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Pension question: How much should a 47 yr old pay (today) for a £7000 income from the age of 68 (2043)


Jesus Wept

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Jesus Wept

How much would you be prepared to pay ‘tomorrow’ as a ‘one-off big lump sum’ to receive an extra £7000 annual income.

This income would be paid annually to you from the age of 68* until death. 

Assume you are 47 this year. So you’d have to wait 21 years before it starts paying out.

The £7000 would be index linked (‘gold plated public sector pension). 

Of course if you died before hand or at 69 you’d lose your lump sum investment made at 47 …..(no refunds as they say). 
 

*I assume you could take the pension at 57 but it would be exponentially reduced and you’d not know what they’d pay out annually until a few months before. 
 

I will let you know what they wanted to charge later on.

Edited by Jesus Wept
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Jesus Wept
3 minutes ago, No One said:

No idea.

 

What did they ask?

I want to see what people would think would be price to pay would be good value / a good investment. 
I’ll let you know later on. But what ‘ball park’ figure do you think someone would pay and think ‘that’s a good deal’ ? 
 

My 14 year old daughter suggested £28, 000. She based her answer on getting to 72 yrs old and after that would be ‘profit’.

I suppose this is what annuity people think about all the time.

Edited by Jesus Wept
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Chewing Grass
11 minutes ago, Jesus Wept said:

How much would you be prepared to pay ‘tomorrow’ as a ‘one-off big lump sum’ to receive an extra £7000 annual income.

This income would be paid annually to you from the age of 68* until death. 

Assume you are 47 this year. So you’d have to wait 21 years before it starts paying out.

The £7000 would be index linked (‘gold plated public sector pension). 

Of course if you died before hand or at 69 you’d lose your lump sum investment made at 47 …..(no refunds as they say). 
 

*I assume you could take the pension at 57 but it would be exponentially reduced and you’d not know what they’d pay out annually until a few months before. 
 

I will let you know what they wanted to charge later on.

£116K

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Green Devil

So it means, how much cash would you lock away now for 20 years to get 20 years later. I expect itd be some stupid high sum ie 20*7k, so 140k, but for me id rather have it now, spend it and live off the state after its all spent 😂

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Jesus Wept
11 minutes ago, Chewing Grass said:

£116K

 

7 minutes ago, Green Devil said:

So it means, how much cash would you lock away now for 20 years to get 20 years later. I expect itd be some stupid high sum ie 20*7k, so 140k, but for me id rather have it now, spend it and live off the state after its all spent 😂

Ok …. I am surprised at how high the suggestions are.

It was actually £74,760.

Still ….. that takes nearly 11 years - until you are 78 before you start to recoup on your investment.

I thought £74k was a bad investment. Maybe I am deluded? 
 

Any thoughts out there? 

53B7E2D0-2D32-4393-82F5-6B425046E548.jpeg
 

Edited to add @Green Devil I totally  agree - I would rather spend the £74k now then buy the extra pension. Or even invest the £74k now myself.

Edited by Jesus Wept
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Chewing Grass
1 minute ago, Jesus Wept said:

 

Ok …. I am surprised at how high the suggestions are.

It was actually £74,760.

Still ….. that takes nearly 11 years - until you are 78 before you start to recoup on your investment.

I thought £74k was a bad investment. Maybe I am deluded? 
 

Any thoughts out there? 

53B7E2D0-2D32-4393-82F5-6B425046E548.jpeg

They have assumed growth (excluding inflation) of about 2.5%.

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Chewing Grass

If you can do that thing where you can claim previous years annual  allowance (the 40k per year) then it is worth doing.

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Yadda yadda yadda
19 minutes ago, Jesus Wept said:

How much would you be prepared to pay ‘tomorrow’ as a ‘one-off big lump sum’ to receive an extra £7000 annual income.

This income would be paid annually to you from the age of 68* until death. 

Assume you are 47 this year. So you’d have to wait 21 years before it starts paying out.

The £7000 would be index linked (‘gold plated public sector pension). 

