What would you do ? Opinions appreciated

billywhizz1966

I have seen an IFA but cannot quite get my head around all his advice so thought I would ask for opinions on here. I accept whichever way we go we are going to be comfortable but still want to do the right thing if possible

Background 

OH 

60 in April - loving her retirement and no desire to work again. DB pension (LGPS) of £39k plus drawdown of a DC pension of £6k (which will run another 7 years until starts drawing SP (only 33 years in but doesn't seem worth paying the extra 2 years for max SP but probably will do for completeness)

Me

I semi-retired this year (I have earned £25k for 30 odd days work which is alot more than I intended/planned) which we are going to spend getting away from the cold for a couple of months and treating us to some new golf clubs. This will also mean I pay my last year of NI to get a full SP in 2033 
I have a DC pot of circa £140k that I built up that I intend to drawdown over the next 3 years until I am 60. This will pay me £35k per year (plus will get TFLS of £35k to put into ISA in 2023/24). If I carry on working next year, I don't intend on earning much more than £10k to avoid paying 40% tax or alternatively I will just reduce my drawdown (Assuming that is possible?)   
In 2026, I plan drawing a DB pension (which is LGPS) of either £35k with £62k lump sum but my IFA is advising taking £25k with £170k lump sum and investing the capital amount. However, I cannot see the benefit of doing this based on all the advice on here of the poor computation rate of 12:1 and it seems only beneficial if I die by my mid 70's  

Our monthly outgoings are £3400 (which includes a very generous personal spending allowance of £600 each outside everyday costs) meaning we will still have surplus annual income of circa £26k which we intend to spend on holidays (we have a reasonably expensive bucket list of places we want to go) and keeping cars upgraded but no firm decisions (could move or do home improvements) plus we will also get an estimated income from interest of £15k minimum from the following;    

Savings

£100k Premium Bonds (we have been very lucky and are doing well since we bought them in July and on track to return 3.4% in year if luck continues !!) but will move into higher interest account if not  
£170k tied up in 4% account for year until November (when we need to decide whether we move spending up to £370k of these savings (although we like where we live ) or spend £170k upgrading where we are (which we may only get half it back because of property ceilings) - even if we do this we would seem to be able to become more Viv Nicholson than we currently are and have been mist of our working lives)     
£138k in ISA's
£150k invested in Pru international fund
£50k just moved into an easy to access account paying 2.85%
£20k held in a current account for incidentals/emergencies and regular DD's totalling £800 per month, 

I am also offsetting a mortgage of £48k with 7 years to run from £48k held in savings (IFA suggests I pay this off so I have no debts)  

One child - not dependent on us and making his own way in life
  
MY QUESTIONS

• Would you pay off the mortgage as I am being advised. Not sure why I think I should keep it other than it isn't costing me anything to do ?
• Am I missing something. My thinking is I shouldn't take the higher lump sum as my DB is index linked and genes suggest as I still have both parents aged over 87 so the law of averages suggest I am likely to live to at least 80
• Anything else I missing or should be doing ?    

Any help gratefully appreciated



  
     

Marcon

billywhizz1966 said:

I have seen an IFA but cannot quite get my head around all his advice so thought I would ask for opinions on here. I accept whichever way we go we are going to be comfortable but still want to do the right thing if possible

Background 

OH 

60 in April - loving her retirement and no desire to work again. DB pension (LGPS) of £39k plus drawdown of a DC pension of £6k (which will run another 7 years until starts drawing SP (only 33 years in but doesn't seem worth paying the extra 2 years for max SP but probably will do for completeness)

Me

I semi-retired this year (I have earned £25k for 30 odd days work which is alot more than I intended/planned) which we are going to spend getting away from the cold for a couple of months and treating us to some new golf clubs. This will also mean I pay my last year of NI to get a full SP in 2033 
I have a DC pot of circa £140k that I built up that I intend to drawdown over the next 3 years until I am 60. This will pay me £35k per year (plus will get TFLS of £35k to put into ISA in 2023/24). If I carry on working next year, I don't intend on earning much more than £10k to avoid paying 40% tax or alternatively I will just reduce my drawdown (Assuming that is possible?)   
In 2026, I plan drawing a DB pension (which is LGPS) of either £35k with £62k lump sum but my IFA is advising taking £25k with £170k lump sum and investing the capital amount. However, I cannot see the benefit of doing this based on all the advice on here of the poor computation rate of 12:1 and it seems only beneficial if I die by my mid 70's  

