Mrs YFG: why I stay

Mrs YFG
, 16/01/2019 | Source: Young FI Guy

The usual reaction to someone disliking their job, or their job negatively affecting their life, is “move”. I get this suggestion often, and I know a few readers have also suggested it.

I work long hours. My brain is melted once I get home. My job is high-stress. I get tired of my job like anyone would do.

When I complain, I’m told I should quit. And I think about it….and then I stay where I am. I’ve considered moving firm, qualifying in something else or just leaving altogether and seeing what happens. But I’ve never actually jumped. Even if we had reached our FI target today, I don’t know if I would quit.

I’ve never really thought deeply about why that is until now.

Nothing like a bit of forced relaxation

A recent unexpected hospital stay forced me into bed rest. I could not get myself out of or into a chair on my own, nor in and out of bed, for about three days. For another few days, I still wasn’t functional. I couldn’t do what I usually do (tidy, clean, organise, play with pets, leave the house). I was on actual bed rest for a week.

This drove me mad.

I am the first to admit that I am virtually incapable of truly relaxing and resting. I don’t really know what that is for me. The idea of relaxation for me is getting tasks done at home. If I’m on the sofa with my feet up I’m still busy ticking off tasks. Right now as I write this at midday my feet are up, but I’m halfway through a book, with my half-finished cross-stitch on my lap and having put washing in the machine, painted a cabinet upstairs, reorganised our stationary drawer, and done some shredding. For me, this is a relaxing morning.

To get back to the point, Mr YFG forced me to relax for a week. And I realised that I don’t yet know what I would do with myself if I was home with him. If we were FI, and I quit my job, at this rate I would be climbing the walls. Even though my job is stressful and takes a toll on my mental and physical health, I stay. The time off made me think and explore why.

Salary

Well, duh.

Mr YFG and I have various spreadsheets but my favourite is my FI Countdown. This plots current net worth plus expected salary, expenses and investment returns to give me a number: how many years until I hit FI (we are aiming for “Fat FI” with a relatively high expenses level). The spreadsheet tells me an estimate based on historic investment growth in our portfolio and an estimate which is much more conservative (worst case).

Based on historical figures and on my current (full-time) salary I have about 3 years to go to hit FI in my own right and to reach our joint target. On a very conservative estimate, I have five years to go.

If I moved job and took a pay cut, or went part-time, this would push the boat further out. Yes, I might be happier, but I may also end up doing the same work and hours for less pay. I’ve seen my colleagues suffer this and it’s something that holds me back. I’m not sure I am willing to swap for a longer working life right now.

A devil’s advocate might ask why I would deliberately commit myself to 2-3 years of unhappiness for the sake of money, and put my life on hold? It’s a sensible question, and all I can say is that I’m not unhappy enough yet.

Starting anew would be difficult for me

Mentally and physically. Leaving a job and starting a new one, to me, sounds infinitely more stressful than staying somewhere where things are difficult. Better the devil you know, and all.

Moving involves starting from ground zero when at the moment I’m cruising and kinda know what I’m doing. I want to impress and to make people happy and starting in a brand new environment would be terrifying at the moment. Rather than worrying about my technical ability to do the job (which isn’t in question) my fears are centred around not fitting in with the team or not liking my surroundings.

You never know I might change my tune but that’s how I feel for now.

Comfort and familiarity

My life is somewhat like going to boarding school. [insert boarding school shower time joke]. You go in every morning (you may have slept there overnight) and you go to your dorm (office). You eat breakfast, lunch and dinner with your colleagues one of whom you room with and the rest you see more often than your actual spouse (maybe a good thing?). If you go home that night, you go home after dinner to use your real house as a bed. It takes a lot to up and switch dorms, roomies and such. I’m comfortable.

Fun fact: some big law firms have perks for their employees like in-house doctors and physios, beds, gyms, restaurants and taxi services. They often provide these facilities because it’s cheaper to in-source them than for employees to come in late or leave early to use them elsewhere (and lose billable hours). It enables employees to work long hours but have all conveniences to hand. It also forms part of their pay package to compete against other similar outfits.

If I left my job for a quieter life, this means a smaller firm possibly without these perks. Before you whip out your tiny violin, the perks are a part of my pay. Without them I would be spending my own money. If you work 12 hours a day the perks help you keep up a semi-normal life. Therefore a move necessarily involves assessing what I’m giving up.

