[Misc] Retirement

[Weststander]

Yes, I wasn't keen on their fees. But if you still do well after paying their fees, I suppose it is a win-win.

I'm a sceptic.

In that could others charging modest fees achieve equal of better results, leaving a larger pot?

Personal takes.

 

[BrightonCottager]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers.

 

[Me Atome]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers.

It's a personal preference thing. You have to do a lot of arithmetic to help you decide what to do, or ask an IFA.

 

[Gwylan]

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

I've deferred mine. I'm looking to take it when I'm 71 or 72. It goes up by 1% every nine weeks that you defer it. So, taking it on my my 72nd would mean my pension would be about 30% higher than taking it at 67

 

[Flounce]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers

We deferred our state pensions for 5 years and had the choice of a lump sum (which I believe may not be an option any more?) and then the basic state pension, or a significant increase in monthly payments when we decided to take it, we went for the increased monthly state pension payments.

I also gather that if you die before your 75th birthday your spouse gets the whole lot from your personal pension tax free, so drawing on Isas is a better idea until you reach 75 if you can. Any pension experts know if this is correct?

 

[Weststander]

We deferred our state pensions for 5 years and had the choice of a lump sum (which I believe may not be an option any more?) and then the basic state pension, or a significant increase in monthly payments when we decided to take it, we went for the increased monthly state pension payments.

I also gather that if you die before your 75th birthday your spouse gets the whole lot from your personal pension tax free, so drawing on Isas is a better idea until you reach 75 if you can. Any pension experts know if this is correct?

Subject to always making sure that you utilise the annual tax free personal allowance. In the period not yet drawing the state pension.

 

[Flounce]

Subject to always making sure that you utilise the annual tax free personal allowance. In the period not yet drawing the state pension.

Sadly state pensions now take us both well over the limit on their own

 

[Professor Plum]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers.

If I can say this politely, it’s wrong to describe taking or deferring a lump-sum as 'foolish' as It really depends on a variety of factors.

I’d say the worst possible decision is to take a lump sum simply because you want to buy a new car or go on a great holiday. The rapid depreciation is likely to cause regret.

We’ve had a couple of decisions to make about lump sums in the past. For one, my wife (always more cautious than me) opted to take the smallest sum on offer and settled for the higher pension payments. She's gambling on living long enough to make it worthwhile.

For the second one I took the bigger lump sum and immediately invested it where it’s done very well.

Both decisions were right for us at the time.

 

[chip]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers.

It's the university pension scheme where we have a mix of DC and DB. You can max out tax free cash by moving money around. Essentially, if you multiply the DB by 25 and add it to your DC you can take the maximum tax free cash (or up the DB from the DC). It's not too hard to get to the limit this way. The DB also has a 3x tax free lump sum.

 

[Harry Wilson's tackle]

I was interested in @Harry Wilson's tackle comment a few pages back about it being foolish not to take the max lump sum from a workplace pension when you retire.

Can someone explain this please? Is it just a case of estimating how many years you'll have to live to cancel out the reduction in pension? Presumably if it's a tax-free lump sum, this helps.

Also, any of you still working beyond state pension age: have you deferred taking your state pension and how much difference does this make to what you get when you do take it?

Cheers.

I'll explain how I understand it. I did speak to an IFA and he didn't like my plan to take a max lump sum, but he didn't explain why. When I did some sums I I found what I think is an excellent reason.

First, the tax free lump sum is worth taking only if you are going to spend it quickly. If you have a good pension, one that grows with investment and is not a permanently fixed amount, and no need for a large sum of money, and expect to live a long time, it makes sense to not take any tax free lump sum, and therefore to maximise the monthly pension payment.

If you die soon after retirement and have a legal partner the pension pot is halved overnight (well, mine is) and Mrs T will get 50% of what I get. So another trick is to not die. If early death is likely then take the max lump sum you can when you retire.

The bigger the lump sum you take the more you reduce your nominal 'pot'. The pot is estimated on the basis of life expectancy and how much you have paid in. Of course if you happen to live to 120 the pension won't 'run out' so the pot is relevant only in terms of how much it is reduced when you take a lump sum, and how big the lump sum you take.

By taking a lump sum, my annual pension payment drops from X to Y. Therefore X-Y, let's call it £10,000, is the amount of pension payment I will lose per annum by taking a lump sum.

If we assume that the pension won't increase because inflation will be zero, then after a certain number of years (Z), you will have lost out £10,000Z. When £10,000Z equals the lump sum you took when you retired, you have reached a point where you are now losing out, in as much as the cumulative loss from your reduced monthly pension payment has exceeded the lump sum.

I did the calculation and found that if I took the max possible lump sum, I would be 85 years old by the time Z years had been reached.

It isn't quite as simple as that because there will be inflation and my monthly payments will increase due to this, but as a quick and dirty calculation it is accurate.

If I do what's planned and help my son buy a place to live using the lump sum, its value will of course grow as property prices increase. Plus my son will have a rather low mortgage. So the family gains. As far as I can see doing this is a no brainer.

Also this manoeuver will only be tax liable if the gift exceeds a certain amount. I am not sure what it is but it is certainly more than I plan to give. I read recently the threshold is £350K. I am sure an expert can correct me.

