Another CETV Query

[mark88man]

Hi

I requested a CETV for my previous company DB scheme given all the publicity (FT, Moneyweek). I am 53 and married with spouse and children, but they are beyond the age at which any DB benefits apply to them

For a £15K pension at point of deferment in 2010 using the complex indexation rules this is equivalent to £19K today and £25K at Scheme retirement age in 2028. Spouse benefit is 50% and guarantee of 5 years. Acturial reduction is not really a goer as quite high.

The CETV is £400K and I think I was surprised that is was on the low side, but 12 years to Scheme retirement age is a while as these things go. When I forecast growth of that at 4% (estimate of real growth) this leaves the pot about 20% short of the DB equivalent (based on 4% drawdown as a simplifying assumption).

So I am not asking about the merits of DB versus transfer, rather do these numbers look generous or mean from current experience. Some of my colleagues (a little older than I and maybe even more cautious in nature) are enthusing about the values, whilst to me they seem unremarkable. I was also surprised that the parameters used to accumulate to my final retirement salary, and then to decumulate(?) the pot to allow for the intervening period were not at all evident in the paperwork

Hope someone can offer some insight. For me retiring early would be a big positive, but not at any cost, especially as my current DC scheme is quite generous, so a few more years paying in would be rewarding.

Thank you

Mark

[TUK020]

Mark,
I am struggling with the same questions, but am still waiting CETV quote etc.

In my calculations, I had assumed that 4% yield is what you can get from a HYP, growing ahead of RPI. The also means that the capital value of the pot is growing as well ahead of RPI. Therefore, I have made the assumption that while in re-investment mode, the capital pot will grow in real terms ahead of 4%.

I had assumed that an average total return of the portfolio with dividends re-invested to be 7% (= doubling in value in 10 years).

Using your figures, 400k CETV now @7% for 10 years = approx 800k in 2027. Then at 4% yield, this would provide 32k p.a. Having said that, you are then taking all the risk in investment returns etc etc.

The other factors to consider, are that this approach gives you much more flexibility about when you/your wife retire, and also about balancing tax etc position for your wife.
If your wife does not earn/have a pension, then you could transfer part of the pension capital pot to her, so that she could take 10k income from it at age 55, reducing your total tax bill in pension payments.

Would appreciate others' inputs on my assumptions
TUK020

[TUK020]

one other point, in the CETV transfer to an HYP SIPP, you also have the opportunity of your wife inheriting the whole pension pot on your death, rather than just 50%

Moderator Message:
moved from Retirement Investment under authorisation of Poster. Raptor.

[mark88man]

Thank you for moving the thread Raptor - appreciate your efforts, which have already had a result!!

TUK020 - I am working 4% for simplicity, although My calculations show a significantly (15-20%) under 32K so I will look at them again

The poster JamesD on MSE has created a most excellent collection of links that suggests if you set yourself and follow some rules you might do a bit better (ie possible more income, certainly less risk). I can't post links so search for thread 5466114 on moneysavingexpert.com

The core of it is a set of rules, about
* a cash savings pot for the bad times
* accepting poorer real income (no increases) after bad years
* rewarding investment performance (real increases) after good years

I think you would enjoy reading these TUK020. Ass your thought processes seem the same as me

Regards

Mark

[chas49]

Thank you for moving the thread Raptor - appreciate your efforts, which have already had a result!!

TUK020 - I am working 4% for simplicity, although My calculations show a significantly (15-20%) under 32K so I will look at them again

The poster JamesD on MSE has created a most excellent collection of links that suggests if you set yourself and follow some rules you might do a bit better (ie possible more income, certainly less risk). I can't post links so search for thread 5466114 on moneysavingexpert.com

http://forums.moneysavingexpert.com/showthread.php?t=5466114

The core of it is a set of rules, about
* a cash savings pot for the bad times
* accepting poorer real income (no increases) after bad years
* rewarding investment performance (real increases) after good years

I think you would enjoy reading these TUK020. Ass your thought processes seem the same as me

Regards

Mark

I've put the link in the quoted post above!

[TUK020]

Mark,
thank you very much for the link, useful material.
I am thinking that one of my earlier assumptions about transferring pension assets between spouses was wide of the mark. Looks like you may need to die or divorce for this to happen without tax implications
TUK020