Of course if you died before hand or at 69 you’d lose your lump sum investment made at 47 …..(no refunds as they say). 
 

*I assume you could take the pension at 57 but it would be exponentially reduced and you’d not know what they’d pay out annually until a few months before. 
 

I will let you know what they wanted to charge later on.

I'm making the assumption that you mean £7k uprated for inflation. As a man I reckon £50-70k. Worth more to a woman. Should be a fair bit of investment return over 21 years. However, the no refunds clause means it isn't worth that. It becomes a bet rather than investment. If I die before collecting my private pension it can be passed on, in a tax free wrapper no less.

Some people might have £20k to bet on this outcome. I would pass. Better off investing it elsewhere.

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Jesus Wept
5 minutes ago, Yadda yadda yadda said:

I'm making the assumption that you mean £7k uprated for inflation. As a man I reckon £50-70k. Worth more to a woman. Should be a fair bit of investment return over 21 years. However, the no refunds clause means it isn't worth that. It becomes a bet rather than investment. If I die before collecting my private pension it can be passed on, in a tax free wrapper no less.

Some people might have £20k to bet on this outcome. I would pass. Better off investing it elsewhere.

yes - £7000 index linked - so uprated for inflation. 
 

I haven’t checked yet but you might be right in that it would increase your ‘death in service’ payout. I’m sure there will be a calculator for that.

 

Just checked - it’s £82k so an extra £8k and that would give benefits to dependants if you died in service. But is does not say how much. 

Edited by Jesus Wept
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Castlevania
27 minutes ago, Jesus Wept said:

 

Ok …. I am surprised at how high the suggestions are.

It was actually £74,760.

Still ….. that takes nearly 11 years - until you are 78 before you start to recoup on your investment.

I thought £74k was a bad investment. Maybe I am deluded? 
 

Any thoughts out there? 

53B7E2D0-2D32-4393-82F5-6B425046E548.jpeg
 

Edited to add @Green Devil I totally  agree - I would rather spend the £74k now then buy the extra pension. Or even invest the £74k now myself.

Is that £75k before or after tax? 

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A reverse scenario which I hope isn’t unhelpful…..but I did the exact opposite and transferred out my DB scheme and moved it into a SIPP. However, it probably helps me work back what the figures need to be to do the complete reverse if I scale it to your £7000.

So an index linked £7000 pension (capped at 5%) payable from 50, I was paid about £300k. With other passive income and substantial investments already then my capacity for risk and loss was high. I could use the £300k in a completely different way (during my 50’s and 60’s) that I could ever use the £7000. 

Far too many people have transferred out and are now trying to replicate or slightly beat what they had already….why take the risk? Whereas I have no intention of drawing the pension (other than the 25% tax free) and the rest brings balance to my other assets and in all probability will go to the kids. However importantly for me it has made me focus on starting to liquidise and spend my other assets and try break my frugal lifestyle. Horses for courses  

So its a very personal thing and in your case it will be about how you feel about the money you are giving up and what else you could do with it. 

The issue is you are you are paying for a promise of something in 20 years at a time when your state pension is kicking in, perhaps your main pension and a previous employers pension at a time when your expenses are getting less and less.

Apologies for the long answer but my attitude about ‘my late 60’s’ changed massively when I hit 50. I decided that was just too late and I wanted to enjoy my 50’s. I decided the biggest worry everyone had was running out of money when they get old….I decided my biggest concern was running out of years and still having lots of cash, the accumulation of which was therefore a waste of effort. That is a very personal viewpoint from someone who has been lucky in terms of a variety of investments and job role….so I appreciate my view isn’t for everyone  

Now paying into a SIPP is slightly different. I racked that up massively. It’s effectively a tax efficient savings method and can be accessed at a time and at a rate to suit.

However, what you are being offered is a surrender of capital for a promise. 

In answer to your question I would imagine I would pay £140k for a £7k immediate pension at 50. However for a distant promise I would probably pay £55/£60k if that money didn’t impact my lifestyle. 

ps I wrote this response and amounts before seeing your answer. Interestingly it’s probably a fair price they are asking but it depends how much you (and the kids) need that £74k in your 50’s.😉

Good luck….their offer is at a level to make it a very tricky decision. 👍

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Dave Bloke

7K is less than the basic state pension but I guess it would be a nice top up, although they'll probably just remove the 7k from your state pension in 2043.

