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    • dc197
    • By dc197 6th Dec 17, 9:08 AM
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    dc197
    Incorrect contribution percentage's effect on forecasts
    • #1
    • 6th Dec 17, 9:08 AM
    Incorrect contribution percentage's effect on forecasts 6th Dec 17 at 9:08 AM
    Good morning
    Please could you help me to understand how the following issue will affect my pension forecast.
    I have a group stakeholder pension and I contribute employee's 3% and my employer also contributes 3%. These are usual percentages. Additionally I make salary sacrifice contributions of several hundred pounds. These are fixed pound amounts and don't change with fluctuations in my pay; they are not percentages.
    My pension provider recently asked my employer to tell them what is the total amount I contribute and my employer told them 3% + £X, and said that if they insisted on expressing it as a percentage of salary then it's ~10%. My pension provider then issued me a new forecast and assumed that I'm paying 10%. I asked them to show it properly and they said they cannot, which I think is a limitation in their system.

    My question is - will my forecast be incorrect because of this? And how will it be incorrect?

    Thanks in advance.
Page 1
    • Linton
    • By Linton 6th Dec 17, 9:34 AM
    • 8,614 Posts
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    Linton
    • #2
    • 6th Dec 17, 9:34 AM
    • #2
    • 6th Dec 17, 9:34 AM
    The forecast will almost certainly be incorrect anyway. It is a straightforward mathematical calculation based on assumptions of inflation and investment return which may well turn out to be wrong. If you are comfortable with spreadsheets you can produce a similar forecast for yourself. This is worth doing as it enables you to model your particular circumstances and play with the assumptions to see the effects.

    Or of course you can use a pension calculator such as the one provided by H-L.

    Either approach is much better than relying on the pension company’s forecast.
    • westv
    • By westv 6th Dec 17, 9:44 AM
    • 4,370 Posts
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    westv
    • #3
    • 6th Dec 17, 9:44 AM
    • #3
    • 6th Dec 17, 9:44 AM

    Either approach is much better than relying on the pension company’s forecast.
    Originally posted by Linton
    Which will also probably assume you will be buying an annuity.
    • Malthusian
    • By Malthusian 6th Dec 17, 9:44 AM
    • 3,433 Posts
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    Malthusian
    • #4
    • 6th Dec 17, 9:44 AM
    • #4
    • 6th Dec 17, 9:44 AM
    The answer to the question posed is that it will overestimate your pension contributions, and therefore your final fund at retirement. Because it will assume that earnings increase by X% each year, and your contributions will likewise go up by X%, whereas you have said that part of your contributions are a fixed amount so they will go up by less than X%.

    However, as Linton said, all pension forecasts are wrong so it is not worth worrying about.
    • dunstonh
    • By dunstonh 6th Dec 17, 11:46 AM
    • 89,853 Posts
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    dunstonh
    • #5
    • 6th Dec 17, 11:46 AM
    • #5
    • 6th Dec 17, 11:46 AM
    All pension projections are based on a range of assumptions. Those assumptions are largely guesswork and statistically unlikely to be correct. It is important to get the assumptions as close as reasonable as possible. So, if you have one based on the incorrect contributions, then it is even more unreliable than one based on the correct contribution.
    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 an Independent Financial Adviser local to you.
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