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  • FIRST POST
    • cloud_dog
    • By cloud_dog 21st Jan 18, 3:27 PM
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    cloud_dog
    Another CETV Q; Help Me Thrash It Through...
    • #1
    • 21st Jan 18, 3:27 PM
    Another CETV Q; Help Me Thrash It Through... 21st Jan 18 at 3:27 PM
    Ok, so another CETV post I!!!8217;m afraid.

    I have a DB scheme and my position has been that it provides (very) good protection for retirement income, i.e. removes the ricks of investments, and it is a position I have put forward on these boards numerous times in the past. Having said that, I have been going over and over our finances and future plans. !!!8216;Plans!!!8217; is quite a strong word as it is not something we, as a couple have discussed in great detail (I have spoken about how I think things should progress with the OH) but, where my head is at the moment is that there is a lack of flexibility around the finances that would allow us to consider early(ish) retirement.

    To this end, I!!!8217;d like to post the details below and would welcome people!!!8217;s thoughts on the matter.
    • Age 52, OH 50.
    • Mortgage 89k
    • ISA(s) 90k
    • 1 child (14)

    Pension Me: DB scheme, NRA 65; SP 67 (need another 4 years for full SP)
    • Pension at NRA: 33386pa
    • Lump sum: 145150
    • Reduced pension: 21770pa
    • Spouse pension: 50% (16693pa)
    • Preserved pension as of 1 April 2017: 26650pa
    • AVC: 2k (+250pm)
    Future pay rise / pension benefit increases limited to 1% of any salary increase.

    Pension OH, mixture: DB (age 67), S32 (age 60), DC (age 55); SP 67 (need another 5 years for full SP)
    • LGPS DB at NRA: 2900pa
    • Lump sum: 12490
    • Reduced pension: 1875pa
    • Preserved pension as of 31 March 2017: 292pa
    • S32 at 60: 1220pa
    • DC/SIPP Pension: 31k (+500pm)

    I haven!!!8217;t requested a CETV for my DB scheme but, if we were to assume a CETV ratio of around 32 times (recent post by someone else), this would provide a figure of 852800 (based on the 1 April 2017 figure). I know all this is meaningless without an actual CETV value but I would like to !!!8216;thrash things out!!!8217;, !!!8216;chew the cud!!!8217;, so as to ensure I have considered all possibilities and truly understand both the increased risks and benefits.

    One other thing that is at the back of my mind and, I believe needs due consideration. My father passed at age 63 from heart attack, my paternal grandmother passed at age 77 due to angina, my mother had a triple heart by-pass when she was 72 (she still going at 82, whoop whoop). This is not something I can ignore.

    So, with all that in mind....

    The one big advantage I can see from transferring out of my DB scheme is significant flexibility for retirement age. That is not something I can see how I could achieve otherwise.

    I cannot see myself working for my current employer until 65.

    The downside is the significant increase in risk.

    Based on the 852800 value, minus PCLS, would leave 639600. A draw down rate of 4% (???) would equate to a pension of 25584pa. Maybe I need to use 3%? But, my DB pension minus PCLS would be 21773pa so, a 3.5% withdrawal rate would provide a comparable pension. Plus, I would have an additional 65k from the PCLS of the CETV as opposed to the DB PCLS from which income could be derived (ISAs etc).

    My mind at the moment is certainly focussing on the flexibility aspect and also the hereditary health consideration (it would be remiss to ignore it).

    Thoughts?

    (I suppose the simple thing to do would be to request a CETV and revisit all of this).
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
Page 4
    • cloud_dog
    • By cloud_dog 24th Jan 18, 10:54 PM
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    cloud_dog
    Write down the value of the crystallised portions at the time of crystallisation. Do the same at 75. Subtract an amount corresponding to your remaining unused lifetime allowance. Pay the charge on anything left. Avoid by taking money out so it isn't higher.

    Reduce potential lifetime allowance issues by crystallising DC pots as soon as you reach 55, though tweaking this in various ways can be better.
    Originally posted by jamesd
    IF I go down this route, and IF the CETV comes out near the LTA then my intention would be to crystalise and draw-down the maximum up to the HRT threshold each year.