Leave because you want to move somewhere else, not because you are escaping your current role

When you’re in the middle it’s very easy to see every other role as a saviour. [insert grass is greener metaphor]. Unfortunately, once you leave and get there, you’ll probably run into the same problems.

Just like a rebound relationship, you’re looking for something in the new role which may end up disappointing when you get there. It’s important that the motivation for your new role is the quality and characteristics of that role itself and not seeing it as an escape.

Often the problem is not the job but the hours, a particular colleague or even something as simple as your open plan office (shudder). Is there anything you can change? Have you asked for help?

When I left my last firm, I didn’t take the first job I was offered. I took a few months off between jobs to interview and find the role I really wanted. Not everyone is able to do this. I just know my life would be very different had I jumped when the going was tough. I think if I did leave I would have to do the same again and take some time off: step out of the woods so I can assess the trees.

My aim is not retirement

Some people on the FI path see FI as a golden number, once they have reached it they can quit and never work again. Some people dislike working so much they are willing to cut their expenses to ridiculous levels (Mr YFG?!) to avoid the “rat race”. I’m not one of them. I am happy to work: I just want to do it in a more balanced way. I want work to be part of my life and just one of a few things I choose to spend my time doing. However, I don’t want it to be all-consuming, mentally and physically, as it is now.

I think a happy medium would be part-time: doing the job for fewer hours a week. I’d have to be careful this doesn’t end up full-time hours in fewer days (which is a risk with part-time!) and that I keep my boundaries in place. But I think it could work. If that isn’t an option, I think I would work until we hit FI and then take some time off and consider moving into a part-time role somewhere else. Eventually, I would like to try to make money doing something I enjoy (crafts, personal organising etc.). I’m not a natural entrepreneur, but I’m good with people and not afraid to get out and about, so I hope I could think of something.

Advice welcome

My mind might change, no doubt about that. I’m always grateful for advice and views from people who have been there, done that, or are in similar situations right now.

FYI: nine days post-op I was replacing sealant in the bathroom (a task I wanted to do for ages). Can’t keep me down.

The post Mrs YFG: why I stay appeared first on Young FI Guy.

A YEAR Of Challenges!

Mrs. 1500
, 16/01/2019 | Source: 1500 Days to Freedom

Hi there, Mrs. 1500 today, to talk about all the challenges I’m participating in this year.

Actually, I’m not SURE of all the challenges, yet. I’m already part of a Minimalism Challenge with Mrs. Waffles on Wednesday from last December, that I didn’t quite finish in December so it’s spilling over into January.

My dilemma with that one isn’t the stuff involved, it’s finding the time to go through the stuff to toss or giveaway.

If you missed that announcement or wisely did not try to participate in a minimalism challenge during the month of December, worry not. I will be doing another one in February. (I have a LOT of stuff to get rid of.)

I’ve also got a Half Marathon Challenge that I’m in the middle-ish of. I’ve decided to do the Carbon Valley Half Marathon on May 11 in Firestone, CO.

Then finally in late December, Miss Mazuma suggested a FitBit Challenge, where we gather up a group of people who struggle to get 10,000 steps per day, and challenge and encourage each other to reach our daily and weekly 70k goal.

The actual challenge is the 70k/week, so if you miss a day the world does not end. Missing 70k in a week, however, causes you to lose $5, which is not a sum I easily part with.

This challenge is both enormously helpful and exceedingly difficult for me to accomplish. On days that I’m in the office, I’m coming home sometimes with only 1,300 steps. That leads to laps around the block or when it’s super cold, laps around the coffee table. I have only fallen short of the 10k goal one day, where I did 8,000-ish. It’s very encouraging to have accountabilibuddies, and I appreciate all of mine.

But back to the Half Marathon.

I ran a 5K on January 1 in Orlando, on what felt like the hottest day of the year. It was probably 75 degrees with 85%+ humidity and bright bright sun. Adding to my pleasure was a raging sore throat/upper respiratory infection combo that made it even more difficult to breathe in that hot, heavy air.

(For those of you keeping score at home, I live at altitude and am used to dry, thin air.)