Our monthly outgoings are £3400 (which includes a very generous personal spending allowance of £600 each outside everyday costs) meaning we will still have surplus annual income of circa £26k which we intend to spend on holidays (we have a reasonably expensive bucket list of places we want to go) and keeping cars upgraded but no firm decisions (could move or do home improvements) plus we will also get an estimated income from interest of £15k minimum from the following;    

Savings

£100k Premium Bonds (we have been very lucky and are doing well since we bought them in July and on track to return 3.4% in year if luck continues !!) but will move into higher interest account if not  
£170k tied up in 4% account for year until November (when we need to decide whether we move spending up to £370k of these savings (although we like where we live ) or spend £170k upgrading where we are (which we may only get half it back because of property ceilings) - even if we do this we would seem to be able to become more Viv Nicholson than we currently are and have been mist of our working lives)     
£138k in ISA's
£150k invested in Pru international fund
£50k just moved into an easy to access account paying 2.85%
£20k held in a current account for incidentals/emergencies and regular DD's totalling £800 per month, 

I am also offsetting a mortgage of £48k with 7 years to run from £48k held in savings (IFA suggests I pay this off so I have no debts)  

One child - not dependent on us and making his own way in life
  
MY QUESTIONS

• Would you pay off the mortgage as I am being advised. Not sure why I think I should keep it other than it isn't costing me anything to do ?
• Am I missing something. My thinking is I should take the higher lump sum as my DB is index linked and genes suggest as I still have both parents aged over 87 so the law of averages suggest I am likely to live to at least 80
• Anything else I missing or should be doing ?    

Any help gratefully appreciated



  
     

The big problem when someone asks 'what would you do?' is that nobody's circumstances and attitudes are going to be the same as those set out in what appears to be a long post, but in truth is a very brief and truncated precis of the IFA's much more detailed fact find/questions.

billywhizz1966 said:

MY QUESTIONS

• Would you pay off the mortgage as I am being advised. Not sure why I think I should keep it other than it isn't costing me anything to do ?
• Am I missing something. My thinking is I should take the higher lump sum as my DB is index linked and genes suggest as I still have both parents aged over 87 so the law of averages suggest I am likely to live to at least 80
• Anything else I missing or should be doing ?    

Any help gratefully appreciated



  
     

Mortgage - tends to be an emotional decision as much as a rational one, so that really is a 'how do you feel about' question.
Lump sum - the body of your question suggests the IFA is suggesting taking the higher lump sum but you are resisting, but your question above says you think you should take the higher lump sum, so I'm baffled!
What you are missing -  I'd go back to the IFA, who has all the relevant facts (or provide more facts/thoughts if you think these might not have been taken into consideration), and ask for further explanations/details.  In particular, if you have questions such as that 'Assuming this is possible?' I've marked in bold above - find out. Making decisions based on incorrect assumptions is never going to give you the best chance of the best outcome.

Secret2ndAccount

You need to go back to your IFA and ask him what his reasons are for commuting the LGPS pension. Good reasons might be:

1.      If you die early, that money can be inherited by your wife (but investigate the effect on Spouse’s Pension – some schemes reduce the Spouse’s pension in line with the annual payout; others calculate it differently so it might not be reduced by taking a reduced pension)

2.      LTA mitigation, but it doesn’t seem you are up against the LTA. Your IFA has the exact numbers.

3.      The commutation rate becomes more balanced if you are a 40% taxpayer in retirement, but again I don’t quite see that being the case.

Cynical me sees a bad reason: if you leave the money as a DB pension, IFA doesn’t see a penny of it. If you take the large lump sum and invest it, he gets an extra £1000 in fees every year.

In general, and in your case from what I see, you should take the minimum lump sum as the commutation rate is poor.

I see no reason to close the offset mortgage – it’s already paid off; you are debt free. It’s not like you will lie awake at night wondering how you are going to deal with it!  I too have an offset mortgage. There have been times when I could get more in interest in a savings account than I would pay on my mortgage, so I pulled out the entire amount and stuck it in the savings account. Can’t do that if the mortgage is closed.

[Deleted User]

On the mortgage question - yes, I would repay. Having a mortgage while investing = leveraging.  Like investing on margin.  

If you are invested in shares while carrying debt, its ok for a young person. You are magnifying potential gains and losses. A youngster has lots of time to recover from losses due to short term volatility.  An older person is far more exposed to this risk. 

It hardly ever makes sense to have bonds/fixed income and mortgage at the same time.  Means you are either paying more on borrowed amount than you are earning on equivalent in bonds or taking on risk. 

