Final Salary Pension Transfer

Dale72

Diplodicus said:

Well done Dale. 
AJ Bell were decent to keep the door ajar, you may wish to transfer your investments with Hargreaves Lansdown to them.
And don't worry for a minute about the choice you made - you'll be fine. 

Thanks. Yes I may well do that, just want to get used to AJ Bell's platform before I fully commit to them.

RoadToRiches

Dale72 said:

Thrugelmir said:

Which market are you refering too? There's many to chose from. 

The UK one obviously, there are others with good records but why go searching when the money tree is in your own yard?

It is also minuscule compared to the US market

Thrugelmir

RoadToRiches said:

Dale72 said:

Thrugelmir said:

Which market are you refering too? There's many to chose from. 

The UK one obviously, there are others with good records but why go searching when the money tree is in your own yard?

It is also minuscule compared to the US market

The US is a bigger economy. 

Dale72

RoadToRiches said:

It is also minuscule compared to the US market

True, but I don't want all of it, just my own little chunk. I'm not against trading in US stocks, but only as an occasional foray, rather than the bulk of my pf.

arty688

Prism said:

RoadToRiches said:

arty688 said:

Out of interest if someone was to offer you £120k now or £2.5k per year in five years time going up with rpi what would you take?

£120K every time because

RPI is a unknown but lets Roll back the clock to 1991. if you had started out with £2,500 back then in real terms this would be worth £5,740 today - https://www.hl.co.uk/tools/calculators/inflation-calculator

Let's take the average = £4,120 x 30 years = £123,600 is what the pot is worth but does not take into account investment growth.

Now lets invest £120,000 in the S&P 500 which on average has returned 7% (Taking into account Crashes over this period - past performance does not equal the future) and a drawdown of £400 per month with RPI running at 2.5%

Your pot would still be worth £343,052 after drawing down £400 per month for 30 years - https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

Out of interest if you did the same calculation with 2% withdraw which is more like the DB pension how long would it last?

Alternatively  you could put your DB transfer in a risk free pot say 1% growth and take out 4%(double the DB pension) with 1.9% inflation and it would last into your 80's.

QrizB

arty688 said:

Prism said:

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

Out of interest if you did the same calculation with 2% withdraw which is more like the DB pension how long would it last?

Alternatively  you could put your DB transfer in a risk free pot say 1% growth and take out 4%(double the DB pension) with 1.9% inflation and it would last into your 80's.

https://www.cfiresim.com/ is what you're looking for.

Starting with £120k, taking £2.5k annually increasing with CPI, treating the investment as cash with a 1% interest rate, you run out of money within 40 years in 76 of 110 cycles. Sometimes as soon as year 23. That's a 69% failure rate.

https://www.cfiresim.com/0758b661-5960-4144-9514-94f327d924b0 if you want to look at the simulation that gave those results.

arty688

QrizB said:

arty688 said:

Prism said:

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

Out of interest if you did the same calculation with 2% withdraw which is more like the DB pension how long would it last?

Alternatively  you could put your DB transfer in a risk free pot say 1% growth and take out 4%(double the DB pension) with 1.9% inflation and it would last into your 80's.

https://www.cfiresim.com/ is what you're looking for.

Starting with £120k, taking £2.5k annually increasing with CPI, treating the investment as cash with a 1% interest rate, you run out of money within 40 years in 76 of 110 cycles. Sometimes as soon as year 23. That's a 69% failure rate.

https://www.cfiresim.com/0758b661-5960-4144-9514-94f327d924b0 if you want to look at the simulation that gave those results.

Cheers I'll have a look at that , So worst case scenario is 23 years ? thats OK

So you would have to be very unlucky (or lucky) to out live the pension and the DB pension to be better?

jamesd

Pablo7474 said:

I think the system is not ideal, but why would an adviser want to advise you to do something where you are taking on more risk, when you could retire and live life off your DB. 

The choice isn't between two ways of getting the same thing, one riskier than the other.

Private sector transfers typically provide almost twice the income in current market conditions and the prospect of a substantial inheritance if you're prudent with your planning and end up not living to the end of your planning horizon. You can also do things like taking money at a higher rate while younger to match the typical decline in spending that comes as people get older (the excess is invested, not lack of money).

Whether a particular individual prefers certainty and a bit over half the income is a very personal decision.

jamesd

Prism said:

If only it were so simple.

How about another scenario then using real figures for the US stock market with £120,000, a 4% withdrawal and only 1.9% average inflation.

By year three the pot has dropped to less than half - £57k
By year fourteen its around a quarter - £34k
By year twenty its down to two years left in the pot - £15k and withdrawals are £7.1k per year by this point.

Now that is pretty poor timing I agree (1st April 2000) but still the point is that what could have been a stress free modest retirement has become a rather stressful worry about money.

The point may actually be different: it looks as though you picked 100% equities instead of the normal 35-50% in bonds that's used in safe withdrawal rate studies, notably the 4% rule one that used 50:50 and in that 1994 paper Determining Withdrawal Rates Using Historical Data Bill Bengen observed that "Stock allocations below 50 percent and above 75 percent are counterproductive."

Using a more usual asset allocation, Wade Pfau looked at the question of How Are People Who Retired In The Year 2000 Doing Today? in 2016 and found:

"Ranked in terms of real remaining wealth after sixteen years of retirement for retirees since 1926, the 2000 retiree comes in fifteenth place with 67.5% of wealth remaining in inflation-adjusted terms. This is for a 4% withdrawal rate, 50/50 asset allocation, and all of the other assumptions described in William Bengen’s SAFEMAX.

On the surface, the situation does not look dire for 2000 retirees. The fourteen hypothetical retirees with less remaining real wealth after sixteen years all subsequently experienced success over thirty years with the 4% rule."

The outcome since 2016 has overall been favourable in spite of the brief Covid crash in 2020 and at the 20-21 year point now the situation will have improved over 2016 with the retirees still on target.

AlanP_2

arty688 said:

Yes I have allowed for 2% increase per year in my plan. Although I will have to re visit the plan now the transfer is now off the table due the ridiculous system. 

Just spoken to a mate who is trying to do the same so I’ll see how he gets on . Strangely they have asked for his wife’s pension details as well. Seems odd to me as I’m sure your spouse doesn’t have to share their  financial details . 

Completed a DB transfer earlier this year based on full analysis of my and spouse's financial position, other pensions, plans etc.

Can't understand why the spouse wouldn't be involved, but we have always had joint finances and plan together. Also, the spouse is giving up a benefit they are entitled to as well if they outlive you.