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

Mick70

some food for thought there , will
print it off , squinting on phone here 😆… 
thank you for your time all, have a good weekend .

Mick

Alexland

Rather than thinking of it as a 4% reducing to 2% drawdown rate when SP starts I echo Triumph13's comment that it might be better to think of it as 2 pots - one to cover the missing SP for a defined period and another to cover the long term drawdown to provide income above the DB+SP level. That way you can come up with suitable asset allocations for the 2 different investment timescales. For the first pot it would be in low risk investments as it would all be drawn out over a decade or so. For the second pot given your starting ages then I'd consider something like a 1/35th drawdown rate depending on the asset allocation and investment costs you intend to run in retirement. You might want to be a bit more conservative on the pot 2 drawdown rate to cover the possibility the DB capping causes issues as inflation can be lumpy. The DC may have to cover the reducing DB spending power.

kinger101

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'm aware of that, but obfuscation is my preferred term.  They took the alignment route for ease and got away it.

As you say, people do need to be aware because CPIH is typically lower than RPI.  So you might want to think about this if you have RPI linked income or are considering an annuity. The typical difference of 1 percent makes a big difference once compounded over decades.

TheGreenFrog

kinger101 said:

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'm aware of that, but obfuscation is my preferred term.  They took the alignment route for ease and got away it.

As you say, people do need to be aware because CPIH is typically lower than RPI.  So you might want to think about this if you have RPI linked income or are considering an annuity. The typical difference of 1 percent makes a big difference once compounded over decades.

Indeed.  IL gilt market real yields prove the point.

Alexland

kinger101 said:

As you say, people do need to be aware because CPIH is typically lower than RPI.  So you might want to think about this if you have RPI linked income or are considering an annuity. The typical difference of 1 percent makes a big difference once compounded over decades.

I guess it depends on if the pension is being spent on things that rise with RPI or just CPIH.

I'd be more worried about the 5% capping which sounds perfectly reasonable as it's somewhere around the long term trend but can be very damaging as inflation is lumpy not linear. My dad has been retired around 2 decades and seen his spending power materially reduce due to DB capping.

TheGreenFrog

Alexland said:

kinger101 said:

As you say, people do need to be aware because CPIH is typically lower than RPI.  So you might want to think about this if you have RPI linked income or are considering an annuity. The typical difference of 1 percent makes a big difference once compounded over decades.

I guess it depends on if the pension is being spent on things that rise with RPI or just CPIH.

I'd be more worried about the 5% capping which sounds perfectly reasonable as it's somewhere around the long term trend but can be very damaging as inflation is lumpy not linear. My dad has been retired around 2 decades and seen his spending power materially reduce due to DB capping.

Alexland said:

kinger101 said:

As you say, people do need to be aware because CPIH is typically lower than RPI.  So you might want to think about this if you have RPI linked income or are considering an annuity. The typical difference of 1 percent makes a big difference once compounded over decades.

I guess it depends on if the pension is being spent on things that rise with RPI or just CPIH.

I'd be more worried about the 5% capping which sounds perfectly reasonable as it's somewhere around the long term trend but can be very damaging as inflation is lumpy not linear. My dad has been retired around 2 decades and seen his spending power materially reduce due to DB capping.

I agree.  Although I was thinking more about an annuity or similar which is linked to RPI:  if RPI stops being published then there may be a question as to which measure gets substituted (will depend on terms of the annuity/pension but some are vague).  If RPI continues to be published then there is no uncertainty, even if the basis of RPI is changed.

michaels

5% RPI cap has impacted 3 times in the last 20 years for a cumulative impact of about 11%

Alexland

michaels said:

5% RPI cap has impacted 3 times in the last 20 years for a cumulative impact of about 11%

I just pulled the data and agree 2011 and more recently in 2022 and 2023. My dad's is capped at 3% so would have been impacted in 11 of those 20 years so has lost around 24% of increases. Probably why he's always moaning about it! He should be glad it wasn't the 1970s..