Even MORE awesome, was the fact that I mixed up a 5k with a 10k and instead of 3.2 I was thinking it was 2.3. So I saw Mile One, then Mile Two which did a weird loop thing back to Mile One and I got confused. It dawned on me that I was mistaken, that it’s 3.2 and I was having such a hard time breathing that I stopped running and just walked almost the rest of the way, which turned out to be almost the finish line because a 5k is actually 3.1 miles.

My Finish Time was actually faster than my Colder Boulder Finish Time in December, so I’m taking that as an improvement in my running ability. (My improvement was only about 30 seconds, but you have to factor in that heavy air and virus.)

My half marathon training has come to a screeching halt, given the lingering virus that just doesn’t seem to go away. It arrived shortly before the new year, robbed me of my voice just in time to attend Camp FI Southeast in Florida the first weekend of January, and just will not leave me.

(Fun fact: I was slated to speak at Camp FI, and my voice came back just in time to squeak out a presentation about real estate.)

I’ve been able to get to the gym once, and ran a few laps but had to stop and just walk because I just couldn’t breathe. I’m finally getting back out running today with the same friend who inspired me to do the half marathon in the first place. (Hi Angi!)

My weight isn’t worth talking about, although I was pleased to come back from vacation at the same weight that I left, as opposed to coming back weighing more.

I have also discovered that getting older means that I like the taste of alcohol more, but the effects love me less. I’ve decided to cut way back, and have only consumed about 5 beers this year, with that number not likely to increase much.

Next weekend the crew behind FinCon (my FAVORITE conference) will be in my neck of the woods for Ski FinCon. I am very much looking forward to hitting the slopes with some friends I normally only see in warm places. Plus more exercise.

So now it’s your turn. What challenges are you participating in?

Do you need any additional members for your challenge and want to invite me? Do you want to join me on any of my challenges?

The post A YEAR Of Challenges! appeared first on 1500 Days to Freedom.

Episode 80 – Finding Joy, Wealth & Freedom on Your Journey To Financial Independence w/ Kerry Ann Rockquemore

JourneyToLaunch
, 16/01/2019 | Source: Journey To Launch


Listen & Subscribe: on iTunes, Google Play, Stitcher, Soundcloud, Google Podcasts, Android Device

(This post may include some affiliate links)

In this episode, I’m talking to Kerry Ann Rockquemore from the blog thebestchapter.com. Kerry Ann and her husband were able to retire early at 46 years old and have reached Financial Independence. Through their journey, they have found a way to find joy, wealth and freedom and now Kerry is helping us find the same.

In this episode we discussed:

  • What prompted Kerry Ann and her husband to pursue Financial Independence
  • The things they did and implemented to help them on their journey
  • Why Kerry Ann walked away from a job that she loved
  • What the lifestyle is like in the early retirement and what they do on a day to day basis
  • How to plan for a great year and the importance of joy habits plus much more

Join the Journeyer Launch Club for classes, tools, resources and the community support you need to reach Financial Independence


I'm listening to Episode 80 of the #journeytolaunch podcast, Finding Joy, Wealth & Freedom on Your Journey To Financial Independence w/ Kerry Ann Rockquemore
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Other related blog posts/links mentioned in this episode:

Annual Planning That Works

One Word

Why Retire From A Job You Love

Vicki Robin interview on the Journey To Launch Podcast

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Visor 2018 Tax Prep App Review: Like Uber, but for Accountants

Robert Farrington
, 16/01/2019 | Source: The College Investor

Visor tax prep app

Visor has been getting a lot of attention since its launch last year. It’s not really traditional “tax software” — it’s not for DIYers.

Instead, Visor offers the convenience of filing online and combines that with the kinds of services you might get by hiring a local accountant. You answer some questions, upload your documents, and voila: you’re assigned to a “tax team” that selects and fills out the appropriate forms for you. Then you review, sign, and file.

It’s basically Uber, but for CPAs.

It’s not cheap, but for the price it really might be the easiest and simplest way to get your taxes done. It also offers you year-round support and the ability to speak to a dedicated tax pro who is the same every time for you, instead of whoever answers the phone.

