DB Valuation vs Pension

Marcon

Pat38493 said:

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Thanks for the replies.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

LTA - LTA issues could for sure tip the balance but I guess LTA might increase in future so I guess I will review it again in a few years.

The other big attraction for me is being able to leave the money to someone else if I die earlier than expected.

I am aware of the other threads and I’m aware that you might not even be allowed to transfer it unless a qualified financial advisor gives a recommendation to do so.

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

Common misapprehension that such a scenario would be likely to result in a recommendation to transfer. If you die within 2 years of making a transfer and you knew you were very ill at the time, there's a significant tax penalty. If the DB scheme offered serious ill health commutation, you could take the whole of your DB pension as a tax free lump sum and any pensions for spouse/eligible children would still be payable. 

Pat38493

Marcon said:

Pat38493 said:

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Thanks for the replies.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

LTA - LTA issues could for sure tip the balance but I guess LTA might increase in future so I guess I will review it again in a few years.

The other big attraction for me is being able to leave the money to someone else if I die earlier than expected.

I am aware of the other threads and I’m aware that you might not even be allowed to transfer it unless a qualified financial advisor gives a recommendation to do so.

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

Common misapprehension that such a scenario would be likely to result in a recommendation to transfer. If you die within 2 years of making a transfer and you knew you were very ill at the time, there's a significant tax penalty. If the DB scheme offered serious ill health commutation, you could take the whole of your DB pension as a tax free lump sum and any pensions for spouse/eligible children would still be payable. 

Wouldn’t this depend on the particular t&c of the DB scheme that I am in?

Albermarle

Pat38493 said:

Marcon said:

Pat38493 said:

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Thanks for the replies.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

LTA - LTA issues could for sure tip the balance but I guess LTA might increase in future so I guess I will review it again in a few years.

The other big attraction for me is being able to leave the money to someone else if I die earlier than expected.

I am aware of the other threads and I’m aware that you might not even be allowed to transfer it unless a qualified financial advisor gives a recommendation to do so.

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

Common misapprehension that such a scenario would be likely to result in a recommendation to transfer. If you die within 2 years of making a transfer and you knew you were very ill at the time, there's a significant tax penalty. If the DB scheme offered serious ill health commutation, you could take the whole of your DB pension as a tax free lump sum and any pensions for spouse/eligible children would still be payable. 

Wouldn’t this depend on the particular t&c of the DB scheme that I am in?

Yes, and the views of the Trustees.

IAMIAM

This is the main reason A LOT of my older friends do CETV with a DB Pension. If they die, millions could potentially just disappear. Not what they want if they have a family etc.

But most civil service pensions no longer allow it so they almost all retired early, aka 55 to 60 to get as much money as possible and have as much pension paid out from 55 to 90 (35 Years and Die) instead of 65 to 80 (15 Years and Die) if that makes sense. 

Regardless of what people always say....if I had A or B as an option. I would take B. Life is too short.

Age 65 - £25k and £200k Lump Sum
Age 55 - £17k and £125k Lump Sum

Take B

Thrugelmir

When £ signs flash then the heart often rules the head.   What's best will depend on individual personal circumstances. 

Marcon

Albermarle said:

Pat38493 said:

Marcon said:

Pat38493 said:

QrizB said:

Pat38493 said:

Based on the information they sent and multiplying the annual salary they gave in today's money by the years, if I retire at 65 I would have to live to 92 years old to get the same money at the current CETV.
If I retire at and take those benefits at 57, I would have to live to almost 100.
Is this a valid (but I'm sure simplified) way to look at it?

As Albermarle says, it overlooks inflation. Looking at your second example, you're looking at a period of 42-43 years. According to the BoE inflation calculator, £10 in 1980 would buy goods worth £45.63 today.

You might think you can invest it in such a way that inflation isn't going to be a problem, but then you're running the risk that you'll fail.

Thanks for the replies.

Well yes I was aware that inflation would be a factor, but at a very rough level, I assumed that I would be able to invest the money and manage it in such a way that inflation would be a wash, but of course I understand this is not guaranteed.

