rozentas
Suck it and see
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Post by rozentas on Feb 28, 2016 10:52:33 GMT
I can see there may be risk in giving up the huge benefits of a final salary pension to invest the money in stocks and shares. The default position seems to be not to do it, but I am interested to know whether people see the risks as the same, higher, or lower, in giving up the benefits to invest in P2P.
If I were to transfer my pot using the CETV to a Sipp and invest in P2P, to achieve the same pension I would need a 5.5% annual return. If I achieved more than 6.5% I would leave a substantial pot for my kids.
6.5% seems achievable but of course there's no risk with my final salary scheme.
Grateful for your views.
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jonah
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Post by jonah on Feb 28, 2016 11:22:49 GMT
I can see there may be risk in giving up the huge benefits of a final salary pension to invest the money in stocks and shares. The default position seems to be not to do it, but I am interested to know whether people see the risks as the same, higher, or lower, in giving up the benefits to invest in P2P. If I were to transfer my pot using the CETV to a Sipp and invest in P2P, to achieve the same pension I would need a 5.5% annual return. If I achieved more than 6.5% I would leave a substantial pot for my kids. 6.5% seems achievable but of course there's no risk with my final salary scheme. Grateful for your views. P2p is very new and almost uncrash tested. People with more experience than I suggest 7% is the maximum return over a full economic cycle you can expect. It feels like you would have to be braver than I am to do this!
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beechside
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Post by beechside on Feb 28, 2016 12:09:22 GMT
Hi and welcome to the forum. There are some very experienced people here from whom I have learned a lot. Interestingly, I was writing a similar sort of question as you were penning yours. I did cash in a lot of my final salary pension to invest in P2P and have not regretted it for a moment, though there are still concerns about long term viability, hence my post: Why diversify?If your calculation also allows for pension increases, widow's pension, provision for children and so on then by all means stick with those figures for justification. My FS pension offered those benefits and so I maxed out the tax free cash to invest in P2P and kept a minimum pension for security. The biggest thing to me is that, should I die early, all the P2P money will still be available to my wife. That wouldn't have been the case with my FS fund. I have a relaxed attitude towards risk, providing I've researched it fully and my decisions are evidence based. Others are more cautious and would no doubt have sleepless nights doing what I've done but I'm content with my decision and have easily made more from P2P in the past year than I could have taken from a full value FS pension. Then, there's the threat of Brexit, property crash, new credit crunch and so on. These make FS schemes look safer but we have a limited amount of land and housing and increasing population. Property-backed loans still seem safe to me at 70% LTV. |
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Post by wiseclerk on Feb 28, 2016 14:48:42 GMT
These make FS schemes look safer but we have a limited amount of land and housing and increasing population. Property-backed loans still seem safe to me at 70% LTV. Generally I consent to that, however a counter argument could be that in some rural areas of Germany houses have become unsellable. With demographics and a general trend to flock to the metropolitan areas that trend is expected to accelerate. Sure the underlying land retains the value, but that often is a fraction of the property that is built on it. Yes, the UK market is very different - but why? Amount of land and population and population distribution are somewhat compareable. Demographical development is comparable. So maybe the difference is that there is more speculation in the British market? Or maybe more influx of foreign money that seeks a safe habour? I'd appreciate opinions from you all as to why property prices behave so much different in the UK as in continental Europe. And yes real estate prices have risen sharply in German towns as a result of low interest rates but I think we are still far away from UK levels (someone with more knowledge on property markets correct me if appropriate)
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registerme
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Post by registerme on Feb 28, 2016 14:55:26 GMT
Just in answer to wiseclerk , I think the root of the answer is that Britain has always had much more of a property owning culture than Germany, which has historically had more of a renting culture. This article is a few years out of date now but provides some support for what I describe above:- www.theguardian.com/money/2011/mar/19/brits-buy-germans-rent |
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adrianc
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Post by adrianc on Feb 28, 2016 14:57:42 GMT
The biggest thing to me is that, should I die early, all the P2P money will still be available to my wife. That wouldn't have been the case with my FS fund. Is there a flipside risk, too? If you live longer than you expect, might you run out of your investment pot, whereas your FS pension would have kept on paying?
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Balder
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Post by Balder on Feb 28, 2016 15:04:02 GMT
I can see there may be risk in giving up the huge benefits of a final salary pension to invest the money in stocks and shares. The default position seems to be not to do it, but I am interested to know whether people see the risks as the same, higher, or lower, in giving up the benefits to invest in P2P. If I were to transfer my pot using the CETV to a Sipp and invest in P2P, to achieve the same pension I would need a 5.5% annual return. If I achieved more than 6.5% I would leave a substantial pot for my kids. 6.5% seems achievable but of course there's no risk with my final salary scheme. Grateful for your views. I have done exactly that, taken out a SIPP and now invest in P2P and other non stock market assets. For me the additional benefit is that I have full control and can have the access I want at 55. I have taken out a SIPP via SIPP club that enables me to invest in the likes of Saving Stream and Ablrate. The process of transfer from my FS schemes did take the best part of a year!
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Post by wiseclerk on Feb 28, 2016 15:29:21 GMT
Just in answer to wiseclerk , I think the root of the answer is that Britain has always had much more of a property owning culture than Germany, which has historically had more of a renting culture. This article is a few years out of date now but provides some support for what I describe above:- www.theguardian.com/money/2011/mar/19/brits-buy-germans-rentOkay, but should that matter, considering the argument was ? From a pure investment standpoint would it then not be more sensible to invest into loans backed by German property (which could be undervalued, or at least less overvalued) in a European context? The capital is moveable anyway, so the country should not matter that much (safe for legal stability and enforceability of title, which would be on the same level in both named countries)?
