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    • kingtravel
    • By kingtravel 12th Sep 17, 3:45 AM
    • 1Posts
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    kingtravel
    Pension projections - clarification
    • #1
    • 12th Sep 17, 3:45 AM
    Pension projections - clarification 12th Sep 17 at 3:45 AM
    Hi all,

    If a life company issues a pension illustration that projects an annual pension of, for example, £10,000 pa is this :
    * on the basis of the fund as it stands and growth at the indicated rate or
    * does it also assume that contributions will continue at the current rate?

    (I know, I know, read the documentation - I will when I get home but the thought has just occurred to me )
Page 1
    • HappyHarry
    • By HappyHarry 12th Sep 17, 4:05 AM
    • 400 Posts
    • 475 Thanks
    HappyHarry
    • #2
    • 12th Sep 17, 4:05 AM
    • #2
    • 12th Sep 17, 4:05 AM
    It could be either.

    Most likely it will assume contributions continue at the current rate, but the illustration will tell you.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • Apodemus
    • By Apodemus 12th Sep 17, 7:38 AM
    • 838 Posts
    • 624 Thanks
    Apodemus
    • #3
    • 12th Sep 17, 7:38 AM
    • #3
    • 12th Sep 17, 7:38 AM
    It may also be quoting on the basis that you use the money to purchase an annuity, which might not be the most beneficial approach.
    • ischofie1
    • By ischofie1 12th Sep 17, 7:54 AM
    • 175 Posts
    • 137 Thanks
    ischofie1
    • #4
    • 12th Sep 17, 7:54 AM
    • #4
    • 12th Sep 17, 7:54 AM
    My illustration assumes contributions will increase by 2.5% as an estimate for pay rises.
    For what it's worth, I don't bother with the projections provided. They use so many pessimistic assumptions, I consider the projections will bear no resemblance to reality.
    • Anonymous101
    • By Anonymous101 12th Sep 17, 8:15 AM
    • 978 Posts
    • 345 Thanks
    Anonymous101
    • #5
    • 12th Sep 17, 8:15 AM
    • #5
    • 12th Sep 17, 8:15 AM
    My illustration assumes contributions will increase by 2.5% as an estimate for pay rises.
    For what it's worth, I don't bother with the projections provided. They use so many pessimistic assumptions, I consider the projections will bear no resemblance to reality.
    Originally posted by ischofie1
    That and they assume you're going to buy an annuity at the god awful rates available today.

    You're much better to work out for yourself where your pension pot is likely to be at whatever age you want to retire and assume a 4% drawdown to give you an estimated income.
    • ischofie1
    • By ischofie1 12th Sep 17, 10:25 AM
    • 175 Posts
    • 137 Thanks
    ischofie1
    • #6
    • 12th Sep 17, 10:25 AM
    • #6
    • 12th Sep 17, 10:25 AM
    I couldn't agree with you more.
    Much better to work it out yourself.
    I think some of the projections are doing more harm than good in that some people see the low figures & think, sod it I may as well not bother.
    • dunstonh
    • By dunstonh 12th Sep 17, 10:35 AM
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    dunstonh
    • #7
    • 12th Sep 17, 10:35 AM
    • #7
    • 12th Sep 17, 10:35 AM
    Most example projections have the following assumptions.

    Annuity on 50% spouse basis with indexation (which very few would use -makes figure lower)
    inflation at 2.5% (so figures are displayed in todays terms)
    growth rates which are way below recent (as in last 20 years) and long term averages.

    The assumptions are printed with the illustration. However, provider illustrations are a very blunt tool and more likely to be wrong than right. The very low assumptions appear to be doing more damage than good.
    I am an Independent Financial Adviser (IFA). 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.
    • Linton
    • By Linton 12th Sep 17, 11:54 AM
    • 8,203 Posts
    • 8,073 Thanks
    Linton
    • #8
    • 12th Sep 17, 11:54 AM
    • #8
    • 12th Sep 17, 11:54 AM
    Agree with the comments that you should work out your projections yourself. Half an hour with Excel can give you a far better insight into the issues involved with retirement planning than any number of projections.
    • Anonymous101
    • By Anonymous101 12th Sep 17, 12:32 PM
    • 978 Posts
    • 345 Thanks
    Anonymous101
    • #9
    • 12th Sep 17, 12:32 PM
    • #9
    • 12th Sep 17, 12:32 PM
    For anyone that doesn't know how there's loads of information on the internet. A fairly basic way to work this out I've outlined below in 3 steps:

    1) Find out what your current pension pots are worth and use a Compound interest for principal formula P(1+r/n)^nt

    Principle amount P
    number of years t
    Interest rate r
    Number of interest compounds per year n = 1

    2) Work out what your future contributions total worth
    PMT * (((1 + r)^t - 1) / r)
    Annual payment = PMT

    3) Add them together

    This will give you an estimate of the likely pot size for a DC scheme. Work on 4% drawdown and that'll give you an estimate of income.
    • sandsy
    • By sandsy 12th Sep 17, 4:11 PM
    • 1,176 Posts
    • 679 Thanks
    sandsy
    A stututory annual illustration will assume contributions continue to be paid, and will increase in line with earnings inflation of 2.5%.

    Any other projection of benefits will assume contributions continue to be paid, and will increase in line with earnings inflation of 4%. Further, any investment growth rates will be capped at no more than 5% nominal.

    Generally, people read too much into how accurate they are or aren't. They're just meant to give you a rough idea of whether you're on track and prompt you to consider your pension provision - so it seems to have worked
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