LTA - LTA issues could for sure tip the balance but I guess LTA might increase in future so I guess I will review it again in a few years.

The other big attraction for me is being able to leave the money to someone else if I die earlier than expected.

I am aware of the other threads and I’m aware that you might not even be allowed to transfer it unless a qualified financial advisor gives a recommendation to do so.

By the way having read the other thread, where someone said there is zero chance of a transfer being approved - is it really zero or are there some edge cases - for example, if you had a terminal illness and had only a short time to live, this would be a major factor there.

Common misapprehension that such a scenario would be likely to result in a recommendation to transfer. If you die within 2 years of making a transfer and you knew you were very ill at the time, there's a significant tax penalty. If the DB scheme offered serious ill health commutation, you could take the whole of your DB pension as a tax free lump sum and any pensions for spouse/eligible children would still be payable. 

Wouldn’t this depend on the particular t&c of the DB scheme that I am in?

Yes, and the views of the Trustees.

The 'views of the trustees' aren't some sort of arbitrary factor. If a member has written confirmation from a registered medical practitioner that their life expectancy is no more than 12 months, the member meets the requirement for full commutation (if, as I said in my previous reply, the scheme offers that). If full commutation isn't an option, it becomes a choice between considering a transfer out (with the tax hit that will entail if you die within 2 years of transferring in ill health), versus the survivor's benefits within the DB scheme.

german_keeper

IAMIAM said:

This is the main reason A LOT of my older friends do CETV with a DB Pension. If they die, millions could potentially just disappear. Not what they want if they have a family etc.

But most civil service pensions no longer allow it so they almost all retired early, aka 55 to 60 to get as much money as possible and have as much pension paid out from 55 to 90 (35 Years and Die) instead of 65 to 80 (15 Years and Die) if that makes sense. 

Regardless of what people always say....if I had A or B as an option. I would take B. Life is too short.

Age 65 - £25k and £200k Lump Sum
Age 55 - £17k and £125k Lump Sum

Take B

IAMIAM said:

This is the main reason A LOT of my older friends do CETV with a DB Pension. If they die, millions could potentially just disappear. Not what they want if they have a family etc.

But most civil service pensions no longer allow it so they almost all retired early, aka 55 to 60 to get as much money as possible and have as much pension paid out from 55 to 90 (35 Years and Die) instead of 65 to 80 (15 Years and Die) if that makes sense. 

Regardless of what people always say....if I had A or B as an option. I would take B. Life is too short.

Age 65 - £25k and £200k Lump Sum
Age 55 - £17k and £125k Lump Sum

Take B

I'm not sure I understand your comparison between 55 to 90 and 65 to 80.

But the point about actuarial reduction is that the total amount received, assuming average life expectancy, should be about the same. So individual circumstances would dictate the correct decision. I took my civil service pension when I was 54 with nearly 6 years AR for caring reasons. My wife has a DB pension and as part of our retirement plans she will take that when she is 60 because that's the best option for us. Swings and roundabouts, one size definitely does not fit all.

IAMIAM

The point I am making is that its statically significant that you have a longer life expectancy retiring earlier than retiring later and claiming a 'fuller' pension. In fact, I think every public sector job provides stats on it....the longer you work towards 65 or NPA, the shorter your life expectancy. Particularly prevalent in the bigger workforces..., NHS, Education etc. So why work to 65 and die younger instead of retiring as soon as you can and living longer...

Thrugelmir

IAMIAM said:

The point I am making is that its statically significant that you have a longer life expectancy retiring earlier than retiring later and claiming a 'fuller' pension. In fact, I think every public sector job provides stats on it....the longer you work towards 65 or NPA, the shorter your life expectancy. Particularly prevalent in the bigger workforces..., NHS, Education etc. So why work to 65 and die younger instead of retiring as soon as you can and living longer...

There's a nurse at our local hospital who still works part time at the age of 78 in the special care baby unit. She spends the money earnt travelling in her time off. Life is what you make it. 

IAMIAM

Again, back to the stats as Chris whitty would say.