to my morale.

Although I have been determined for the last couple of years to earn as much as I can and then retire early, one thought changed my mind about my strategy.  I realised that if I was ten years older, but my finances were as they are today then I could practically afford to retire already (not comfortably, but retire none the less.)  So, really all I need to do is actually make it to about 55 and I will be okay.  I will still put money into my ISA and pension, not as much as before, but hopefully the remaining time will add some further growth (yes, I realise this isn't guaranteed.)

So I have decided to give myself a break now, and pray that it is enough to help me last another ten years.

I have made a commitment to myself though.  That the extra day off is to be treated as if it were part of my retirement.  So no sitting around the house bored.  I am going to either do DIY projects or meet friends and family on those days.  If I don't fancy the former, and have been unable to arrange the latter, then on that day I will go into town and have lunch somewhere and a walk etc.   Hopefully I will look back on this decision as being a real game changer for me! <Fingers crossed>

michaels

barnstar2077 said:

A quick update from me.  After much deliberation I have dropped down to a four day week!

My work is constantly moving itself towards the Amazon business model, and the pressure to do more and account for every second of the day is taking it's toll.  Some of my friends at work are likely to be leaving soon due to these changes (not by choice) which has been a further blow to my morale.

Although I have been determined for the last couple of years to earn as much as I can and then retire early, one thought changed my mind about my strategy.  I realised that if I was ten years older, but my finances were as they are today then I could practically afford to retire already (not comfortably, but retire none the less.)  So, really all I need to do is actually make it to about 55 and I will be okay.  I will still put money into my ISA and pension, not as much as before, but hopefully the remaining time will add some further growth (yes, I realise this isn't guaranteed.)

So I have decided to give myself a break now, and pray that it is enough to help me last another ten years.

I have made a commitment to myself though.  That the extra day off is to be treated as if it were part of my retirement.  So no sitting around the house bored.  I am going to either do DIY projects or meet friends and family on those days.  If I don't fancy the former, and have been unable to arrange the latter, then on that day I will go into town and have lunch somewhere and a walk etc.   Hopefully I will look back on this decision as being a real game changer for me! <Fingers crossed>

You are still planning on retiring at 53, you are just taking most of the first two years of retirement in advance.....

barnstar2077

michaels said:

barnstar2077 said:

A quick update from me.  After much deliberation I have dropped down to a four day week!

My work is constantly moving itself towards the Amazon business model, and the pressure to do more and account for every second of the day is taking it's toll.  Some of my friends at work are likely to be leaving soon due to these changes (not by choice) which has been a further blow to my morale.

Although I have been determined for the last couple of years to earn as much as I can and then retire early, one thought changed my mind about my strategy.  I realised that if I was ten years older, but my finances were as they are today then I could practically afford to retire already (not comfortably, but retire none the less.)  So, really all I need to do is actually make it to about 55 and I will be okay.  I will still put money into my ISA and pension, not as much as before, but hopefully the remaining time will add some further growth (yes, I realise this isn't guaranteed.)

So I have decided to give myself a break now, and pray that it is enough to help me last another ten years.

I have made a commitment to myself though.  That the extra day off is to be treated as if it were part of my retirement.  So no sitting around the house bored.  I am going to either do DIY projects or meet friends and family on those days.  If I don't fancy the former, and have been unable to arrange the latter, then on that day I will go into town and have lunch somewhere and a walk etc.   Hopefully I will look back on this decision as being a real game changer for me! <Fingers crossed>

You are still planning on retiring at 53, you are just taking most of the first two years of retirement in advance.....

Ha, love this, thank you!

harlequinnyc

I did this a while back, @barnstar2077 that extra day off really helped me. I did my 'chores' on this day, freeing up more time at the weekend, when my OH was off.  I took a Wednesday, so that I only worked two days together at the most. Enjoy, the next 10 years will fly over! 😉