21 Year Pension Performance

UnhappyHarry

Back in 1987, I started a personal pension with Scottish Amicable (now Prudential).

In 1993, the projected final fund value in 2012 was £55,200 - £105,000.

Last week, a new projection for 2012 was £30,400 - £34,800.

Although I expected a deterioration, to go from a possible pension projection in 1993 of £12,300 pa to last week's possible figure of as low as £1,440 astounds me.

Is this what I should be expecting? If not, what do I do about it?

Debt_Free_Chick

Projections are not really very meaningful - they're just an educated guess at what the future might bring. It's no different to you or I guessing at what our properties will be worth in 21 years time.

In 1993 they made an assumption about how the investments would grow - that assumption was wrong.

Nothing to be done about it, I'm afraid. Projections aren't worth the paper they're printed on.

Having said that, I think that today's projection is probably a different type of projection. Firstly, the current fund value is projected to 2012 using an assumed rate of return on your investments, but then discounted back to today's value using inflation. If so, then the two aren't comparable - apples & oranges.

UnhappyHarry

Thanks for the reply Debt_Free_Chick, but where exactly is the protection for Joe Public in that scenario?

How does an innocent pension shopper compare products if the projections are meaningless?

There must surely be some form of control over what sellers are allowed to claim?

The latest figures that I have are based on a growth of 5 - 9%, which I look at, and wonder how they can achieve this, so I strongly suspect that I won't even get £20 a week back after paying for 25 years.

The more I see of the financial industry and its sellers, the more I think it stinks...

Debt_Free_Chick

There's nothing inherently wrong with the projection - but you or I could do one ourselves.

What's happened is that the investments haven't grown in line with the 1993 projection.

There's plenty of control over projections - they must be "reasonable" which is why they use 5-9% and not 50-90%.

You need to understand what you've got - it's a savings pot and no-one can be sure what it will be worth in the future.

If you had projections from different providers, there would be very little difference in them. Any difference is down to the charges you pay to cover the providers costs & profit.

All you can do is save, save, save ...... and as a savings plan, a pension is pretty good due to the tax breaks, compared with other savings plans.

dunstonh

where exactly is the protection for Joe Public in that scenario?

Why should there be any protection? How much are you going to be earning in 20 years? How much will your savings be? what will you be doing?

Illustrations are just examples of what could be the case. Sometimes the understate and sometimes they overstate. That is why they say "you can get back less or more than this".

The latest figures that I have are based on a growth of 5 - 9%, which I look at, and wonder how they can achieve this, so I strongly suspect that I won't even get £20 a week back after paying for 25 years.

5-9% are reasonable. You are currently falling in the middle of that. I'm running in double digits as an average. Others could get more, some less. The pension is just a tax wrapper that contains your investments. You can put tens of thousands of different investments inside the pension. Every one will grow at different rates from the others.

How does an innocent pension shopper compare products if the projections are meaningless?

They are not meaningless. All companies use the same rates (although some apply inflation and some dont). That allows you to compare charges. Most pension products are not actually available direct to public so if you want to DIY, you are limiting your choice.

There must surely be some form of control over what sellers are allowed to claim?

There is. The FSA sets the illustration rates. The current rates are actually realistic and achievable.

The more I see of the financial industry and its sellers, the more I think it stinks...

I suggest you open your eyes and not be so blinkered. The information is there if you choose to read it.

so I strongly suspect that I won't even get £20 a week back after paying for 25 years.

You dont say how much you are putting aside but if you save £100pm for 25 years then you shouldnt expect to get much more than £100pm back for 30 years.

You say you took the pension out in 1987. How many times have you topped it up since then to keep account of inflation increases? How many times did you increase it when the tax rate relief went down?

UnhappyHarry

dunstonh wrote: »

Why should there be any protection? How much are you going to be earning in 20 years? How much will your savings be? what will you be doing?

I don't really see what that has to do with protection

5-9% are reasonable. You are currently falling in the middle of that. I'm running in double digits as an average.

I'm a layman here; that's why I post. Maybe I've done the calculations wrongly, but my 21 year performance looks to be less than 4%, but, as I say, maybe I've made a mistake.