Navigation

The Visor process happens in three parts:

  1. Answer questions about your tax situation to figure out what your pricing is going to be (see below) and get matched with an advisor.
  2. Upload all your documents (W-2s, bank statements, 1099s, stock sales, the works).
  3. Review your prepared forms, sign, and file.
Visor tax prep app

Source: Visor

Visor tax prep app

Source: Visor

Visor tax prep app

Source: Visor

Visor tax prep app

Source: Visor

Note the absence of any step that includes “filling out forms.” You don’t need to do too much “navigation” because you are doing the digital equivalent of bringing a shoebox of receipts to your accountant.

That said, there are two “navigation” features to note. First is that each user gets a “dashboard” where they can schedule a call and find the return they want to work on.

Visor tax prep app

Source: Visor

Second, there’s always a bar at the top of the page that shows you where you are in the process.

Visor tax prep app

Source: Visor

You can see that the design’s all done with mobile in mind. (The mobile app isn’t released yet, but it’s clearly going to look a lot like this.)

Ease of Use

This is a very easy-to-use site. It’s not flashily designed, but everything works great. The uploader is lightning-fast.

Personally, being used to very dense tax sites with tons of instructions, I do find the site’s spareness a little unnerving. There are specific places to upload specific forms, like health insurance and 1099s, but there’s also a catch-all, “other” category where you can put . . . anything you want. Visor clients are relying on the site’s accountants to catch anything that’s missing and request it.

The mobile app will be released sometime soon (no date available yet). While I haven’t experienced it, in theory this will make it very easy to snap a picture of a paper document with your phone, in addition to uploading PDFs from your computer.

Knowledge Articles

Not a strength of Visor! But that’s exactly the point. There are no knowledge articles because the idea is that you are not filing your taxes yourself — your accountant is doing it for you and will have the situation covered.

If there is something specific you want to talk about, you can get in touch with your advisor. There’s also a neat feature in the onboarding process where instead of answering a yes/no question, you can mention any special situation you’d like your advisors to be aware of. It’s a great personalized touch that really emphasizes what this service is offering as opposed to DIY software.

Visor tax prep app

Source: Visor

Visor tax prep app

Source: Visor

Pricing and Plans

Visor isn’t cheap, although for some people it could certainly be cheaper than its direct competitor: hiring an accountant and consulting with them throughout the year.

Visor’s pricing is built on a series of flat fees. You start with a “basic” package for $99 which includes all state returns, W-2 income, homeownership, itemized deductions, and interest/dividends.

For each of these situations, add another $99:

  • Self-employment
  • Sold stock, equity, or crypto
  • Have rental income
  • Have K-1/partnership income
  • International taxes

(Right now, January 2018, Visor is offering 50% off all its plans, but the offer is limited to the first 1,000 people to prepay, so it’s not clear how long that will be available.)

The plans all include audit protection and year-round conversations with your tax advisor.

Who Should Use Visor 2018?

Visor is a great option for people who want to pay a flat fee for personalized support — and don’t mind it getting up to several hundred dollars for more complex situations.

Instead of software that helps you do your taxes, it’s software that connects you with someone else who will do them.

It’s the closest thing to taking your accountant a pile of receipts in a shoebox and walking out the door, but with upfront pricing so you know exactly what you’re getting into.

The post Visor 2018 Tax Prep App Review: Like Uber, but for Accountants appeared first on The College Investor.

Jackson Hewitt Tax Software Review – Lower Prices In 2019

Robert Farrington
, 16/01/2019 | Source: The College Investor

Jackson Hewitt

With the passage of the 2018 Tax Cuts and Jobs Act, competition among tax software companies is fiercer than ever. Jackson Hewitt Online is one company that slashed prices and improved its software to vye for more customers.

Unfortunately, even with the slashed prices, the company falls short of being a recommended software for most filers.

Here’s what you need to know about filing your taxes through Jackson Hewitt Online in 2019. See how Jackson Hewitt Online compares to the other top tax software this year


Jackson Hewitt Online

Quick Summary

  • Lower prices this year, but still above average
  • No fringe benefits like audit support or in-person review
  • May be difficult for complex filers or investors to use

Jackson Hewitt Online Navigation

Jackson Hewitt Online allows users to opt between self-guided or guided navigation. It’s guided navigation rivals top competitors in the tax software space. The questions are phrased simply, so that users can easily determine whether a tax form applies to them. Plus, if you enter a space accidentally, Jackson Hewitt Online makes it easy to back out using a “Back” button.

The more advanced “Self Guided” methodology proved equally easy during testing. Jackson Hewitt allows users to enter information that pertains to their situation.