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Jesus Wept
25 minutes ago, Pip321 said:

A reverse scenario which I hope isn’t unhelpful…..but I did the exact opposite and transferred out my DB scheme and moved it into a SIPP. However, it probably helps me work back what the figures need to be to do the complete reverse if I scale it to your £7000.

So an index linked £7000 pension (capped at 5%) payable from 50, I was paid about £300k. With other passive income and substantial investments already then my capacity for risk and loss was high. I could use the £300k in a completely different way (during my 50’s and 60’s) that I could ever use the £7000. 

Far too many people have transferred out and are now trying to replicate or slightly beat what they had already….why take the risk? Whereas I have no intention of drawing the pension (other than the 25% tax free) and the rest brings balance to my other assets and in all probability will go to the kids. However importantly for me it has made me focus on starting to liquidise and spend my other assets and try break my frugal lifestyle. Horses for courses  

So its a very personal thing and in your case it will be about how you feel about the money you are giving up and what else you could do with it. 

The issue is you are you are paying for a promise of something in 20 years at a time when your state pension is kicking in, perhaps your main pension and a previous employers pension at a time when your expenses are getting less and less.

Apologies for the long answer but my attitude about ‘my late 60’s’ changed massively when I hit 50. I decided that was just too late and I wanted to enjoy my 50’s. I decided the biggest worry everyone had was running out of money when they get old….I decided my biggest concern was running out of years and still having lots of cash, the accumulation of which was therefore a waste of effort. That is a very personal viewpoint from someone who has been lucky in terms of a variety of investments and job role….so I appreciate my view isn’t for everyone  

Now paying into a SIPP is slightly different. I racked that up massively. It’s effectively a tax efficient savings method and can be accessed at a time and at a rate to suit.

However, what you are being offered is a surrender of capital for a promise. 

In answer to your question I would imagine I would pay £140k for a £7k immediate pension at 50. However for a distant promise I would probably pay £55/£60k if that money didn’t impact my lifestyle. 

ps I wrote this response and amounts before seeing your answer. Interestingly it’s probably a fair price they are asking but it depends how much you (and the kids) need that £74k in your 50’s.😉

Good luck….their offer is at a level to make it a very tricky decision. 👍

Thank you for that answer. Very much appreciated and reassuring. 


I think we think the same.

At 68 years old I imagine my expenses and outgoings will be minimal. The 2 Kids will be 33 and 35 - long since reared. 

An actuarist once said to me that the biggest mistake people make is they underestimate how much income they will need from 55-62 and overestimate from 63 onwards. 
 

I think I’ll not bother purchasing the £74k pension purchase now (that would have given me a £7k income when I’m 68), ….. instead I’ll spend the £74k … while I am young ….. on drugs, booze and fast women. 
The rest I’ll waste……

Edited by Jesus Wept
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Jesus Wept
35 minutes ago, Castlevania said:

Is that £75k before or after tax? 

I think it’s £75k after tax.

 

However I am not sure - I’ll need to check if it’s tax deductible -  as you are right to ask. If it comes out before tax that’s a big further  saving as a 40% tax payer. 

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Funny how everyone is different. I thought @Pip321 did a fantastic post but I didn't feel same way. When I was 50 ish I still felt as if I was a "normal worker" rather than "where's my retirement?" Maybe because having kids late and they were still young. Now I'm 65 and just starting to think hang on a minute maybe I should stop saving and start spending. Immensely psychologically hard when you started out poor and have always been a yellow-sticker purchaser.

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40 minutes ago, Jesus Wept said:

Thank you for that answer. Very much appreciated and reassuring. 


I think we think the same.

At 68 years old I imagine my expenses and outgoings will be minimal. The 2 Kids will be 33 and 35 - long since reared. 

