My plan - using the 4% rule - feel free to tell me if I have it wrong 😊

Mick70

Kynthia said:

Is the value of your DB pension based on taking it at normal pension age or reduced at your planned retirement date?

Long story but I have been receiving that DB pension since I turned 50, I had protected rights (it’s a long story ), £31.1k is what I receive now . 

Mick70

Is it best to chip away at the cash first , once retire , or does it make no difference 

DRS1

Mick70 said:

Is it best to chip away at the cash first , once retire , or does it make no difference 

I am guessing the bank cash is generating taxable income so at the very least it may be a good idea to get it into a cash ISA if you can.

DRS1

Mick70 said:

DRS1 said:

Mick70 said:

thanks for input Roger, appreciate your time

I should have added before anyone asks My DB pension is being paid now, I don't have to wait until 60 or whenever (its a long story). so currently i work full time and receive the DB pension.  DB pension increases by RPI each year (although scheme maybe changing that to the lower CPI).

Thanks again
Mick

I was going to ask but now you have posted this I have another question.
Are the increases full RPI or are they capped (eg at 5% or 2.5%).
Also if the pension is already in payment I don't see how they can change the increases from RPI to CPI (unless/until RPI is abolished).  Are the increases discretionary?

It is capped 5% . I read on their newsletter they were proposing moving to cpi to determine annual rises 

For as long as CPI is less than RPI I do not see how they could make this change.  The rate of pension increase will be written into the rules of your scheme and changing accrued benefits (which your pension is as it is related to past service) to reduce them is a no no.  They could make the change for benefits which accrue in future but not the past.

I will caveat that by saying I am very out of date on these things but I would be amazed if the law had changed in this regard in the last 20 years.

kinger101

DRS1 said:

Mick70 said:

DRS1 said:

Mick70 said:

thanks for input Roger, appreciate your time

I should have added before anyone asks My DB pension is being paid now, I don't have to wait until 60 or whenever (its a long story). so currently i work full time and receive the DB pension.  DB pension increases by RPI each year (although scheme maybe changing that to the lower CPI).

Thanks again
Mick

I was going to ask but now you have posted this I have another question.
Are the increases full RPI or are they capped (eg at 5% or 2.5%).
Also if the pension is already in payment I don't see how they can change the increases from RPI to CPI (unless/until RPI is abolished).  Are the increases discretionary?

It is capped 5% . I read on their newsletter they were proposing moving to cpi to determine annual rises 

For as long as CPI is less than RPI I do not see how they could make this change.  The rate of pension increase will be written into the rules of your scheme and changing accrued benefits (which your pension is as it is related to past service) to reduce them is a no no.  They could make the change for benefits which accrue in future but not the past.

I will caveat that by saying I am very out of date on these things but I would be amazed if the law had changed in this regard in the last 20 years.

RPI will be replaced by CPIH from 2030.  CPIH is much closer to CPI than RPI.

Triumph13

The first thing to do is to make sure your wife puts 100% of her earnings for the current tax year into a pension before 5 April.  At the moment she doesn't have enough in her pension to fully utilise her personal allowance through to state pension age, so that's an instant 25% gain on everything extra she can get into the pension.

As to the overall plan, I personally would tackle it rather differently by splitting the funds into two separate pots for different purposes.  Firstly, a bridging pot to replace the state pension for the years until that starts.  I would be holding much of that in cash - maybe everything to be drawn in the first six to ten years.

SP (or bridging pot) plus DB gives you £55k pa gross of pretty well fixed income - a very nice floor indeed.

The second pot is your long term drawdown pot and can have a high equity percentage as you can tolerate some volatility given who strong your floor position is.  3% drawdown would get your overall gross up to around £70k.

OldScientist

Mick70 said:

Here goes, please be patient and excuse any ignorance 😊

 

Myself – age 54 – will be 55 mid this year

Spouse – age 57 -  to be 58 mid this year

 

Myself

DB Pension        £31k pa

S+S ISA               £85K

DC Pension       £299k     Total ISA and DC Pot =  £384k   using   4% = £15.4k pa income.

 

Wife

Bank Cash         £143k

S+S ISA               £91k

DC Pension       £101k       Total = £335k    using  4%     =  £13.4k pa  income.

Realise there is a lot as cash but it is what it is.