    There have been discussions around, what is commonly referred to as a 'safe draw-down limit/percentage', and taking in to consideration my calculation of 'The Number', anything above the SWL/'The Number' (from the max withdrawal each year) would be put to work in an S&S ISA. By doing this I wouldn't expect to be anywhere near LTA come 75.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • Mutton Geoff
    • By Mutton Geoff 25th Jan 18, 8:55 AM
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    Mutton Geoff
    If had bought Fevertree stock when it listed on AIM in November 2014. A share would have cost you around 160p-170p. 10k would have bought you some 5,880 shares. At todays price of 24.93p your holding would be worth 146,500. That's good fortune. No correlation to gilt yields involved.
    Originally posted by Thrugelmir
    I bought 5k of Southern Cross early in 2011 as the share price had plummeted and I believed there was no way the government would allow the business to fail as it accomodated so many pensioners.

    Six months later I had nothing when the company folded.

    As they say, hindsight is a wonderful thing.
    Compensations/Refunds from Banks & Institutions - 4,165 | Stooz Profits - 7,636 | Quidco - 4,014

    All with a big thank you to Martin and MSE.com from Mutton Geoff!
    • cloud_dog
    • By cloud_dog 2nd Feb 18, 1:34 PM
    • 3,641 Posts
    • 2,162 Thanks
    cloud_dog
    Oh dear, have encountered a 'thing' in this thread which may scupper the idea to obtain a CETV and review the appropriateness or not of a transfer.

    Basically you cannot be an active member of a DB scheme and obtain a CETV. To obtain the CETV you need to have left the scheme. So, pretty much like the poster on the referred to thread, I would have to leave the DB scheme and join my company's DC scheme.

    Did a quick search on the interweb and found this from the pension advisory service:

    *NOTE: You must have left your scheme and no longer be an active member for this to apply. If you are still an active member then the guaranteed transfer value will not apply.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • NoMore
    • By NoMore 2nd Feb 18, 2:39 PM
    • 172 Posts
    • 143 Thanks
    NoMore
    I think it just means the guarantee doesn't apply, not that you can't ask for a CETV
    • xylophone
    • By xylophone 2nd Feb 18, 2:42 PM
    • 25,108 Posts
    • 14,795 Thanks
    xylophone
    Basically you cannot be an active member of a DB scheme and obtain a CETV
    https://www.pensionsadvisoryservice.org.uk/content/publications-files/uploads/DB_Options_Pension_Flex_SPOT024_V1.pdf

    Every 12 months you have a right to request a transfer value quotation from the scheme. Your scheme may allow you more frequent requests, although you may be charged for this.

    https://shropshire.gov.uk/committee-services/documents/s10719/6.%20Comms%20and%20Safeguarding%20Appendix%20A%20C ETV%20Request.pdf


    If you wish to request a Cash Equivalent Transfer Value (CETV) of your pension savings in the Local Government Pension Scheme (LGPS) and you are currently paying into the LGPS, we will work out an estimated CETV and send it to you when you have completed, signed and returned the CETV Request Form. We would normally do this within 3 months of receipt of the form.

    If you are an !!!8216;active member!!!8217; of the LGPS i.e. currently paying into the LGPS, we cannot pay a CETV of your LGPS benefits. If you no longer want to pay into the LGPS then you will need to opt out.
    • cloud_dog
    • By cloud_dog 2nd Feb 18, 6:01 PM
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    cloud_dog
    Thanks for the replies / confirmations. We'll plod on and see what comes.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • hyperhypo
    • By hyperhypo 8th Feb 18, 3:50 PM
    • 43 Posts
    • 7 Thanks
    hyperhypo
    hello, thought i'd give my summary of doing same procedure as OP, albeit in a deferred scheme. Request was put in this time last year.

    I had 12 years in a db scheme . db pension of 12, 350 (as at 2012) when db scheme access stopped. RPI increases capped at 10% until retirement at 63. Spouse 50%.

    CETV 2017 was 422,000.

    I went through the initial stages of transfer calcs ..i didn't proceed for thefollowing reasons.

    I had little external cash savings , although i'd made signficant savings in a SIPP since 2012 (100k plus)

    More signficantly,

    I didn't understand the technical documents that compared the projected growth of my transferred DB money against various benchmarks ...there appeared to be a numeric advantage but it simply wasn't clear enough, and high growth assumptions were made.

    Nowhere did it say this is a good idea, or appear to make any assessment of myh other assets , spouse etc. It was simply the data from Mercers that had been crunched through some specialist software ...it contained no personal analysis , simply a numerical comparison.

    The way these numbers were presented simply put me off.

    I did speak to a second IFA informally who suggested i'd be mad to do it, in so many words.

    So i didn't. But colleagues who had more time in schemes with spouses with DB provisions and / or large cash buffers have done so and are watching their million pound pots rise and fall.
    • cloud_dog
    • By cloud_dog 8th Feb 18, 4:04 PM
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    cloud_dog
    Hi

    Thanks for sharing your experience and thoughts.