I personally won't be able to gorge on drugs, guns and hoes, but that's probably for the best.

 

[Professor Plum]

Yes and I still own a reasonable chunk of this which is a ‘forever hold’ for me.

Which fund / product in particular? They seem to put their name to a few different ones.

On the topic of IFAs, I’ve bitten the bullet and arranged a free initial consultation with one. I went through the unbiased.co.uk which aims to put you in touch with a shortlist of IFAs who apparently match your needs.

It will take some convincing for me to part with a chunk of cash but I’ll wait and see what they say. My prejudice tells me that IFAs are wide boys who take advantage of the ignorant and gullible to cream off a big slice of their savings… but I’m happy to be put right. If a consultation helps me form a concrete strategy that's less hit and Miss than my current approach, it may just be worth it.

I’ll report back in case it helps others.

 

[Weststander]

Subject to always making sure that you utilise the annual tax free personal allowance. In the period not yet drawing the state pension.

I was thinking for anyone doing what you did in the period deferring the state pension.

 

[Half Time Pies]

Not forgetting the scandal of their high fees.
https://www.telegraph.co.uk/money/investing/st-james-place-puts-aside-426m-advice-fee-refunds/

Yes fees are a huge issue particularly as the data shows that most actively managed funds like those offered by St James place cannot beat a simple passive index tracker fund over the long term.

The Global Equity Index tracker I have with vanguard consistently outperforms St James place global equity fund and has a fee of just 0.12%. You of course have to self manage it, but as it is a buy and hold investment that's not really an issue. I think most peoples investments needs could be met with two funds, index tracker fund for long term growth and a bond fund or money market fund for safety emergency funds/ buffer against forced selling during a crash - weighted according to risk appetite. There are non or low commission platforms that make this extremely cheap and easy now to do it yourself without the assistance of an IFA.

 

[Weststander]

Yes fees are a huge issue particularly as the data shows that most actively managed funds like those offered by St James place cannot beat a simple passive index tracker fund over the long term.

The Global Equity Index tracker I have with vanguard consistently outperforms St James place global equity fund and has a fee of just 0.12%. You of course have to self manage it, but as it is a buy and hold investment that's not really an issue. I think most peoples investments needs could be met with two funds, index tracker fund for long term growth and a bond fund or money market fund for safety emergency funds/ buffer against forced selling during a crash - weighted according to risk appetite. There are non or low commission platforms that make this extremely cheap and easy now to do it yourself without the assistance of an IFA.

Totally agree, on all counts.

The compound damaging effect of intermediaries taking a few % at the beginning, and funds/intermediaries a far higher ongoing annual percentage, cannot be underestimated.

I'm confident running my own, I've proof in my portfolio that I've beat what went before with a wealth manager by keeping nominal sums in the funds of funds they actively manage.

I realise most people won't do that. In which case select an IFA where you're both happy with the advice and after carefully checking all charges taken from the portfolio and funds.

 

[Flounce]

Totally agree, on all counts.

The compound damaging effect of intermediaries taking a few % at the beginning, and funds/intermediaries a far higher ongoing annual percentage, cannot be underestimated.

I'm confident running my own, I've proof in my portfolio that I've beat what went before with a wealth manager by keeping nominal sums in the funds of funds they actively manage.

I realise most people won't do that. In which case select an IFA where you're both happy with the advice and after carefully checking all charges taken from the portfolio and funds.

You need to be very savvy on financial matters to be able to think you can do it yourself though don’t you? I have mates who do it but I am not one of them.

 

[Weststander]

You need to be very savvy on financial matters to be able to think you can do it yourself though don’t you? I have mates who do it but I am not one of them.

People can also select some highly regarded ultra low cost Vanguard, Fidelity or iShares funds, such as trackers, with a not too exhaustive glance at MorningStar ratings, then sit back.

But in the years pre and post retirement, this thread demonstrates this, most should seek expert advice.

 

[Gwylan]

I was thinking for anyone doing what you did in the period deferring the state pension.

I'm working

 

[Tim Over Whelmed]

I'm a sceptic.

In that could others charging modest fees achieve equal of better results, leaving a larger pot?

Personal takes.

I think it’s similar to most professional trades, you go by recommendation, performance, cost and suitability to you. I met one guy, well recommended, but thought he was a tw*t, others liked him. The guy I have I like, has the same outlook as I, isn’t trying to grab every last penny and appears to give me advice that is my interest whilst always being open about commissions. There are much cheaper IFAs out there, I’m sure, but, I feel, you get what you pay for.

 

[Tim Over Whelmed]

Subject to always making sure that you utilise the annual tax free personal allowance. In the period not yet drawing the state pension.

All tax allowances need to be considered, especially when you aren’t, necessarily earning as much, around pension payments & CGT.

 

[Half Time Pies]

People can also select some highly regarded ultra low cost Vanguard, Fidelity or iShares funds, such as trackers, with a not too exhaustive glance at MorningStar ratings, then sit back.

But in the years pre and post retirement, this thread demonstrates this, most should seek expert advice.

And if they didn't want to do any research at all on individual funds, most of the major platforms also have bots that will suggest a portfolio of funds based on your risk profile (albeit with higher fees).