Additionally, situations with lower levels of support (such as rental properties) were easy to find through the Help search.

Overall, Jackson Hewitt Online offered excellent navigation for both beginning filers and advanced users.

Jackson Hewitt Ease Of Use

With a clean interface, and easy to follow entry items, Jackson Hewitt Online proves to be easy to use for certain filers. For example, if you’re a W-2 employee with a side hustle and interest income, Jackson Hewitt Online makes filing a breeze. The software has a great user interface, and all customers get unlimited online support via email.

Unfortunately, filers with more complex filing situations won’t find Jackson Hewitt Online user friendly at all. Jackson Hewitt Online supports Schedule E rental income, but users have to use outside sources to figure out how to fill in the form.

Likewise, people who sold stocks in the previous year will not like Jackson Hewitt’s 1099-B entry form. It requires users to enter a single stock per screen which takes a long time if you have even a dozen trades to enter.

Another drawback to Jackson Hewitt Online is that it doesn’t allow users to import any forms. This makes the service less appealing than many other software options.

Jackson Hewitt Online Knowledge Articles

Despite being difficult to use (for complex situations), the Jackson Hewitt Online software service does have some redeeming qualities.

Its knowledge articles are helpful, jargon-free, and generously linked throughout the software. The knowledge articles get to the point, so that users can easily complete their filing in most cases.

Jackson Hewitt Tax Software Plans And Pricing

Jackson Hewitt’s pricing is for software only. It doesn’t come with any special features such as audit assistance guarantees or in-person checks.

Additionally, Jackson Hewitt’s 0% tax anticipation loan options ARE NOT available to online customers. You must pay for in person filing to qualify for these loans. Potential customers should also note that Jackson Hewitt may intend to raise its prices closer to the filing deadline, as its website denoted these prices as “limited time only.”

Despite the free filing offer for certain customers, most people will be forced into an upgrade. The free software is only available for W2 earners with less than $100K in income and no dependents. Everyone else, including people with student loans, need to upgrade to the $29.99 option (which is actually $66.94 once you include the state filing price).

Free

$29.99

$49.99

Best For:

W2 earners (less than $100K) with no dependents

People with dependents. People with student loans.

Anyone earning over $100K, side hustlers, rental property owners, investors (with trades).

Federal:

$0

$29.99

$49.99

State:

$0

$36.95

$36.95

Total Cost:

$0

$66.94

$86.94

Who Should Use Jackson Hewitt Online In 2019?

Although some filers may be able to use Jackson Hewitt Online for free in 2019, H&R Block offers more free filing options. Additionally, H&R Block and TurboTax have better software packages for people with complex filing situations (including investors and rental property owners).

With high prices, no fringe benefits, and minimal support for complex filers, Jackson Hewitt Online doesn’t make sense for most filers this year. In 2019, we don't recommend Jackson Hewitt Online, but don’t count it out for future years.

The post Jackson Hewitt Tax Software Review – Lower Prices In 2019 appeared first on The College Investor.

Unpopular Opinion: Self-Help Books Do More Harm Than Good

Alexander Felice
, 15/01/2019 | Source: The BiggerPockets Blog

self-help, self-development, real estate investing advice, reading, books, how-to

If you've spent any length of time trying to "succeed" in life, then you've probably turned to self-help books at some point. You’ll find yourself motivated and confident—but more than likely no closer to your goals than before reading them. Why is that?

View the full article: Unpopular Opinion: Self-Help Books Do More Harm Than Good on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

Ting Review: A Quality, Low Cost Mobile Service Provider

Peter Anderson
, 15/01/2019 | Source: Bible Money Matters

Ting is affordable, reliable and is one of the better low cost mobile providers on the market right now.  I'd put them on your shortlist of providers to try.

The post Ting Review: A Quality, Low Cost Mobile Service Provider appeared first on Bible Money Matters and was written by Peter Anderson. Copyright © Bible Money Matters - please visit biblemoneymatters.com for more great content.

Pick the Target-Date Fund That Aligns with Your Goals, Not Just Your Retirement Year

Alicia Adamczyk
, 15/01/2019 | Source: Two Cents

It might be time to rethink which target-date fund you’re investing in with a different calculation in mind.

Read more...

