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    • PeterB99
    • By PeterB99 9th Apr 18, 11:30 AM
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    PeterB99
    Newbie Pension Advice
    • #1
    • 9th Apr 18, 11:30 AM
    Newbie Pension Advice 9th Apr 18 at 11:30 AM
    OK, I'm a newbie and very unknowledgeable about this stuff so please go easy on me!

    I'm 60, have been self-employed for the last 20 years. I will have 2 workplace pensions from previous employments, one of which is offering me (through Aviva), a few options:

    1. 1500 yearly pension
    2. 13k cash = 20k to buy an income from another insurance company
    3. 33k to buy an income from another insurance company

    It's small beer, admittedly. I don't need the income yet, so I had thought doing nothing would mean these values would increase, the longer I did nothing. But according to Aviva that's not necessarily the case as the value of their investments, as well as my remaining lifetime came into play. So maybe I should take the income now anyway in order to have more remaining years to enjoy it?

    I realise I'm probably asking for a simple answer to a complex question, where much more information about my financial state would help, but is there a 'no-brainer' advice for this particular pension? If so, I'd welcome it!

    Many thanks!
Page 1
    • AnotherJoe
    • By AnotherJoe 9th Apr 18, 11:45 AM
    • 8,969 Posts
    • 9,856 Thanks
    AnotherJoe
    • #2
    • 9th Apr 18, 11:45 AM
    • #2
    • 9th Apr 18, 11:45 AM
    I presume that should be "13k cash + 20k to buy an income from another insurance company" ?

    33k / 1.5k = 22 years. Odds are you'll live longer than 22 years.

    Does the 1.5k have any inflation proofing ? Annual bumps of CPI or RPI or whatever? Need to know that first.

    Buying an income will not get you anywhere near 1500 from 33k unless its based on your life only with no inflation lifts, no nothing. 1500 in 20 years might only be worth 750 then.
    • PeterB99
    • By PeterB99 9th Apr 18, 12:44 PM
    • 3 Posts
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    PeterB99
    • #3
    • 9th Apr 18, 12:44 PM
    Thank you
    • #3
    • 9th Apr 18, 12:44 PM
    Thanks, AnotherJoe. The quote from Aviva says "no increase" so I guess that means no CPI/RPI.

    Nevertheless, from your calculations I should probably stay with Aviva because I won't get a better return.

    So the question is, should I just start taking it now?

    Thanks again!

    Pete
    • Dox
    • By Dox 9th Apr 18, 1:11 PM
    • 341 Posts
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    Dox
    • #4
    • 9th Apr 18, 1:11 PM
    • #4
    • 9th Apr 18, 1:11 PM
    There isn't a no-brainer answer - but you do need to ask yourself some questions.

    Why do you want to take the money now? How would it impact on your tax position? Leaving the cash invested should mean that it grows - not sure why you believe it won't - anything in the paperwork to help answer that?). As you get older, the starting level of pension should be higher because the pension will be payable for fewer years.
    • AnotherJoe
    • By AnotherJoe 9th Apr 18, 1:56 PM
    • 8,969 Posts
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    AnotherJoe
    • #5
    • 9th Apr 18, 1:56 PM
    • #5
    • 9th Apr 18, 1:56 PM
    Thanks, AnotherJoe. The quote from Aviva says "no increase" so I guess that means no CPI/RPI.

    Nevertheless, from your calculations I should probably stay with Aviva because I won't get a better return.

    So the question is, should I just start taking it now?

    Thanks again!

    Pete
    Originally posted by PeterB99
    I think you could get a somewhat better return by taking a reasonable risk (especially if this money isn't crucial to you)

    Contrast the two possibilities.

    1. take 1500 year for (say) 25 years - I'm going to assume thats a reasonable life expectancy at age 60. Total amount 37,500. However, factor in inflation, and in todays terms, with inflation at 2.5%, thats 28,000 you'd actually receive. The final year 25 payment for example, even though it would be 1,500 would be worth just 817 in today's money.

    2. Take the 33k. Invest it in an income fund with a record of providing 3.5% income (there are a fair few around). That would be 1,115 a year. However that money should keep track with inflation so over 25 years that is 28875, by year 12 it woudl be returning more in real terms than the 1500 and you'd still have the 33,000 (which by then would be worth 18k in todays money. Total return over 25 years nearly 47k. But, here's the risk, it could provide more and it could provide less.

    OTOH you could argue that having more money aged 85 is neither here nor there (espcially if you are covered by your other pensions) and theres something you'd rather spend the 33k on right now. Perhaps something to set the house up for retirement such as renovations/decorating, a new kitchen you'd benefit from, funding a house move, a decent car or even a few good holidays and a lifetime of memories?
    • zolablue25
    • By zolablue25 9th Apr 18, 2:38 PM
    • 1,574 Posts
    • 457 Thanks
    zolablue25
    • #6
    • 9th Apr 18, 2:38 PM
    • #6
    • 9th Apr 18, 2:38 PM
    I think you could get a somewhat better return by taking a reasonable risk (especially if this money isn't crucial to you)

    Contrast the two possibilities.

    1. take 1500 year for (say) 25 years - I'm going to assume thats a reasonable life expectancy at age 60. Total amount 37,500. However, factor in inflation, and in todays terms, with inflation at 2.5%, thats 28,000 you'd actually receive. The final year 25 payment for example, even though it would be 1,500 would be worth just 817 in today's money.

    2. Take the 33k. Invest it in an income fund with a record of providing 3.5% income (there are a fair few around). That would be 1,115 a year. However that money should keep track with inflation so over 25 years that is 28875, by year 12 it woudl be returning more in real terms than the 1500 and you'd still have the 33,000 (which by then would be worth 18k in todays money. Total return over 25 years nearly 47k. But, here's the risk, it could provide more and it could provide less.

    OTOH you could argue that having more money aged 85 is neither here nor there (espcially if you are covered by your other pensions) and theres something you'd rather spend the 33k on right now. Perhaps something to set the house up for retirement such as renovations/decorating, a new kitchen you'd benefit from, funding a house move, a decent car or even a few good holidays and a lifetime of memories?
    Originally posted by AnotherJoe
    If he takes the full 33K would it be taxable?
    • AnotherJoe
    • By AnotherJoe 9th Apr 18, 3:24 PM
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    AnotherJoe
    • #7
    • 9th Apr 18, 3:24 PM
    • #7
    • 9th Apr 18, 3:24 PM
    If he takes the full 33K would it be taxable?
    Originally posted by zolablue25
    Good point. No, great point!

    OP, will it?

    If it is it depends how much other taxable income OP will have if he could take it out in a few chunks and avoid tax, or not.
    • PeterB99
    • By PeterB99 9th Apr 18, 3:46 PM
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    PeterB99
    • #8
    • 9th Apr 18, 3:46 PM
    Will it be taxable?
    • #8
    • 9th Apr 18, 3:46 PM
    I currently pay tax on my income. My expectation is that I will probably be paying tax on income even after I retire. The exact text is "33,413.62 to buy an income from another insurance company". The other figures in my original post are described as "tax free cash".

    That doesn't clarify it for me, but I seem to be embarrassingly ignorant! Does it help?
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