 There are some exceptions, usually to do with tax/government but generally one shouldn’t let the tail wag the dog.  Key investment strategies ought to be decided on merit of strategies rather than tax implications. 

billywhizz1966

Many Thanks Secret2ndAccount and Macron 

I appreciate you spending the time to wade through my post and apologies for the last paragraph error that should have said shouldn't not should - the importance of an 'nt

Not near the LTA pension and on death spousal is about £15k whether I take the larger lump sum or smaller one but dont have to make that decision for 3 years ,

Appreciate the mortgage offset - I concur but again wasn't sure whether I was missing anything 

You need to go back to your IFA and ask him what his reasons are for commuting the LGPS pension. Good reasons might be:

1.      If you die early, that money can be inherited by your wife (but investigate the effect on Spouse’s Pension – some schemes reduce the Spouse’s pension in line with the annual payout; others calculate it differently so it might not be reduced by taking a reduced pension)

2.      LTA mitigation, but it doesn’t seem you are up against the LTA. Your IFA has the exact numbers.

3.      The commutation rate becomes more balanced if you are a 40% taxpayer in retirement, but again I don’t quite see that being the case.

Cynical me sees a bad reason: if you leave the money as a DB pension, IFA doesn’t see a penny of it. If you take the large lump sum and invest it, he gets an extra £1000 in fees every year.

In general, and in your case from what I see, you should take the minimum lump sum as the commutation rate is poor.

I see no reason to close the offset mortgage – it’s already paid off; you are debt free. It’s not like you will lie awake at night wondering how you are going to deal with it!  I too have an offset mortgage. There have been times when I could get more in interest in a savings account than I would pay on my mortgage, so I pulled out the entire amount and stuck it in the savings account. Can’t do that if the mortgage is closed.

Secret2ndAccount

Deleted_User said:

On the mortgage question - yes, I would repay. Having a mortgage while investing = leveraging.  Like investing on margin.  

This is an Offset Mortgage. He's got a 48k mortgage, and 48k in his current account. They offset one against the other, and he pays no interest. So what he effectively has right now is a 48k overdraft facility with a good interest rate.
I wonder if the IFA is suffering the same information deficit.

Silvertabby

Secret2ndAccount said:

You need to go back to your IFA and ask him what his reasons are for commuting the LGPS pension. Good reasons might be:

1.      If you die early, that money can be inherited by your wife (but investigate the effect on Spouse’s Pension – some schemes reduce the Spouse’s pension in line with the annual payout; others calculate it differently so it might not be reduced by taking a reduced pension)

In the case of the LGPS, reductions for commutation and/or early payment are disregarded when calculating spouse's benefits.

Silvertabby

billywhizz1966 said:

I have seen an IFA but cannot quite get my head around all his advice so thought I would ask for opinions on here. I accept whichever way we go we are going to be comfortable but still want to do the right thing if possible

Background 

OH 

60 in April - loving her retirement and no desire to work again. DB pension (LGPS) of £39k plus drawdown of a DC pension of £6k (which will run another 7 years until starts drawing SP (only 33 years in but doesn't seem worth paying the extra 2 years for max SP but probably will do for completeness)


  




  
     

Ignore the oft quoted '35 years for the new State pension'.  That only applies to those who started work after April 2016, with the rest of us being under transitional arrangements with our our own individual calculations.

Based on your OH's date of retirement and high LGPS pension (high earner?) it is likely that her State pension at the moment is the equivalent of the old basic rate pension of just over £140 per week.  Yes, she can increase that by making voluntary contributions, but she will probably need another 7 or 8 years (if she has the time before SPA) to qualify for the full nsp, not the 2 years you appear to be working on.

[Deleted User]

Secret2ndAccount said:

Deleted_User said:

On the mortgage question - yes, I would repay. Having a mortgage while investing = leveraging.  Like investing on margin.  

This is an Offset Mortgage. He's got a 48k mortgage, and 48k in his current account. They offset one against the other, and he pays no interest. So what he effectively has right now is a 48k overdraft facility with a good interest rate.
I wonder if the IFA is suffering the same information deficit.

I see… Yes, that’s a facility worth keeping.  

p00hsticks

Silvertabby said:

Ignore the oft quoted '35 years for the new State pension'.  That only applies to those who started work after April 2016, with the rest of us being under transitional arrangements with our our own individual calculations.

Based on your OH's date of retirement and high LGPS pension (high earner?) it is likely that her State pension at the moment is the equivalent of the old basic rate pension of just over £140 per week.  Yes, she can increase that by making voluntary contributions, but she will probably need another 7 or 8 years (if she has the time before SPA) to qualify for the full nsp, not the 2 years you appear to be working on.

Agreed - I'd suggest you both check your State Pension forecasts to see what they say

https://www.gov.uk/check-state-pension

As others point out, making voluntary contributions to get up to the maximum offers a very good return on the investment if you have average life expectancy.