    I am not set on a course of action, as yet. I've got 'The Number', I've played with some spreadsheet calculations but it really depends on the CETV (or in my case the estimate, as I am still an active member).

    I've done as much as I can to understand the ramifications of any decision but at the moment it is all hypothetical and it doesn't have the weight of finality until I have the ratio.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • Thrugelmir
    • By Thrugelmir 8th Feb 18, 6:23 PM
    • 58,165 Posts
    • 51,522 Thanks
    Thrugelmir
    simply a numerical comparison.
    Originally posted by hyperhypo
    That's the bottom line.

    "The rule is, jam to-morrow and jam yesterday but never jam to-day."
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • kidmugsy
    • By kidmugsy 8th Feb 18, 11:38 PM
    • 10,341 Posts
    • 7,040 Thanks
    kidmugsy
    But my employer offered a one time chance to buy into their DB pension and a lump sum of $280k would give a $20k index linked pension at 55.
    Originally posted by bostonerimus
    Goodness me; do you know why? Why would a firm ... or was it a firm?
    Free the dunston one next time too.
    • bostonerimus
    • By bostonerimus 9th Feb 18, 2:09 PM
    • 1,667 Posts
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    bostonerimus
    Goodness me; do you know why? Why would a firm ... or was it a firm?
    Originally posted by kidmugsy
    It was a US state government pension scheme. The scheme gives highly paid employees a choice between a DB plan and a DC plan. The contributions are exactly the same for both plans. After the 2007-2008 crash some powerful people and unions lobbied for a one time chance to change. It was ridiculous IMHO as the risks of the DC plan were clearly explained. It required state legislation and permission from the federal IRS tax authorities. I had more than enough in my DC plan, despite being in it only since 2004 and investing through the crash, to buy into the DB plan. So I ignored my philosophical problems with the whole thing and bought in as it was such a good deal and gave guaranteed income decoupled from the stock market. I still have the vast majority of my money in the stock market, but when the markets fall by +10% I'm happy I don't get my day to day income from drawdown.
    Misanthrope in search of similar for mutual loathing
  • jamesd
    I had 12 years in a db scheme . db pension of 12, 350 (as at 2012) when db scheme access stopped. RPI increases capped at 10% until retirement at 63. Spouse 50%. ... CETV 2017 was 422,000.
    Originally posted by hyperhypo
    Limited time in a DB scheme can make it easier to stay in because you're getting flexibility from DC schemes.

    At the moment I'd be expecting something like 40,000 a year income from that sort of transfer value, via P2P lending interest after allowing for bad debt. Not inflation linked. 100% spouse or anyone else. Can't readily get it all into P2P, though 25% would be a nice income base.

    More traditionally, it'd be expected to deliver 23,000 initially, increasing with inflation most years, if you used the Guyton-Klinger rules and were prepared to cut more if you lived through something comparable to the worst 10% of UK historic 40 year retirement periods (90% success rate).
  • jamesd
    I still have the vast majority of my money in the stock market, but when the markets fall by +10% I'm happy I don't get my day to day income from drawdown.
    Originally posted by bostonerimus
    Nice here using P2P interest with plenty of cash around as well. Much easier to be relaxed with the knowledge that money to live on is coming in anyway.

    Though I would prefer it if equities bounced back and waited til fall to drop 40%. Not yet quite as low in equities as my by summer plan but way lower than my usual positioning because I've been following my own advice.
    • happyandcontented
    • By happyandcontented 9th Feb 18, 7:18 PM
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    happyandcontented
    Limited time in a DB scheme can make it easier to stay in because you're getting flexibility from DC schemes.

    At the moment I'd be expecting something like 40,000 a year income from that sort of transfer value, via P2P lending interest after allowing for bad debt. Not inflation linked. 100% spouse or anyone else. Can't readily get it all into P2P, though 25% would be a nice income base.

    More traditionally, it'd be expected to deliver 23,000 initially, increasing with inflation most years, if you used the Guyton-Klinger rules and were prepared to cut more if you lived through something comparable to the worst 10% of UK historic 40 year retirement periods (90% success rate).
    Originally posted by jamesd
    So, if I am reading this correctly you are saying that a CETV value of c425000 should yield 23,000pa if invested in traditional places?

    That is of interest to me as we have DB transfer value of c850k and the aspect which is most worrying is that if OH died before it goes into payment, the spousal benefit is only the return of premiums not a pension.

