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Pension help
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# 1
Molscar
Old 15-02-2012, 10:05 PM
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Default Pension help

Hope you guys can offer some help

Background information
Age 33, current pension value 54,200

I pay in 5% and my company pays 11% equating to roughly 570 a month currently.

Aim is to retire by 60

My pension is with standard life and through their pension calculator it gives me an estimate at retirement of 20,800 a year after taking the maximum. 25% lump sum. Now this is based on a level payment for life so over time inflation is going to erode the value significantly.

Now when putting it into other pension calculators I tend to get figures more like 12,000 per annum without even taking any lump sum but this does increase every year with inflation

For me these figures just don't seem to stack up against the amount paying in particularly as each year my payments are being increased as a minimum to at least match inflation.

With with a further 28 years is there anything I should be doing to increase these above values or are they just particularly low at the moment due to poor annuity rates.
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# 2
jamesd
Old 16-02-2012, 3:31 AM
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That difference between level and inflation linked just reflects the assumptions they are using, doesn't mean any change in pension pot value at the end. You can choose which type of annuity you want, if you want an annuity at all. You won't be restricted to just what the illustration shows.

Your company has a fairly good defined contribution company payment level.

The payments you pay in and the value of the annuity payment at the start are all adjusted for inflation. It's only after you take it that they choose which type of annuity to use.

About 50% of men around your age will live into their late 80s (not checked exactly how old, assuming 85). Assuming 570 is the total of your and your company payments that's 570 in a month for 28 years to get 28 years of 1,000 a month increasing with inflation. But you're not paying all 570, just 142 after tax. So you're going to get out far more than you're paying in.
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# 3
mania112
Old 16-02-2012, 3:50 PM
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I'm not a huge fan of the 'inflated' projections (not least of all because inflation has gone down!)

I would look at the firm figures and decide if you can live on that amount if you were to retire today?

Probably not, but if your mortgage was paid off it might be a little more realistic?

If you still don't think it's enough, consider contributing more if you can. A decent way to contribute more is to ask for a pay rise - that way the employer will be contributing more too.
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# 4
sandsy
Old 16-02-2012, 4:52 PM
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It sounds like the Standard Life calculator is giving you the figures in monetary terms which is a projection of the income you would be paid.

Whereas the other calculators are giving you the figures in real terms, ie. today's money so it lets you see what it will buy assuming that prices are the same as today. This is more useful for comparing with your current income and lifestyle to see if it's likely to be sufficient.
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# 5
Molscar
Old 16-02-2012, 5:44 PM
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Quote:
Originally Posted by sandsy View Post
It sounds like the Standard Life calculator is giving you the figures in monetary terms which is a projection of the income you would be paid.

Whereas the other calculators are giving you the figures in real terms, ie. today's money so it lets you see what it will buy assuming that prices are the same as today. This is more useful for comparing with your current income and lifestyle to see if it's likely to be sufficient.

Thanks for the answers so far

The standard life figure is for today's money.

The predicted fund value based in today's money is about 440,000 at retirement age of 60.

Would any be able to offer what sort of annual income I could expect to get presently from this value when taking out an annuity which increase with inflation each year from the age of 60 (I'm male if I didn't mention it before)
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# 6
dunstonh
Old 16-02-2012, 7:22 PM
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Std Life normally use SMPI basis illustrations although you can still get monetary growth projections from them as well. (SMPI = with inflation. Monetary growth = without inflation)

Quote:
The predicted fund value based in today's money is about 440,000 at retirement age of 60.
There is nothing predicted about them. They are example projections using a range of assumptions. It is fair to say that there is virtually no chance those actual projections will be right. They are a guide only.

Quote:
Would any be able to offer what sort of annual income I could expect to get presently from this value when taking out an annuity which increase with inflation each year from the age of 60 (I'm male if I didn't mention it before)
Rough guide is to work on 5% for a level income and 3% for an increasing income. Easy figures to work out in your head.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 7
Molscar
Old 16-02-2012, 8:14 PM
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Cheers for that

I should have explained I realise that the figure standard life quote is only a figure based on rigid rules on inflation, payment increase etc it's just at the moment it's the only figure I have to work on.

Looks like I'll have to write myself a spreadsheet to start seeing how different factors like inflation, pay increases and retirement age will affect everything.

One last thing, the 3% and 5% figures you state I'm assuming are at an all time low currently. Do the historic rates sit much higher than these or as no one has a crystal ball is it best to assume they won't increase and work on these with within my spreadsheet
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