true value of pension fund ANY IDEAS ?

thehairybuilder

Wonder if anyone out there can give me an indication of what a pension fund is really worth .
My father-in-law retires March 2006 and has recently received a letter from Sun Life stating that his fund is currently worth £85000 . Now in the local pub talk of pending pensions and past payouts have led f-i-l to believe that this will net him a pension of around £200 per week ; £10000 per year . This seems really high to me and I don`t want him to be expecting so much if it`s only going to be , say , £200 per MONTH . Is there a formula to work out actual pension or has anyone had recent experience of payouts . . . ?
ANy help or indication at all would be appreciated
Thanks
Hairy

elona

I have a feeling that he will be lucky to get 5% - which is £4250 per year -approx £80 a week.

elona

I would think that it would be 5% of total - £80 a week - or £4250 per annum.

ReportInvestor

Hi hairy builder,

500 quid per month is the maximum that a 65 year old non-smoker, non-manual worker could expect to get for 85k as long as he takes the pension pot onto the open market and searches around for the best annuity.

Link to Reuters - 2/3 loyal mugs don't shop around for their annuity, yet 52% are concerned they won't have enough retirement income

That estimate of 500 quid assumes that it will not increase with inflation, that there is no guaranteed minimum payment on early death, that there is no pension for any surviving spouse and that he does not take a 25% tax free cash lump sum.

I got this information from the annuity tables at https://www.fsa.gov.uk - you can put in your father's personal details and also see which firms are likely to offer the best annuity.

If your father-in-law is a "hairy builder" then he might get up to 580 quid a month from B&CE insurance which has a policy restricred to manual construction workers only.

EdInvestor

Hi hairybuilder,

Normally, people whith personal pensions like your fil are allowed to take 25% of their fund in cash.If he did that (most people do, as the pension income will be taxed), that would leave 63,750. If he used this to buy an annuity ( which means he hands over the money to an insurance company and in return they give him a guaranteed income for life) then the best he could get according to the FSA tables at present would be 380 quid a month with Scottish Eqiuitable ( that's a level annuity, no guarantee of the capital back if he dies soon after retiring) and assumes he's a 65 year old non smoker.Of course he'd also get the interest on the cash - which would be an extra 88 pounds per month (before tax)if invested @5%.

He could also consider "income drawdown" thpugh this is usually recommended for people with other sources of retirment income as well (which he may have of course.) With drawdown, he would hold onto the capital and invest it to produce an income. He would be able to take more money out his fund per year (a maximum of 473 per month compared with 380), but it would be risky if he withdrew more than the fund actually earned for any length of time, because this would deplete it and he could then "run out of money" before he died. Every 3 years his fund would be reviewed and his income limit changed depending on whether the fund had gone up or down in value.

He would need to learn a bit about investment to manage drawdown successfully, but it can be done with smaller funds these days, and does offer the opportunity of increasing the size of the fund over time, which can be very helpful to someone who discovers at the last minute that he hasn't saved enough, because annuity rates are now so low.


Some info about shopping around for annuities

Pal

Editor wrote:

and does offer the opportunity of increasing the size of the fund over time...

It also gives people who don't know what they are doing to opportunity to decrease the size of their fund over time.

£200 (ish) is more likely a monthly figure for an RPI linked annuity with a contingent spouse's pension & a guarantee period (prob 5 years) from a very poor value annuity provider.

Best to shop around and get an open market annuity as others have suggested.

dunstonh

Income drawdown is not a risk free option and can involve quite high risk.

Just checked the quote portal and 65 yr male with 85k would get £500pm level guaranteed for 5 years. (which matches what has said already).

Smokers and those with poor health can get more. Poor health can often be not as poor as you think. High blood pressure can result in better rates.

thehairybuilder

"Smokers and those with poor health can get more. Poor health can often be not as poor as you think. High blood pressure can result in better rates."

Interesting . . . . . I DID think his supposed £200 a week was loose talk from someone speaking out of their backside about something they obviously know nothing about . Well , have to break the bad news to him now although if he shops around and forfiets his 25% lump sum then he`d be happyish with the £500 per month Reporter suggested . I guess we`ll only find out the true value next March when I will insist that he gets a few quotes.
Thanks for your replies - they`ve been very helpfull

dunstonh

Well , have to break the bad news to him now although if he shops around and forfiets his 25% lump sum then he`d be happyish with the £500 per month Reporter suggested

The 25% tax free lump sum can be invested to produce an income whilst retaining the capital for his estate. Indeed, even if he used the capital gradually over time, it would still "usually" be better. The tax free lump sum should always be taken unless there are guaranteed annuity rates. If an annuity is a must have option, then a puchased life annuity on that 25% would often provide higher rates than a compulsary purchase annuity.