Here’s Why I’ll Never Sell My Multifamily Investment Properties

Sterling White
, 15/01/2019 | Source: The BiggerPockets Blog

I’m not just thinking about how to make money next month, hit a goal this year, or get rich in five. My eye is on the long game. Here's why.

View the full article: Here’s Why I’ll Never Sell My Multifamily Investment Properties on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

The Pension Protection Fund (PPF)

The Details Man
, 15/01/2019 | Source: Monevator

A photo of a real lifeboat, often an analogy for the PPF pension protection fund lifeboat

Back in the wild old days there were few protections for pension scheme members.

Long burnt into the public memory was the Maxwell pension scandal, for example, which saw around £400m of pension savers’ money plundered by a cash-starved newspaper mogul.

In the 1990s and early 2000s, greater consideration was given to protecting workers’ pensions. However it wasn’t until the Pension Protection Fund (PPF) arrived in 2005 that savers got bona fide protection.

Enter the PPF

The PPF – known colloquially as the ‘pensions lifeboat’ – was set up under the Pensions Act 2004 to protect people’s Defined Benefit (DB) pensions from being pilfered away.

The PPF has been a great success in preventing hundreds of thousands of people from losing their pensions when their companies went bust. Many big-name pension schemes have fallen into PPF over the years, including Carillion and Toys ‘R’ Us.

As of 2018, the PPF has picked up over 200,000 members and £30bn in assets under management.

How is the PPF funded?

Contrary to some righteous tabloid fury, the PPF is not funded by taxpayers. It is funded through a levy payable by almost all open DB schemes, and by investment returns on the assets it accepts.

That levy varies depending on how large and how risky a given pension scheme is. The largest, riskiest schemes pay the highest levy.

The levy is calculated in part every year, based on a valuation every three years (called the triennial ‘section 179 valuation’).1

Each year, the PPF issues a determination notice explaining how it will calculate the upcoming year’s levy. You need a brain the size of two watermelons to understand all the formulas.2

How do schemes fall into the PPF?

The starting point for entering the PPF is usually when the sponsoring employer (the company funding the scheme) thinks it’s on the verge of insolvency, or is insolvent.

It writes a polite letter to the PPF saying as much. How very British.

But insolvency alone doesn’t determine whether the scheme will go into the PPF.

First, the PPF starts an Assessment Period. This can take up to 18 months. During this time there are restrictions on the scheme (for example, no transfers out). In the background lots of smart finance people and lawyers look at how the pension scheme was funded (or not, as the case may be).

This Assessment Period culminates in what’s called a section 143 valuation.3 This valuation determines whether the scheme is ‘underfunded’ at the ‘PPF level’ or not.

A scheme will only transfer into the PPF if it does not have enough assets and money to pay for the same level of benefits that the PPF can provide (the aforementioned PPF level). It is deemed in this case to be ‘underfunded’.

If the scheme has enough assets to provide a benefit greater than the PPF compensation then instead the scheme must wind-up. It will normally seek a buyout from an insurer, which will provide the members a better deal than if the scheme fell into the PPF (sometimes called PPF+). The buyout process effectively sees the pension’s trustees hand the assets of the scheme over to the insurer. In exchange the insurer agrees to take on the liability of paying the scheme members their pensions.

Otherwise, where the scheme is underfunded, it falls into the PPF. The assets and liabilities of the scheme are again handed over by the pension trustees. This time the PPF takes control of the pension scheme and it pays out the scheme members’ pensions.

What happens to my pension if it goes into the PPF?

The PPF will pay you your pension if your scheme falls into its clutches.

The amount you get will probably be lower than if your scheme had not gone into the PPF.

The 90% level

There are two compensation levels: 100% and 90%.

If you have reached Normal Retirement Age (NRA) prior to the employer going insolvent then you get 100% of your benefits on the insolvency date. Your NRA depends on the rules of your pension (called the ‘scheme rules’). Usually the NRA is around 60-65.4

If you are younger than NRA, your pension payments are restricted to 90% of what you would have received.

The cap

A second way your pension can be reduced in the PPF regime is by the Compensation Cap.

If you are a 90% level member, your benefits are subject to a cap. The cap varies depending on your age. The PPF publishes the caps on its website, updating them yearly. For 2018, the cap is £39,006.18 per annum for a 65 year old.5

Increases may be restricted, too

A further reason your overall pension may be less than you expected is that the pension increases granted by the PPF are restricted. Let’s look at how this works.

