What are your HYP Goals?

[MDS1951]

My aim, nearly achieved, is for my HYP and other investment income/interest on cash deposits to equal or exceed the basic state pension that I receive so that if HMG start to means-test that pension I have an alternative source of income. At present I invest most of my state pension and spend/save the rest. 75% of my HYP dividend income goes into my spending pot and isn't earmarked for any specific area of expenditure. The other 25% is used for topping up existing holdings in my HYP.

MDS1951

[monabri]

Having retired "early" from a stressful, frustrating job - one of my goals is to "keep myself gainfully occupied". I don't need to make oodles of money but my aim is to beat the paltry interest rates on offer at the [insert name] building society. I would like to use dividends to fund the purchase of big ticket items (e.g. car) but still having a proportion of dividends to re-invest when the right opportunities present themselves.

[Lootman]

My aim, nearly achieved, is for my HYP and other investment income/interest on cash deposits to equal or exceed the basic state pension that I receive so that if HMG start to means-test that pension I have an alternative source of income.

I wasn't aware that there was any serious consideration of means testing the state pension. Mean testing applies to various forms of welfare payments and your state pension is not welfare - you earned it via your NI contributions. It's a form of life insurance, hence the name "National Insurance".

The non-earned part of the state pension for some people - pension credit - is already means tested, precisely because it is a form of welfare.

It would be a passive slap in the face to millions of workers if HMG every considered such a move. At minimum such a change should only be for new workers, not those who have been making decisions for decades based on what was seen as a contractual entitlement.

[MDS1951]

I agree with your sentiments re the State Pension, Lootman. However, HMG changed the rules re inflation uprating on my occupational pension (it's the Local Government Pension Scheme) from using the RPI to the CPI instead because they thought that would cost less. So I thought that if the public finances became really desperate they might look again at who gets the State Pension - which is classed as a benefit now, I understand.

MDS1951

[Arborbridge]

It would be a passive slap in the face to millions of workers if HMG every considered such a move.

I don't believe that would stop them!

[kempiejon]

Indeed

[Lootman]

I agree with your sentiments re the State Pension, Lootman. However, HMG changed the rules re inflation uprating on my occupational pension (it's the Local Government Pension Scheme) from using the RPI to the CPI instead because they thought that would cost less. So I thought that if the public finances became really desperate they might look again at who gets the State Pension - which is classed as a benefit now, I understand.

OK, but that is the government as your employer that is changing the rules. The same could happen with a private employer except they have mostly migrated to DC plans anyway.

If HMG mooted the idea of stopping state pensions to people who have spent decades earning them, then I suspect there would be a worldwind of protest and outrage from the kind of people who don''t normally do things like that. I think they'd have to grandfather people over a certain age to get away with it.

[grimer]

I know very few people my age, that work in the private sector, that have any real pension provision. I've even worked with people that have opted out of generous DC schemes (e.g. You put in 5% and the company puts in 10%, which as a higher rate tax payer costs you almost nothing in loss of take home pay).

I recently went to a friend's house for dinner and this subject came up. They didn't seem to have any provision whatsoever beyond small cash ISAs. They have intentions to 'do something' but whether that will translate into meaningful action is unfortunately quite unlikely due to their fairly moderate earnings and unavoidable outgoings - young child, mortgage, etc.

I doubt that means testing pensions would save very much in the future because such a tiny minority of people have sufficient pension provision to disqualify them from a means tested pension. Although perhaps it would allow the government to avoid paying both final salary and old age pensions to former employees.

[Wizard]

As context, my overall investment objective is to create a portfolio that will throw off enough income to cover all my (and my wife's) costs to the point we are no more, leaving the current or indeed more capital for my children. I have assumed we live to 100. A single annual number does not work for me as I still have two children in fee paying schools for the next 7 years so costs will be higher over the next few years than they may be in a few years.

I already have a portfolio of fixed income securities that based on my current modelling achieves this. However, the model is very sensitive to inflation assumptions given it runs for a long time (I am currently 49 and as said above I run it out to age 100). I am still working part time which is one mitigate to this risk as it means I can reinvest investment income for now.

Which brings me to my HYP objective. Specifically I am looking for a degree of inflation proofing by investing in an HYP rather than simply investing in more fixed income securities.

Terry.

[Wizard]

My take-away is that if you have £1m in the cupboard spinning off £50k/yr then the good news is that you're more likely to be able to afford high-end care-home fees

I think this may be an underestimate, though it may be that there are regional variations in costs. If it is simply an 'old folks' home' maybe that is enough, but my late mother was in a nursing home (caused by MS not old age) and when she died almost six years ago the fees were already close to £1300 a week and I would bet they have increased by more than inflation since. Post Brexit a shortage of people willing to work in them may push costs up a lot!

Oh and for some they will have to budget for two people.

Terry.