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

dunstonh

The figures seem about right for a 9% projection. Personally, I would never use 9% on a target basis but I am personally exceeding 9% p.a. even with the recent downturn. Its better to work on a lower target rate and come in with something better than the other way round.

A cautious investor would be really daft to consider 9% as realistic. A high risk investor may feel anything less than double digits is unrealistic. Someone using cash should really consider 0% as realistic as cash generally keeps up with inflation. Nothing more.

You shouldnt think of cash as safe. You are replacing investment risk with shortfall risk and inflation risk.

Inflation is the big killer here. £1 million in 38 years time will be worth about the same as £300k is today. £300k at 5% income would give you a pension in real terms of around £15,000 a year.

As mentioned in the post above, 38 years is a long time. A lot can and will happen between now and then. In your case, you are 22. Your state pension age is at least 68. Possibly higher. So, you really have 46 years to state retirement age.

ChrisUK86_2

Myrmidon_J wrote: »

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.

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... )

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


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".

Hi,

Its Chris lol. I'll have a look into the documention that i provided and get back to you on the fund choices. I really want to be investing this money in the best way possible and your help if i provide the right information would be great.

I'll get back to you.

novice-saver

Don't get blinded by the numbers -

it's not yet 40 years since I started work, and I was paid £100 per month (after deductions) and living in London - it wasn't a good wage: my ambition was £2K per year.

Now a wage of 2K per month isn't anything special.

Who can say what use a pension pot of £1M will be in 40 years time?

My money is on it being a bit short of what you'll need....

JoeCrystal

Well, ideally, the contribution should go up with inflation. Would be nice if there is a way to pay in at different amount of money every month. when I start paying into a pension.

Myrmidon_J

JoeCrystal wrote:

Well, ideally, the contribution should go up with inflation.

One assumes that 'ChrisUK86' will, at some point in the next 38 years, receive a pay rise...

As wages in aggregate tend to increase faster than inflation (compare the AEI with RPI, or CPI, for instance), a 5.0% contribution should generally "go up with inflation".

Of course, this is just one factor that renders the £1 million figure utterly meaningless.

CLAPTON

in real terms i.e taking inflation into account then assume growth of about 1 to 2% a year...nothing more

but do take the pension as you are getting free money form your employer and tax relief from the rest of us

bendix

There are two points here. Firstly, the salesman is obviously exagerating the benefits provided by this fund. The contributions at that level will not give him a pot of £1,000,000 by the time he is 60 because returns of 9-11% regularly just will not happen.

However, that should not preclude the OP from doing the right thing which is beginning a pension plan of some kind, taking advantage of both the tax benefits and the employer contribution, and educating him/herself on the fundamentals of investing.

margaretclare

There are a number of points here which need to be separated out.

On the positive side, I would agree strongly that:

1. The earlier you start the better. I agree with whoever said: 'Compound interest is your friend'. In fact, compound interest can be either your friend, or your enemy. It's your enemy if you don't pay off loans or credit cards, but in this instance, look at those calculators already quoted. Didn't you do this in GCSE Maths at school? It's simple really.

2. Your employer is offering a contribution for whatever you choose to put in. This is equivalent to a pay-rise, and I agree with whoever said 'you'd be mad to turn it down'.

3. In addition, you're being offered valuable life insurance. OK, you're only 22 and don't expect to die for a long time yet. However, if you look in the local paper you'll see that people your age and younger do die, and someone has got to bury them. A young guy in my town recently crashed his motorbike taking a corner too fast because he was late for work - he leaves behind a girl-friend and a baby.

On the opposite side of the coin, nothing is guaranteed. Investments can go down as well as up. It's very difficult to predict what will happen by the time you come to retire (by the way, it will likely be much later than any of us who retired in recent years!) Who would have predicted the current 'crash', if that's the word? You are right to ask questions - ask, ask, ask again! But do join a pension fund. My younger daughter joined her pension fund on day one of starting a new job. She died 6 weeks later and her widower got 3x her monthly salary plus her own personal life assurance. Money doesn't buy happiness, but it can make things a lot easier.

HTH

N1AK

Myrmidon_J wrote: »

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... )

I agree with the vast majority of what you said, especially that the picture painted by the seller is always the utopian version. However I'm also 24 and I'm confident it is worth dropping that 5% if it means turning it into 10% of long term investment.

A pension isn't always a given, and I respect that each individual has unique circumstances and priorities. But most people hope to live long enough to need a pension, and I think ignoring it during your 20s and 30s can leave you with a difficult or even impossible task later in life. Personally, the only reason I wouldn't be paying into a pension is because I had debt (ignoring mortgages) and that is only because debts tend to be sufficiently costly to prioritise over anything else.

And to ChrisUK86, well done for taking this seriously whatever your final decision. I know well how hard it is to consider your actions when they won't have a benefit for 40 or so years!

bendix

Given the general lack of knowledge or - worse - curiosity considerably older people on this forum often display about pensions, Chris is to be applauded. Starting to save now will mean the burden in future will be much less. More importantly, it will become second nature.

It is THE single most important financial decision of your life. Just do it.