    For this reason, and others we are actively considering transfer, but we keep reading for and against and our financial adviser hasn't yet given us a definitive steer.

    The LTA is also an issue as we have DC pots too.

    If only it was simple!
    • Thrugelmir
    • By Thrugelmir 9th Feb 18, 7:21 PM
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    Thrugelmir
    Though I would prefer it if equities bounced back and waited til fall to drop 40%.
    Originally posted by jamesd
    Corrections are rarely as dramatic. Simply a return to more normal times may take the current level of exuberant interest away. Then attention will turn to the next fad. You may simply find yourself at the bus stop waiting for the bus that never arrives.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
  • jamesd
    So, if I am reading this correctly you are saying that a CETV value of c425000 should yield 23,000pa if invested in traditional places?
    Originally posted by happyandcontented
    Yes. That was the result of applying the usual sort of analysis to a UK investor. The key requirements:

    1. Use the more modern Guyton-Klinger rules that skip inflation increases, cut more or increase the budget depending on how your investments do.
    2. It's the 90% success rate figure so it skips the worst cases, notably those where the world wars affected things. If you find yourself living through such times you'll need to cut more, but it'll be obvious if that's the situation.

    It didn't use Guyton's sequence of return risk reduction technique that can further improve results and I am using and do recommend that sort of thing, which cuts equity holdings when prices look high.

    It's also worth knowing that spending typically decreases as people get older as they save more and this drop is sooner and greater for the better off.

    That is of interest to me as we have DB transfer value of c850k and the aspect which is most worrying is that if OH died before it goes into payment, the spousal benefit is only the return of premiums not a pension.
    Originally posted by happyandcontented
    Not so good and that's the sort of concern that can make drawdown much more attractive.

    For this reason, and others we are actively considering transfer, but we keep reading for and against and our financial adviser hasn't yet given us a definitive steer.
    Originally posted by happyandcontented
    That's a tough problem for a financial planner for a range of reasons including most customers not likely to want uncertainty. You can probably help a lot by reading Drawdown: safe withdrawal rates and the related material it links to. Once you've done that you'll be in a well informed position and abe to tell the planner that you're comfortable with such things.

    If only it was simple!
    Originally posted by happyandcontented
    That's the problem with choice! There are many ways to tweak things according to each person's desires and understanding. It's probably not obvious but I factor my impression of a person when deciding if or how to reply about drawdown.
  • jamesd
    Corrections are rarely as dramatic. Simply a return to more normal times may take the current level of exuberant interest away. Then attention will turn to the next fad. You may simply find yourself at the bus stop waiting for the bus that never arrives.
    Originally posted by Thrugelmir
    Strictly a correction can never be as dramatic as a 40% drop because a correction starts at 10% drop and at 20% drop it ceases to be a correction and becomes a bear market instead. But I agree, 40% is less common than 20%.

    I'll be happy waiting for the bus. After a bit of selling on Monday I had about 42% in fixed interest (P2P) and cash, about 8% in VCTs and about 50% other equities.

    I write about Guyton but it's not just writing, it's also acting myself.
    Last edited by jamesd; 09-02-2018 at 11:09 PM.
    • cloud_dog
    • By cloud_dog 13th Feb 18, 3:02 PM
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    cloud_dog
    I've received confirmation from the scheme administrators regarding another element to my planning considerations / scenarios. This is that should I leave the company (before NRA) then I would be able to transfer out my AVC and leave the DB (main) scheme intact.

    This is useful for working through options to allow flexibility, i.e. dump as much as possible in to the AVC, stop work before NRA and use the AVCs to fund 'retirement' prior to drawing the main DB scheme.

    A question for you knowledgeable folks.... Would the transfer out of the AVCs also fall under the regulation to obtain (DB) transfer advice before actioning?

    If it does then that may detract from it as an option, possibly from a cost perspective.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • sandsy
    • By sandsy 14th Feb 18, 4:46 PM
    • 1,311 Posts
    • 788 Thanks
    sandsy
    If the AVC account is just a pension pot with no promises about the future level of income, no transfer advice should be needed.
    • cloud_dog
    • By cloud_dog 14th Feb 18, 6:09 PM
    • 3,641 Posts
    • 2,162 Thanks
    cloud_dog
    If the AVC account is just a pension pot with no promises about the future level of income, no transfer advice should be needed.
    Originally posted by sandsy
    It is 'just' a pot, with no associated promises.

    I wasn't sure if the fact that I can use the AVC monies to buy additional years/benefit from the DB scheme may skew it towards needing to be assessed due to the possible value/benefit of buying additional years/benefits?
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
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