Tuppence

So I did 4.5 years service with the NS Gov. I have about another month to decide whether to leave it with them or stick it in a locked in RRSP.

Just found out the NS Pension Agency won't be indexing it from Jan next year
So they are saying at 60, I will get around $700 a month.

My option to transfer gives me $40k to play with. How risky do I have to be with my investments to beat a non-indexed $700 a month, with about 22 years of time to do it?

I was all for leaving it with them but I think the indexing thing buggers that up?

Spoons1961

Fine for Money Purchase Arrangements, but not for Final Salary. The 5% guarantee is not worth the paper its written on. Well constructed portfolios will generally sustain a level of withdrawal higher than 5%. Plus you dont pay the extra charges. Guaranteed investments play on the emotions of risk averse customers rather than offering good advice. Give them what they want comes to mind as opposed to what they need. I've met a number of advisors who by their own admission push Guaranteed income products because they are an easy sell. Dont get me wrong, they do have their place, but in my view and also the view of a well respected IFA firm in the UK are more suited to older retirees looking for an alternative to annuities.

Spoons1961

All depends on how you take your pension at 60. Ifyou want to have a fund that will sustain a 5% withdrawal for $700 per month, you will need to achieve 6.75% over 22 years. If you want the $700 to increase each year or to start with a higher amount, you need to achieve around 7.50%. to 8.00%

You will only get this sort of return with a minimum of Medium risk. With 22 years to go, this is not unreasonable. Remember the investment doesn't stop at 60. You would make regular withdrawals, but the investment could run for 30 or 40 years

triumphguy

I am responding to this which I read to say that an investor has to be very aggressive to get more than a 3% return.

What do you mean by rarely. Perhaps I am talking about one of these "rare" instances? Perhaps you don't know all the investment programmes available here?

Of course "(w)ell constructed portfolios will generally sustain a level of withdrawal higher than 5%."

I am saying that for those investors, shaken and stirred by the last 10 years, who feel leery investing in anything more risky than an investment paying 3%, but who need a higher (e.g., 5%) return, can get that return guaranteed - and written on very good paper and backed by a government mandated guarantee. Sometimes people are willing to give up a fraction of a percent in order to sleep at night.

Or the client might get the kind of programme that pays 5% for life even if the money runs out - for instance if they don't obtain a return of 6.75%. Because, as you well know, not many investors were getting an average of 6.75% over the past 10 years, while withdrawing money (i.e. selling units) on a monthly basis.

Alan2005

5% for life guaranteed eh? Backed by what? The government? hahaha....

Spoons1961

Ouch. Glad your not my advisor.

First Point. This clearly refers to a pension in payment increasing annually by 3%, not the underlying investment performance. But don't feel too bad, some of your other points are quite reasonable.

Point 2. I'm very well aware of the options. I was a Pension Specialist for an IFA firm in the UK and now work as a fully licensed Advisor in Canada.

Points 3 & 4 can be answered together. A well constructed Portfolio with Non-Correlating investments will easily accomplish 5% without paying excessive charges. A proportion in Cash Equivalents and Fixed Income funds for the next few year income. The balance in diversified non-Correlating Equities. Even a Bond Index Fund produced 5.8% in 2008 when the markets crashed. An OK Dividend fund has still made over 7% pa over 10 years. If your investments are well apportioned, you can pick and choose where to take the income from and thus avoid cashing in Units at a loss. A good advisor will have no problem constructing and rebalancing this kind of Portfolio.

As has become clear. I am an Advisor and I don't do QROPS. I actually think these could become the next Pension misselling scandal. A Singapore QROP has just lost its licence. A Gibraltar one has been suspended and there are 10 more under investigation.

Alan2005

The next 10 years will be very different to the previous 10 - any idiot could make 10% between 2001 and 2007 - most did just by owning a house.

triumphguy

Not backed by the government - mandated by the government.

Alan2005

and when it doesn't pay? I'm not saying it won't, but there is no such thing as a risk free return. Especially as high as 5% in the low interest rate environment we are now in, possibly for decades.

triumphguy

We agree! I'm glad I'm not your advisor too!

Maybe you were not as clear as you thought you were. And believe me - I don't feel bad

Yet again, I'll repeat that I wasn't arguing a decent portfolio can/should/ought to be able to give a decent return. I can look back over the last 10 years and find lots of commodity funds that have more than 10% average returns (yes, and the odd balanced fund too).