An actuarist once said to me that the biggest mistake people make is they underestimate how much income they will need from 55-62 and overestimate from 63 onwards. 
 

I think I’ll not bother purchasing the £74k pension purchase now (that would have given me a £7k income when I’m 68), ….. instead I’ll spend the £74k … while I am young ….. on drugs, booze and fast women. 
The rest I’ll waste……

My boss was an Actuary. His favourite joke (indeed his only joke) was,

Q ‘what the difference between an English and Sicilian Actuary.’ 
A ‘the English actuary can accurately predict the number of people who will die next year…..the Sicilian one can give you their names’

Boom, boom. 

If the £74k is tax deductible over 40% that’s a big factor. it’s tricky….maybe the £74k could mean both kids don’t have any student debt….or it gets you the holiday, house extension etc you always wanted. If you are just going to invest it for 15 years then it’s a different and more ‘financial’ type of decision. 

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4 minutes ago, Funn3r said:

Funny how everyone is different. I thought @Pip321 did a fantastic post but I didn't feel same way. When I was 50 ish I still felt as if I was a "normal worker" rather than "where's my retirement?" Maybe because having kids late and they were still young. Now I'm 65 and just starting to think hang on a minute maybe I should stop saving and start spending. Immensely psychologically hard when you started out poor and have always been a yellow-sticker purchaser.

Agree. You make a really good point. it’s very individual and not just financially individual but personal circumstances are a huge factor and not just the just obvious one of ‘health’ 

At 50 my kids were 33 and 30. The eldest of my 5 grandkids was 14. All part of the good luck that we had….having children early was financially beneficial although at the time it didn’t seem it. 😉

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11 hours ago, Jesus Wept said:

How much would you be prepared to pay ‘tomorrow’ as a ‘one-off big lump sum’ to receive an extra £7000 annual income.

This income would be paid annually to you from the age of 68* until death. 

Assume you are 47 this year. So you’d have to wait 21 years before it starts paying out.

The £7000 would be index linked (‘gold plated public sector pension). 

Of course if you died before hand or at 69 you’d lose your lump sum investment made at 47 …..(no refunds as they say). 
 

*I assume you could take the pension at 57 but it would be exponentially reduced and you’d not know what they’d pay out annually until a few months before. 
 

I will let you know what they wanted to charge later on.

Starting from 0?

7k index linked needs about a pot of ~250k.

1500-2k/month.

 

 

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9 hours ago, Funn3r said:

Funny how everyone is different. I thought @Pip321 did a fantastic post but I didn't feel same way. When I was 50 ish I still felt as if I was a "normal worker" rather than "where's my retirement?" Maybe because having kids late and they were still young. Now I'm 65 and just starting to think hang on a minute maybe I should stop saving and start spending. Immensely psychologically hard when you started out poor and have always been a yellow-sticker purchaser.

Same.

When I started work, I saved most of my pay, getting a buffer in place.

Another person, who started same time, ble everything. Each month.

I think he still is now. 30 years down the road.

 

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Chewing Grass

Just as a rule of thumb to get a money purchase pension equivalent to 50% of your average salary you would have to 'invest' 25% of your pay for 40 years and get a consistent return of 5% above inflation.

Most company pension schemes (not sipps) on average return 2% above inflation.

Get ready for your mid 1970s lifestyle.

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On 01/02/2022 at 19:42, Jesus Wept said:

How much would you be prepared to pay ‘tomorrow’ as a ‘one-off big lump sum’ to receive an extra £7000 annual income.

This income would be paid annually to you from the age of 68* until death. 

Assume you are 47 this year. So you’d have to wait 21 years before it starts paying out.

The £7000 would be index linked (‘gold plated public sector pension). 

Of course if you died before hand or at 69 you’d lose your lump sum investment made at 47 …..(no refunds as they say). 
 

*I assume you could take the pension at 57 but it would be exponentially reduced and you’d not know what they’d pay out annually until a few months before. 
 

I will let you know what they wanted to charge later on.

Im hoping to have the equivalent of £250k and to get divis of 3%, thus 7.5k per annum.

 

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