At this point in time , plan is for my wife to retire end of this calendar year 2025 ,  age 58.5   and drawdown/income of £13.4k pa ,  although we may also try price annuities (rising inflation) but doubt they would give this amount.  Likelihood is there will be no income tax.

 

Myself to retire either March 2026 (nrly 56) , or December 2026 , age 56.5.  and would take £15.4k pa  +  £31k DB

 Combined incomes  would be 13.4+15.4+31 =  £59.8k  (gross - unsure how work out Net yet).

And that amount would be increased with inflation each year.

Ideally we would want combined of about £62-65k gross, but it is likely I will work another 12-24 months yet,  so we will see. Work can be stressful at times, so see how pans out.

Unless circumstances were to change with our kids (both now early 20s) then we would not be taking any tax free lump sums, just using the 25% tax free each year as part of our drawdown.

 

Once SP age kicks in at 67/68 then the 4% would likely get reduced to 2%, we are both entitled to full SP (£11.4k pa each), so long as the government does not change any rulings on SP.

 If there are years when the markets go down drastically, we would try draw more from the cash element of the overall retirement “pot” and less from the S+S ISA funds. If that makes sense? Whilst on normal years it will be mixed from everything - unless I got advised to do differently regarding the cash ?

 

My DC pension is about 75% Equities,  at end of this calendar year I may reduce the risk exposure slightly and try get it down to say 65%. My wife's portfolio is about 65%.

How does that sound to you guys ?

Mick

A slightly different approach is to start with how much income you want and then look at the sources that can supply it.

For a 'back of the envelope' calculation assume
1) You want £63k gross per year
2) Your investments grow at 0% real per year (this is conservative, but not historically unrealistic, and has the benefit of making the calculations doable without a spreadsheet)
3) Income from your DB pension does not reduce in real terms (if inflation exceeds a cap, this assumption will not be true).

I might have some of the details wrong (and my sums should be checked!).

Years 1 to 9 (DB pension and portfolio only)
£31k from DB pension, so £32k is needed per year from the portfolio. Funds needed are 32*9=£288k

Years 10-12 (DB pension, one SP, and portfolio)
£31k from DB pension, £11k from SP, i.e., 63-31-11=£21k needed from portfolio. Funds needed are 21*3=£63k

Years 13 onwards (DB pension, 2*SP, and portfolio)
£31k from DB pension, £22k from SP, i.e., 63-31-22=£10k needed from portfolio. For 25 years (i.e., to about 100), £250k is needed.

On this very rough calculation, a total of about 288+63+250=£601k is needed from the portfolio.

You currently have about £719k in your portfolio, so given the assumptions made, you have enough with some excess. If you are willing to be flexible in your drawdown income depending on portfolio performance then this would increase the margin.

You could do better than this by taking advantage of the current high payout rates of inflation protected annuities. Assuming you spouse adds more to their pension up to the limit allowed until they stop working, with £100k in their DC pension (there are tax reasons not to use the TFLS to buy an annuity) just under £4k of inflation-linked income (single life at 58.5yo, RPI) could be bought meaning that £4k less income from the remaining portfolio would be needed in each of years 1-9, 10-12, and 13 onwards reducing the amounts needed to £252k, 51k, and £150k (i.e., a total of £453k, plus £100k for the annuity giving £553k, i.e., a saving of about £50k over the original plan). It would also provide additional guaranteed income in the event of your death and the reduction in your DB paid to your spouse.

To reiterate, this is a rough calculation - different assumptions would lead to different outcomes.

sgx2000

With pensions this large you really should pay for professional advice

TheGreenFrog

kinger101 said:

RPI will be replaced by CPIH from 2030.  CPIH is much closer to CPI than RPI.

I thought that although that is the practical effect, what is actually happening is that RPI will continue to be published but that it will be calculated in the same way as CPIH?  That may be just semantics but potentially important when looking at the terms of your pension/annuity?  I may well have got this wrong!

QrizB

TheGreenFrog said:

kinger101 said:

RPI will be replaced by CPIH from 2030.  CPIH is much closer to CPI than RPI.

I thought that although that is the practical effect, what is actually happening is that RPI will continue to be published but that it will be calculated in the same way as CPIH?  That may be just semantics but potentially important when looking at the terms of your pension/annuity?  I may well have got this wrong!

I think you are correct. HM Gov will continue to publish a value for RPI, but it will use the same calculation as CPIH and will be identical.