I suggest you open your eyes and not be so blinkered. The information is there if you choose to read it.

As I said earlier, I'm only a layman looking for feedback, so that seems a strangely aggressive response, as if you're taking this personally.

dunstonh

I don't really see what that has to do with protection

Well you are asking the pension companies to predict exactly what you are going to get. If you cant do that then how do you expect anyone else to?

I'm a layman here; that's why I post. Maybe I've done the calculations wrongly, but my 21 year performance looks to be less than 4%, but, as I say, maybe I've made a mistake.

Scot Am performance isnt as good as Pru but you should still be around the 7% range as a long term average. Recent events would have seen a drop but then they will go up by more than 7% when the recovery starts. So, you have to use a bit of averaging.

As I said earlier, I'm only a layman looking for feedback, so that seems a strangely aggressive response, as if you're taking this personally.

A little personal as you are attacking those that retail the products but more to do with you not really taking any notice of what DFC has said and going on to complain about it. It comes across as if you are saying "I dont want to know why, I just want to moan".

If you do make the effort to understand the basics you will understand why projections have fallen. Despite projections using lower rates, the actual net returns after inflation are not too much different historically.

jamesd

What you do about it is look at what investments are in the pension and see whether they still look sensible. They often aren't and it's your job to pick suitable ones and update them from time to time. If you don't like the projected values then you'd adjust the contributions or use a different pension to increase your potential pension income.

The original projection would have assumed that your pension contributions increased with inflation. If they haven't, that's one reason for the change.

The stock markets were probably expected to grow more strongly at the time of the earlier projection; they are probably required to use lower projection assumptions now.

Neither projection tells us what the transfer value is or what your contributions are and have been, so it's not really possible to say how you've done. Projections are pretty much useless because of all of the assumptions behind them and because they don't show the actual value of the investments today.

purch

The stock markets were probably expected to grow more strongly at the time of the earlier projection

They are always expected to grow more strongly over time than they actually do !!!

I think it's safe to say that most of the assumptions they made in 1993 were wrong, and I'd hazard a guess that contribution levels was one of them.

UnhappyHarry

dunstonh wrote: »

Scot Am performance isnt as good as Pru but you should still be around the 7% range as a long term average. Recent events would have seen a drop but then they will go up by more than 7% when the recovery starts. So, you have to use a bit of averaging.

Remember the layman bit? How would I have known that Scottish Amicable's performance wasn't great? Age brings experience, but when I took this out, I just believed what I was told. Naive, maybe, but financial mistakes have horrendous long term effects. I'm sure that there are plenty people on these forums who, with hindsight, would have done things differently, but if you're not in the financial world, you can only trust the sellers. Today, I would ask more questions and make comparisons. Then, I didn't.

A little personal as you are attacking those that retail the products but more to do with you not really taking any notice of what DFC has said and going on to complain about it. It comes across as if you are saying "I dont want to know why, I just want to moan".

Layman alert again, I'm afraid. I don't even know what DFC stands for. Also, if you read my initial post, I do ask if that's what I should expect, so that's pretty close to "why" rather than a moan, but, yes I do moan later, but what's wrong with that? This pension will be nowhere near the anticipated value (that's my anticipation, before you have a go at me), so if I want to moan, that's fine, isn't it?

dunstonh

How would I have known that Scottish Amicable's performance wasn't great?

If you dont know these things yourself then employ someone that does. I drive a car but I dont service it.

but if you're not in the financial world, you can only trust the sellers.

Dont use a salesperson, use an adviser. That is a frequent message on this board.

This pension will be nowhere near the anticipated value (that's my anticipation, before you have a go at me), so if I want to moan, that's fine, isn't it?

The pension illustrations issued in the early 90s made it clear that the illustrations were assumptions. Those assumptions havent been as good for many people. However, they did state on them that they were assumptions. You have to remember that when you start work you are 40 or even 50 years away from your retirement. 50 years before you started this pension we were at war with Germany. Things change. This is why you should keep them reviewed.