Pension/investment advice

I've been reading this thread with great interest. My situation is similar to the OPs (but not exactly the same) and I'm waiting for some figures to be generated by my company pension people. I'll be posting for advice and suggestions soon.

Trinity_Phil wrote: »

Like I say, I am on a 2 day financial awareness course next week, so will see what they suggest, and one of our former neighbours is also a financial/pensions advisor, so I will put forward some of peoples suggestions on here and see what they advise .

:T

I retired in 2009 at same age as you are now. The pre retirement course provided by my Force was hosted by a representative from a Wealth Management Company. See the recent post 'affinity connect' Not the same company but you can get the drift. In fairness we were given some interesting presentations,options explained and appearances from NARPO, Federation etc so worth attending but don't expect any advice as to your personal circumstances. At the end of the course among the handouts there was a lot of glossy info on the company but as I declined any further contact I never heard from them again.

I was offered virtually same values as yourself, a half pension of £19.7k ( but a lower lump sum) and a 40/60th of £26.3K. I chose the maximum commutation, solely to invest for additional security for my wife in the event of my death as I was aware it would not have any effect on her receiving a half of the full pension. In hindsight I see I could have planned for that possible eventuality better and regret taking the full commutation.

Since retiring pension increases have totalled 21% so the half pension is now just short of £24k pa whereas the 2/3rd's pension would be now just short of £32k!

As you do not appear to have any significant savings/debt your current lifestyle matches your current income. Do you really want to see a significant drop in income at your age and possibly rely on part time, possibly casual employment, to 'top up' your pension. It's a long time to State Pension age and you will find you do not even qualify for full SP. Get a State Pension forecast.

If you take full pension, or very close to it, taking into account you will no longer be paying hefty pension and National Insurance contributions your net income will not be significantly lower than your current net salary. You can use any future work as a bonus rather than a necessity.

Enjoy retirement! I tried it for four months, didn't enjoy it, found it expensive, so back in the world of work!

Just to add a little to triplea35's excellent post, don't underestimate the value of index linking to the part of your pension not commuted to a lump sum, even though it is now linked to CPI not RPI.

As I mentioned above, I retired in 2011 with a full PPS pension at 30 years (although I had served longer) and took a relatively small part of the full lump sum available to me. I recently met up with an ex colleague who like you is retiring imminently with a similar full entitlement. Now 7 years later, my annual pension in payment is higher than his (and your) current full pension before commutation. I know we live in strange times, and that illustrates not only the power of compounded inflation linked increases to the pension, but also the relatively poor increase in police salaries over the same period.

Nevertheless, it's worth bearing in mind that although you will get CPI increases to your annual pension irrespective of the amount of lump sum you choose to take, a 2.4% increase on £26K (using the figure for next April's increment) is worth more than a 2.4% increase on £19K, and the difference will continue to grow with subsequent annual increases being applied to it.

Most of my colleagues who advocated taking the maximum lump sum based their argument on how long it would take to "earn" the same amount of money from the increased annual pension, if the lump sum wasn't taken. Their figures were always based on the fixed value of the pension at the date of retirement though, and made no allowances for the extra pension payments compounding over time.

By all means consider taking a lump sum if you are certain that you have a real need for it, the 20:1 commutation rate is a fair value in comparison to a lot of pensions. But by taking it all just because it is there, and having no purpose for it, you leave yourself open to its value being eroded by inflation over time, unless you are prepared to take on a degree of risk through investment that is greater than the certainty of inflation linking to the rest of your pension.

On another note, I have attended three of these pre-retirement courses. The first, about 5 years before I could have retired, was actually quite good, but was a week long so plenty of time to cover a lot of ground in some detail. The second, about a year before I retired, was two days long, and to be honest I found it pretty poor. The third, an NHS pre-retirement seminar that I was invited to along with Mrs D, was downright awful. I only knew that however because of the time I had spent reading these forums and educating myself financially in the intervening period.

Deneb wrote: »

By all means consider taking a lump sum if you are certain that you have a real need for it, the 20:1 commutation rate is a fair value in comparison to a lot of pensions. But by taking it all just because it is there, and having no purpose for it, you leave yourself open to its value being eroded by inflation over time, unless you are prepared to take on a degree of risk through investment that is greater than the certainty of inflation linking to the rest of your pension.

The OP has a need for £75k so I definitely think he should take that amount as a lump sum as he said he can afford to live on the lower income. With a really good commutation rate of 20:1 it could even be worth taking the other £65k as well and investing it if he already has sufficient income to cover his requirements, as it could also benefit his wife if she doesn't have as much pension provision.