With a DB pension, your benefit is built up – or in fancy pension language, accrued – each year you work. Depending on when you built up that pension, your pension is treated differently by law.

Someone who worked (and built up their pension) between 1985 and 1997 has their pension treated differently to someone who worked between 1997 and 2005. Your pension is split into blocks depending on when it was built up, and what law applies to it.

One of the legal provisions that differs between pension blocks is the rate of increase on your pension when it is paid.

When you take your pension (whenever that is) you should normally receive annual increases. These are designed to help your pension keep pace with inflation.

The minimum rate of these increases (if any) is set by law. The different rates for your pension blocks are illustrated below:

A diagram showing how different elements of your pension will be increased with inflation, depending on when they were accrued.

(Click to enlarge)

If your scheme goes into the PPF, the PPF pays your pension. Every year, while your pension is being paid, the part of your pension in the blue and red boxes in the diagram is increased by however much CPI has increased over the previous year (max 2.5%).6 Any other part of your pension isn’t increased (the green box).

For schemes that are not in the PPF, the increases you get each year depend on the scheme rules, but the minimum increases are shown in the diagram above. The scheme can be more generous.

You should be told what blocks your pension is split into and the rate of increases for each block in your benefit statements. If you don’t know ask your pension administrator.

As a result of all this, if your pension scheme goes into the PPF, it is entirely possible for your annual increase rate to go from 5% down to zero – for example, if you accrued all your pension before 1997.

About some fella named Hampshire

Due to the effects of compounding, this reduction in increases can significantly reduce the value of your pension pot. The reductions in benefits can also be substantial for high earners who have built up a very large pension and thus get hit by the cap.

One gentleman was particularly upset that when his scheme fell into the PPF. Given he was looking at a two-thirds decrease in his payment, I’m not surprised! This chap took the PPF to court. In late 2018, the ECJ ruled that it was unlawful to have to have a reduction greater than 50% (Hampshire v PPF).

The result is that it appears there will now be a minimum guarantee of a 50% compensation level.

However it’s early days, and the full impact of the case may take some time to be clarified.

What can I do if my employer looks like it’s going bust?

Remember first that even if your employer goes bust, this might not mean your pension goes into the PPF. As we discussed above, the scheme may be sufficiently funded that the scheme must arrange a buyout instead. In that case, your payments will be better than you’d get in the PPF.

Unless you’ve got some magical pixie powers, you can’t stop your scheme sponsor going bust. You can though monitor the situation in advance. For example, you could sign up for notifications from Companies House and check the information produced by the pension scheme.

That said you are very unlikely to be able to do much pre-empting. The decisions around pension schemes are typically commercially sensitive and highly confidential.

You could potentially consider transferring out. However that’s a story for another time, and transfers out of a DB scheme should not be taken lightly.

Note you should be informed if there is an inkling that the scheme may fall into the PPF – because you must be told, by law.

Closing up

Hopefully this short article has helped to provide a little bit of information around the Pension Protection Fund.

The PPF has provided much needed security for pension scheme members, including many who had saved all their working lives into their company schemes, only for their employer to teeter into insolvency.

For my money the PPF has been a great success!

  • Have a look at a very helpful PPF welcome booklet on the PPF website.

Read all The Detail Man’s posts on Monevator, and be sure to check out his own blog at Young FI Guy where he talks about life as a financially free twenty-something.

  1. I know it’s a bit jargon-happy to refer to specific sections of the Pensions Act, but a pet peeve of mine is when different pension valuations are thrown around without context. We’ll see shortly why is important to differentiate between different valuations.
  2. Also known as being an actuary – I’m not jealous, really.
  3. Yes more jargon. A section 143 valuation uses a set of specific assumptions. Over time it’s become very similar to the section 179 valuation I mentioned in a previous footnote, but with a few specific differences.
  4. Likewise, if you have a widows’ or inherited pension the compensation level is 100%.
  5. Meaning a benefit cap of £35,106 per annum = £39,006 x 90%.
  6. That is, if inflation is more than 2.5% in a given year, you only get a 2.5% increase on your pension for that year. Conversely, if inflation is negative, your pension does not decrease.