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beechside
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Post by beechside on Feb 28, 2016 15:49:40 GMT
If you live longer than you expect, might you run out of your investment pot, whereas your FS pension would have kept on paying? Good question! You might think so but that's not the case. In my scheme and at my age, each £100,000 in my pension pot meant a final salary pension of about £5,000. As an example: I start with a pot of £100,000, earn 12% before tax (Saving Stream, Funding Secure, MoneyThing etc), pocket 5k and reinvest the rest. A spreadsheet shows that I never have to dip into capital. In fact, my capital doubles every 15 years. OK, when interest rates drop and inflation is higher (these two events don't normally happen at the same time), I might run out. So, interest rates of 8% gross and inflation of 5% means I run out in 26 years. Meanwhile, I have the option of ISA, new SIPPs and other mechanisms to reduce tax. It's all a little too much for this post but I'm secure and my family still get the capital when I peg it. I'm not a great fan of this Conservative government but pension reform and the early maturity of P2P came at the right time for me. And I still have the riches of my state pension to look forward to!
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beechside
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Post by beechside on Feb 28, 2016 16:10:57 GMT
Yes, the UK market is very different - but why? The wise money says it's to do with construction rates, which are linked to planning laws. This is the view of a French journalist: Guardian (Poirier)A rather more informed paper is from the Policy Network a pan-European but mainly rightwing and capitalist think-tank: Policy NetworkIt basically says that the environment in the UK is more about mend and reuse than build anew. We are a nation who like to improve our houses. I don't know much about stamp duty on the continent but, even with the recent changes, it's still an expensive business to move home. Better to build an extension. Where I live, it is extension mania, putting up for a couple of years with living on a building site. Another journalistic article ( The Independent) says that when the Germans want to move, they buy a plot of land and build a new house on it. That might imply that Green belt restrictions in the UK are another limiting factor. The same article says that renting is quite the norm on the continent, implying that home ownership reduces demand and hence the price.. So, potential answers to your question may be stamp duty, legislation controlling the building of new properties, preservation of the green belt, attitudes to renting and the cultural "need" to own our own houses. Hope that helps. . .
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rozentas
Suck it and see
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Post by rozentas on Feb 28, 2016 16:19:41 GMT
Thanks for the feedback so far, question for Colinh, my understanding is you have to receive the blessing of a financial advisor before the company scheme trustees will give you consent to transfer. Was this your experience.
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Balder
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Post by Balder on Feb 28, 2016 17:07:39 GMT
Thanks for the feedback so far, question for Colinh, my understanding is you have to receive the blessing of a financial advisor before the company scheme trustees will give you consent to transfer. Was this your experience. Yes you are correct and you need to be careful here. The adviser has to be qualified in this area and you also need to agree before hand that they will allow you, on signing disclaimers to them, to proceed anyway even if they advise not. Some advisers will not do this but will still want to charge a % fee. You will also find that most advisers are very conservative in approach and also have to follow a set process so it is likely that the advise will be not to transfer.
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stevio
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Post by stevio on Feb 28, 2016 17:25:16 GMT
What was the provider of the SIPP and what are the costs? Thanks
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Balder
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Post by Balder on Feb 28, 2016 17:30:06 GMT
What was the provider of the SIPP and what are the costs? Thanks You can see that from the links for SIPP from AC, Ablrate etc. There is a tough criteria to get into it - costs £1250 + VAT pa.
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Post by propman on Feb 29, 2016 9:41:40 GMT
If you live longer than you expect, might you run out of your investment pot, whereas your FS pension would have kept on paying? Good question! You might think so but that's not the case. In my scheme and at my age, each £100,000 in my pension pot meant a final salary pension of about £5,000. As an example: I start with a pot of £100,000, earn 12% before tax (Saving Stream, Funding Secure, MoneyThing etc), pocket 5k and reinvest the rest. A spreadsheet shows that I never have to dip into capital. In fact, my capital doubles every 15 years. OK, when interest rates drop and inflation is higher (these two events don't normally happen at the same time), I might run out. So, interest rates of 8% gross and inflation of 5% means I run out in 26 years. Meanwhile, I have the option of ISA, new SIPPs and other mechanisms to reduce tax. It's all a little too much for this post but I'm secure and my family still get the capital when I peg it. I'm not a great fan of this Conservative government but pension reform and the early maturity of P2P came at the right time for me. And I still have the riches of my state pension to look forward to! What assumption have you made for defaults in these calculations. I think significant defaults are a certainty in bad times, although these may well still leave a significant proportion of the return from better years. I think property prices would fall significantly if interest rates were 5% let alone 8%!
Re "property", above deals with resi property, where it is largely London property that has benefitted from "Safe-haven", also there have been significant areas of the country where prices fell a lot due to lack of jobs, although a small proportion of the housing stock. Beware reviewing averages. For several years all regions outside South East declined, but the average grew due t the dominance of London. Many areas still have lower prices than 2007 today. Germany is unusual in not having a single dominant city to bias the results.
Commercial property is much more volatile and has seen a major correction every 5-8 years, many over 50% on average. This has an even greater London bias with completely unsaleable offices and shops in secondary areas until they were redeveloped (frequently 10+ years later).
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