Without the benefit of hindsight, and, in a down market, and when the client is selling units to fund their lifestyle they may not be able to handle the swings and roundabouts of the market. That is the place where a well designed guaranteed product may be suitable and appropriate for a client. (Word highlighted so you notice it this time!)

Re: QROPS - Companies don't lose their Qualified Recognised etc status by following the rules! They do it because they don't follow the regs! If people and companies follow the regs there are no problems. There's no misselling if the product or strategy is not missold!

Re: house and 10% growth - you can't put your house into a typical pension plan! Nor can you transfer your overseas pension into it. Nor are they that liquid when it comes time to take an income. The Co-op just doesn't take kitchen cabinets in exchange for food! Finally - every "idiot" also lost 10% on their house since 2007.

triumphguy

Certain types of funds have to have a certain amount of capital backing the investment to ensure that it will pay.

Like I said before - there's all kinds of risks. It;s up to the parties involved to find which ones the client wants to avoid, which ones they want to mitigate, and which ones they want to use to their advantage.

Alan2005

No, but many buy second homes as a retirement investment or downsize to extract the equity from their main home. Either way, I only posted the 'idiot' comment to put 7% into context. There was a major bull market in pretty much everything from 2002 till 2007. 7% wouldn't have been difficult - I was making 6.5% interest on a simple savings account and that wasn't even the best around.

Spoons1961

I havn't suggested otherwise. Just showing how different asset classes work in different environments, and how proper diversification reduces risk. Retirement funds are often invested for 30 - 50 years (Including the time taken to build them up, and the time when income is drawn) selecting 6 good years as an example is precisely why many people were persuaded into these investments. Past performance is no guarantee as they say.

Owning a house won't pay you income in retirement unless you downsize, release equity or rent it out.

Spoons1961

Agreed. My point on QROPS misselling is not the QROPS itself. The concept is fine. My problem is the number of people who jumped on the bandwagon, many of which don't have the expertise. If a mistake is made, or bad advice given, there is no turning back. The starting point should always be what your giving up before you leave rather than what you get.

mjwalker007

I agree, although not essential, I believe it is important to speak to someone that has had experience and knowledge of both U.K pensions and RRSP/RIF . With regards to the rules of QROPS, again , there are some very important rules that need to be followed otherwise there could be potential tax penalties if not followed correctly. These rules are very clear from the HMRC so there should not be any problems as long as the rules are adhered to and the client is fully aware of them.

With regards to the merits of switching your final salary pension from the U.K to a Canadian RRSP, there is really no right or wrong answer. It is purely down to the individual and their specific circumstances.

There are benefits to keeping it in the U.K and there are also disadvantages.

The major advantage of a final salary scheme is the income for life option that this will provide. Also many people like the idea that the pension fund isnt 'invested' like a money purchase scheme.

The disadvantages of retiring in Canada and keeping this type of pension in the U.K is that although the income is stable and may rise into retirement, this will not be the case if you want to receive the income whilst in Canada. Every month the income is paid you will be at the mercy of exchange rates. this could work for you or against you. Many people that have retired over the last couple of years in Canada, and have a U.K pension income, have seen the level of their income drop dramatically due to the exchange rate. This is something that they have no control over whatsoever. The whole idea of a pension into retirement is to provide you with a regular , stable, income, although this has not happened for many retirees due to the fact that the pension income originates from the U.K .

Obviously by transferring your pension to a QROPS there will be an exchange rate conversion at that time, but once you do retire in Canada, the income will be in Canadian dollars, therefore providing you with the stable, regular income into retirement.

The U.K Govt is now also targeting public sector pension schemes as a way to save money and reduce the growth of these types of pensions.
Public sector pension funds will now increase in line with CPI ( consumer price index ) instead of RPI ( retail price index ) . This will have an impact on peoples pension funds as CPI has historically been lower than RPI , meaning the prospect of lower growth and smaller pension funds in the future.

There can also be major differences on death when it comes to final salary schemes in the U.K as opposed to RRSP/RIF in Canada.

It is important to look at every pension on its own merits, as what might be good for one person to transfer their pension fund, might not be right for another. This is why it is important to know all of the facts before making an informed decision on moving your pension from the U.K to Canada.

As has been discussed, there are good options when moving your pension funds to Canada, both guaranteed income for life options and not. Only once you can discuss the available options, and find out what really is suited for yourself and retirement goals, based on factors such as your age , risk, years until retirement etc can you make a decision that is right for you.