Had A Presentation At Work About Pensions. Claims I Would Have A Fund Of £1m By 60

bumpoowee

Yeah again my scheme is pretty much the same, you have cash as the low-risk low-gain investment and have other investments of varying risks (bonds + equities) with various levels of potential return.

I think all my money is in the 'high-risk' global equities, this is the default setting and supposedly historically is the best investment. Once you are 10 years from retirement the money is put into cash so that your pension pot doesn't collapse just before you finish work.

Just to give you a basis for comparison, based on a total contribution of 18% on my £28k salary the various projections I've seen seem to indicate a pension of around £18k a year (in real terms) if I retire at 65. Obviously you would hope to earn and contribute more as you get older but I tend to be conservative so that I don't get my hopes up too much!

bumpoowee

endure wrote: »

Compound interest is your friend.

I'm too lazy to do the maths right this minute but I'm sure compound interest won't multiply the gross contribution to the fund by a factor of 12 in real terms over 40 years on a typical pension fund.

endure

£2200 compounded annually over 40 years at 9% gives ~£810,000.

bumpoowee

This calculator might give you a more realistic idea of what to aim for..

http://www.h-l.co.uk/pensions/pension-calculator

JoeCrystal

:beer: Hehe, well, I ran in OpenOffice Calc what happen if £174.17 per month get into the pot until you are 60 (without any tax relief) until you are 60.

Here is the result, without any change:

1% return per year: £96,043.03
2% return per year: £117,282.47
3% return per year: £144,546.02
4% return per year: £179,681.44
5% return per year: £225,117.26
6% return per year: £284,045.23
7% return per year: £360,659.43
8% return per year: £460,469.14
9% return per year: £590,707.55
10% return per year: £760,865.34

Now, I have not got a faintest idea how Employer's contribution get tax relief or not. (I do not have pension at the moment and neither my company pay into it)

Assuming that only your money get tax relief of 20%, (which means £197.09)

1% return per year: £108,681.87
2% return per year: £132,716.32
3% return per year: £163,567.63
4% return per year: £203,326.72
5% return per year: £254,741.69
6% return per year: £321,424.32
7% return per year: £408,120.62
8% return per year: £521,064.84
9% return per year: £668,442.05
10% return per year: £860,991.85

And assuming that all money get tax relief of 20% (which means £217.71 per month)

1% return per year: £120,052.41
2% return per year: £146,601.40
3% return per year: £180,680.44
4% return per year: £224,599.22
5% return per year: £281,393.34
6% return per year: £355,052.46
7% return per year: £450,819.12
8% return per year: £575,579.81
9% return per year: £738,375.96
10% return per year: £951,070.75

:beer: There you go. Hope it is a help!

Just out of curiosity, I decided to do one what is the minimum amount to save per month, taking into account of base rate today, (0.5%), which is £1,996.71 per month until you are 60 (if the return is 0.5% per year), or if it is 5% return per year, then it is £773.69 per month.

bumpoowee

endure wrote: »

£2200 compounded annually over 40 years at 9% gives ~£810,000.

Is 9% really realistic though? The figure I usually see is 7% a year, and I think that is optimistic to be honest. And again I take it you aren't taking inflation into account there.

YorkshireBoy

bumpoowee wrote: »

I'm too lazy to do the maths right this minute but I'm sure compound interest won't multiply the gross contribution to the fund by a factor of 12 in real terms over 40 years on a typical pension fund.

Don't forget there will likely be 4 sources feeding the fund...

1) The employers contribution
2) The employees contribution
3) 25% of the employees contribution from HMGov/HMRC for 'grossing up'
4) NICO payments

Add in growth and compounding (and hopefully not a lot of inflation) and it all mounts up.

endure

I think 9% is rather high and I wasn't taking inflation into account - just pointing out the magic of compound interest.

Myrmidon_J

... by the time i'm 60 i could have a fund of £956,000 which could be used to have a taxable pension of 68,700 a year. Or get a tax free lump sum of 239,000 and a taxable pension of 51,500 a year...

Forecasts this far into the future are utterly meaningless. Forecasts just months into the future are often proved quite astoundingly incorrect - just look at Darling's growth assumptions for the UK economy!

I would ignore them: there are simply too many factors to take into account.

For example, inflation. This will dramatically reduce the purchasing power of £1,000,000 and the income of £50K (or whatever).

The growth assumptions also appear somewhat high: 9.0% net of all costs would represent a very attractive return for any investor. Naturally, there are risks associated with such investment choices.

He told me sometimes it goes up and sometimes it even goes negative but for instance this year it was 20%...

Oh dear. Sometimes it even goes negative? What with the fancy presentation, forecasts and all (and that tasty figure of £1 million), it sounds like you've had the hard sell... I would be deeply suspicious of such claims.

The "high risk" option may have gone up 20.0% "this year" - but if it mirrors other "high risk" options, then last year it might have lost as much as 40.0%.

In addition, "three options" is an incredibly reductionist view of the pensions universe.

As others have said (and I absolutely agree), it is vitally important to plan for your retirement, and paying into a pension scheme is (in my opinion) the best way to do so. Especially if your employer is effectively matching your contribution.

However, a pension scheme is just like anything else: there are good ones, and bad ones. And there are real lemons. From the information you have provided, this sounds like the latter!

I do not for one instant recommend ditching it (I recommend nothing; I offer my opinion only), but I would investigate further if I were you.

Have you any more information on the specifics, e.g. fund choices, charges? Does your employer permit alternative arrangements, or are we deep in "put up, or shut up" country?

Also consider that as a young man of 22 (Chris? Christine? Sorry!), you may have another use for that 5.0% of your salary! (I am 24, so feel qualified to comment... )

A cash fund... so nothing really happens to my money e.g. I don't really lose anything.

Not sure if you are aware of the problems with the Standard Life Sterling fund, earlier this year...

http://forums.moneysavingexpert.com/showthread.html?t=1418087&highlight=standard+life+sterling

This "cash" fund has lost upwards of 3.0% this year, despite being marketed as "ultra-safe".

The Threadneedle Money Securities fund (an extreme example) has lost almost 23.0%, despite being marketed by unscrupulous and / or unintelligent advisors as "rock solid".

zzzLazyDaisy

Just remember, if you put in 5% of your salary, and then your employer puts in 4.5%, you are effectively getting 100% increase on your money immediately, and thats without the 25% IR grossing up. Where else are you going to get that sort of return?


Yes the funds will go up and down, but provided you are in it for the long haul, you should do at least as well as a cash ISA, but of course you can't get your hands on pension money for a new car or whatever, whereas you can cash in an ISA if you want to (personally I think that can only be a good thing, but that's just my view)

NOTE - I'm not an IFA and my comments are just my personal opinion.