Low annuity rate values??

dunstonh

SouthCoastBoy said:

Based on what has been said above, I struggle to understand the merit of such predictions if they are no where near the reality, what's the point?

I think you need to look at the history.    In the late 80s to mid 90s, they used projection rates and annuity rates that were appropriate for the returns/rates at that time.   However, investment returns (gross of inflation) have dropped consistently over the last 30-40 years.   So, looking back, the projections over stated outcomes.   So, periodically, the regulator lowered the projection limits.  For a while, they got to a good level but then they decided to go even lower to be on the safe side in the hope it would encourage people to pay in more.   At the same time, they decided that they should be shown in today's money rather than actual value and they should use the lowest annuity type as there may be someone that buys that type.
Problem is that it has gone too far and people don't understand the projections are just synthetic and some people have taken bad decisions on the back of these

michaels

I would look at 55 retirement as follows, all worked in today's money values and assume your DC pot will grow by the same as inflation (pessimistic but a good starting point):
Assume at 67 you get full state pension of £9,4k pa (you can check this)
Assume at 67 your 4 years of DB contributions (age 51 to 55) are worth 3k pa (no idea of this but you should)
This means that at 67 you will get 12.5k that needs to be replaced between age 55 and 67.
12 years x 12,5k = 150k
Deduct 150k from your DC pot of 420k = 270k
Assume you can safely spend 3.5% of this pot form age 55 until death without it running out = £9,5k
So from age 55 you could retire and spend 12.5k + 9.5k = £22 pa annum for life. 

norrisg24

michaels said:

I would look at 55 retirement as follows, all worked in today's money values and assume your DC pot will grow by the same as inflation (pessimistic but a good starting point):
Assume at 67 you get full state pension of £9,4k pa (you can check this)
Assume at 67 your 4 years of DB contributions (age 51 to 55) are worth 3k pa (no idea of this but you should)
This means that at 67 you will get 12.5k that needs to be replaced between age 55 and 67.
12 years x 12,5k = 150k
Deduct 150k from your DC pot of 420k = 270k
Assume you can safely spend 3.5% of this pot form age 55 until death without it running out = £9,5k
So from age 55 you could retire and spend 12.5k + 9.5k = £22 pa annum for life. 

Thank you very much - great food for thought. I like the 22k pa particulalrly becuase i could self fund the 9.5k from savings, drawdown the 12.5k (which would now become 14.7k because i havent drawndown 150k) - keep below the income tax threshold, and pay no/little tax?

I like the 3.5% of pot from 55 - presumably this % gets higher the longer you wait to retire i.e. @ 60 perhaps its 4% - is there a rough acceptable scale for this?? Assumption if you retire later the pot is spread across fewer remaining years..

So yes id get full state at 67 and DB would be £3.4k pa by then. The 420k is made up of a 330k and a 90k. I have an option to transfer these into civil service alpha scheme, i wouldnt transfer the 330 because alpha limits benefits from transfers to 50% of starting salary. But i am considering the 90k tranfer in. I'm waiting to see how much this would boost the 3.4k pa by. But given that the statement predictions for this 90k are 2k pa - and this prediction has been blasted by this forum, i have no comparison of whether the transfer is a good bet or not - because the 2k could be 3/4/5?? who knows...

jamesd

Michaels beat me to it with just the sort of calculation I was about to do. Thanks!

At 55 taking 3.5% is too high for me because UK safe withdrawal rate is about 3.7% minus 30% of costs for a 30 year plan that always increases the investment drawdown part with uncapped inflation. Around 0.2 deduction to get to a 35-40 year plan and some allowance for costs, at least another 0.2 deduction, would take me to using no higher than 3.1% and I normally use 3.0% at 55.

The key thing that we're doing is using safe withdrawal rates. These are unguaranteed rates that would have worked for every starting year in the last 120 plus years. If you experience something worse you'd need to make further adjustments to the investment part of the income.

NedS

With regard to transferring in to the alpha scheme, I would expect this to be very favourable compared to purchasing an annuity, but make sure you are comparing like with like. I've done an approximate calculation, and self only (no partner benefits), I estimate your £90,000 pot will buy you somewhere in the region of £7625/year alpha pension from 67 (your state retirement age), index linked to increase with CPI inflation every year. With partner benefits, that would drop to around £7050/year. And this is guaranteed income for life, not subject to the ups and downs of the stock market. If you wanted to draw your alpha pension early (before 67), actuarial reduction rates would apply.

norrisg24

NedS said:

With regard to transferring in to the alpha scheme, I would expect this to be very favourable compared to purchasing an annuity, but make sure you are comparing like with like. I've done an approximate calculation, and self only (no partner benefits), I estimate your £90,000 pot will buy you somewhere in the region of £7625/year alpha pension from 67 (your state retirement age), index linked to increase with CPI inflation every year. With partner benefits, that would drop to around £7050/year. And this is guaranteed income for life, not subject to the ups and downs of the stock market. If you wanted to draw your alpha pension early (before 67), actuarial reduction rates would apply.

Thanks i think if i get offered £7625 that would be attractive - considering the statement prediction (albeit not considered realistic) of 2k from age 67. If i worked til 55 accrued 3.4k pa in alpha plus the  £7625 to give £11025 deferred, thats sounds pretty good.

Do you know the reduction rates for tappng into this £11025 before 67 ??

norrisg24

jamesd said:

Michael's beat me to it with just the sort of calculation I was about to do. Thanks!

At 55 taking 3.5% is too high for me because UK safe withdrawal rate is about 3.7% minus 30% of costs for a 30 year plan that always increases the investment drawdown part with uncapped inflation. Around 0.2 deduction to get to a 35-40 year plan and some allowance for costs, at least another 0.2 deduction, would take me to using no higher than 3.1% and I normally use 3.0% at 55.

The key thing that we're doing is using safe withdrawal rates. These are unguaranteed rates that would have worked for every starting year in the last 120 plus years. If you experience something worse you'd need to make further adjustments to the investment part of the income.

Thanks.

If youd use 3.0% at 55, what % would you use at 60, 65 and 67 years?

dunstonh

norrisg24 said:

jamesd said:

Michael's beat me to it with just the sort of calculation I was about to do. Thanks!

At 55 taking 3.5% is too high for me because UK safe withdrawal rate is about 3.7% minus 30% of costs for a 30 year plan that always increases the investment drawdown part with uncapped inflation. Around 0.2 deduction to get to a 35-40 year plan and some allowance for costs, at least another 0.2 deduction, would take me to using no higher than 3.1% and I normally use 3.0% at 55.

The key thing that we're doing is using safe withdrawal rates. These are unguaranteed rates that would have worked for every starting year in the last 120 plus years. If you experience something worse you'd need to make further adjustments to the investment part of the income.

Thanks.

If youd use 3.0% at 55, what % would you use at 60, 65 and 67 years?

Broadly speaking it is 3.0% in 50s and 3.5% in 60s.     As the whole issue of investing is unpredictable, there is little point worrying about 0.0x% differences that may gradually add on a year by year basis

michaels

7.6k sounds like a very good deal - if you left the 90k invested to age 67 and it grew on average at 3% pa over inflation you would be able to buy an index linked annuity in todays money of about 4.3k (single life no adverse meds)

Is that the max you would be allowed to purchase?

german_keeper

Do you know the reduction rates for tappng into this £11025 before 67 ??

https://www.civilservicepensionscheme.org.uk/media/538002/csops_erf-and-lrf-factors-and-guidance-01082019.pdf

Also calculators to help on MyCSP website