What would you do with a £1million pension?

[jon-]

A friends father has been offered just over £1m as a buy out from his final salary pension. He wants to take it.

He's speaking to a couple of wealth advisers about options. In an ideal world he wants £40k pa as a pension, with as little disruption to the £1m pot as possible (I feel my friend is very keen for this outcome too )

£1m working at 4% is achievable in funds at the moment, but obviously long term there will be ups and downs.

I'm more inclined to put maybe £200k into a UK based rental property as a fallback source of income should the markets dip for a period and keep at least a years cash sitting in easy accessible savings.

I believe we've all firmly missed the boat where buying an F40 would be the best option

I thought it was an interesting question. £1m used to be a lot of money, but it's definitely not when you're 65 and that's the last of your income.

[Sven93]

Put it on Swansea to stay up

[VoxPops]

How interesting, I have a broadly similar quandary at the moment. My IFA has joined St James' Place and although he's splendid value I have no particularly high regard for the new proposition.

[jon-]

VoxPops said:

How interesting, I have a broadly similar quandary at the moment. My IFA has joined St James' Place and although he's splendid value I have no particularly high regard for the new proposition.

I don't know much about, well, anything, but I do know St James Place fees are expensive.

But they have really nice literature .

[PurpleMoonlight]

A couple of things to consider.

The current Maximum Lifetime Allowance is £1M. Crystallisation of funds in excess of that will attract a 55% tax charge (or 25% and then income tax when drawn down).

To transfer he must, by law, seek independent financial advice. If the advice would be negative then it's likely the advice will be withheld and the transfer cannot proceed.

[Trabi601]

jon- said:

I thought it was an interesting question. £1m used to be a lot of money, but it's definitely not when you're 65 and that's the last of your income.

You think so?

Even if you didn't earn any interest, you'd be able to take £50k / year for the next 20 years. Plus state pension. That's a very decent retirement!

I used to have a link to a website which could do some fancy calculations with money - ie. start with £1m, 4% interest per year, and how much you could take each year for, say, the next 20 years, to leave you with nothing at the end. Can't recall what it is right now, though.

ETA: It looks like you could take £5500 / month from the £1m for the next 20 years before you ran out of money. That's pretty damned good!

Edited by Trabi601 on Saturday 15th April 15:44

[TR4man]

jon- said:

£1m used to be a lot of money, but it's definitely not when you're 65 and that's the last of your income.

It still is a lot of money.

Considerably more than 99.9% of the population are likely to have in their pension pots.

[VoxPops]

jon- said:

I don't know much about, well, anything, but I do know St James Place fees are expensive.

But they have really nice literature .

Diolch.

[towser44]

I would sleep very very very very easy at night with that amount!

[Defcon5]

What would he get from his pension if he kept it? Not only lump sum and yearly amount, but does a pension continue for his partner if they outlive him?

[jon-]

Defcon5 said:

What would he get from his pension if he kept it? Not only lump sum and yearly amount, but does a pension continue for his partner if they outlive him?

Now would be a 200k lump then 39k/year.

The partner has sadly passed on already, hence wanting to take it out. There is no transfer to siblings should he pass on.

[Sheepshanks]

Trabi601 said:

ETA: It looks like you could take £5500 / month from the £1m for the next 20 years before you ran out of money. That's pretty damned good!

errr....it's not if you live to be 95! My next door neighbour continues to have a very active life and he's 90 next month.

How long you're going to need the money for seems like a massive problem to me. You could drop dead next week, or you could live to 100.

[Yipper]

At 65, he has prolly got 10 years of good (active) life left, at most, so he needs to go on a massive spending binge around the world. 100k a year on upper class seats, hookers, Lambos, you know the drill.

[Trabi601]

Sheepshanks said:

Trabi601 said:

ETA: It looks like you could take £5500 / month from the £1m for the next 20 years before you ran out of money. That's pretty damned good!

errr....it's not if you live to be 95! My next door neighbour continues to have a very active life and he's 90 next month.

How long you're going to need the money for seems like a massive problem to me. You could drop dead next week, or you could live to 100.

You'd still have the state pension to fall back on, plus any property you have if the worst came to the worst.

The calculator I used reckoned on a life expectancy of 86 years.

[red_slr]

ll tell you what I'd do, man, two chicks at the same time, man.

[ellroy]

jon- said:

I don't know much about, well, anything, but I do know St James Place fees are expensive.

But they have really nice literature .

+1 or should I say +5% up front?

[ellroy]

jon- said:

Now would be a 200k lump then 39k/year.

The partner has sadly passed on already, hence wanting to take it out. There is no transfer to siblings should he pass on.

So he's trading a guaranteed 39k pa, no risk, no fee, income + £200k of capital for whatever he can achieve from £1m? Safe bet the 39k is index linked in some way?

Has he any experience of investing? Other assets he can draw on? Aware of the risks and costs he faces?

This is the next big mis-selling scandal appearing before our eyes. I'm not saying he shouldn't take the cash, but there's plenty of people who really shouldn't be doing this and are getting blinded by the pound signs in their eyes and unscrupulous fee hungry advisers.

Tell him to tread carefully, and potentially be wary of the kids motivation. NIce chunky inheritance anyone?

[schmunk]

red_slr said:

ll tell you what I'd do, man, two chicks at the same time, man.

[CarlosFandango11]

jon- said:

Defcon5 said:

What would he get from his pension if he kept it? Not only lump sum and yearly amount, but does a pension continue for his partner if they outlive him?

Now would be a 200k lump then 39k/year.

The partner has sadly passed on already, hence wanting to take it out. There is no transfer to siblings should he pass on.

The transfer value seems low compared to what a lot of DB schemes are offering at present.

Is your friends dad aware of the risks that he will be taking on with a DB transfer?

[tighnamara]

ellroy said:

jon- said:

I don't know much about, well, anything, but I do know St James Place fees are expensive.

But they have really nice literature .

+1 or should I say +5% up front?

And something like 6% exit fee
Don't touch with a barge pole ( only my opinion / experience )