Estimated pension return not looking good.

davidscot

Hi
I am in my company pension scheme where I pay in 3% of my wage and company adds 4% so it can add up to a fair amount each month.
We have just had our annual pension extimate sent to me which details how much I would receive at pension age etc. To be honest I was very disappointed in how little I would get in return although I still have a few years left to work (hopefully!!)
The scheme has various funds which I can choose to split my pot into but its all confusing to me as to which would be best.
Does anyone know how I could go about maximising my pension fund?

dunstonh

Does anyone know how I could go about maximising my pension fund?

Projections given use example assumptions. Some use 5, 7 & 9% With no deduction for inflation. Others use "SMPI" based which is 7% minus 2.5% for inflation. There are variations on those but they cannot be higher than those figures. What basis is your projection?

Also, the income figure makes assumptions that may not be the type of income you would be in retirement. It may be 50% spouse with an annually increasing pension for example which costs more than a single person or level income.

7% contributions into a pension is not a particulary large amount. Especially when 4% of that is the company contribution. You may get away with that if you are young enough but if you are a late starter then you will need to be paying more.

davidscot

Figures quoted make the assumptions that value will grow by 7% each year and inflation will be 2.5% every year.
Will be paid until the later death of self/spouse for at least 5 years

dunstonh

That explains the low figures. You need to look at those figures as being in todays terms. Plus, the annuity they are using is a more expensive option. They are effectively using realistically safe figures.

davidscot

dunstonh wrote: »

That explains the low figures. You need to look at those figures as being in todays terms. Plus, the annuity they are using is a more expensive option. They are effectively using realistically safe figures.

So is there anyway I can improve these options and figures then?
I would really like to retire before pension age if possible but cant if these figures are what im likely to receive

bristol_pilot

Was the date of valuation of the fund 31st March 2009? The market has risen 25% since then.

dunstonh

how old are you?
How much is going in to the pot each month?
how much is in your post?
what are the projections and to what age?
what age do you want to retire?
how are you invested?

Mikeey_3

If you want to improve it, one of the most tax efficient things you can do is to keep contributing or if possible increase the contributions (due to tax relief and the tax efficiency of the underlying pension funds).

Also, if you are not far off from taking benefits, consider the "lifestyling" option (e.g. switching into asset classes which aren't as volatile). Although bear in mind that you'd be switching out of equities in a depressed market and not giving them a chance to recover (if indeed we are in the start of bull run).

Annuity rates can often be improved on the open market, so you'll be able to try and get a better rate when you come to take your benefits.

jamesd

The answers for dunstonh will give material for a better answer. It would also be good to know the list of investment options in the work pension. It would be normal if it had a fairly restricted range of options that could make it worth using an additional pension outside work.

Do you know whether the work scheme is a salary sacrifice or smart pension?

It's easy enough to arrange to retire earlier if you have money. It just takes deciding when and arranging to pay in enough money to get to your target income at that age. Someone who is truly committed and getting paid around the higher rate band can get to an ability to retire at modest income in five years by making very large contributions. 3,000 a month for five years produces a 180,000 pension pot and 6% income from that is 10,800 a year, ignoring investment growth and inflation. Most people aren't willing or able to pay in that much but it's an option for some. Some of the money must be inside an ISA or otherwise outside a pension if the target age is younger than 55, so capital and income can be taken to live on before the youngest age to take pension income is reached.

bendix

davidscot wrote: »

Hi
I am in my company pension scheme where I pay in 3% of my wage and company adds 4% so it can add up to a fair amount each month.
We have just had our annual pension extimate sent to me which details how much I would receive at pension age etc. To be honest I was very disappointed in how little I would get in return although I still have a few years left to work (hopefully!!)
The scheme has various funds which I can choose to split my pot into but its all confusing to me as to which would be best.
Does anyone know how I could go about maximising my pension fund?

If you're only expecting to work 'a few years' and you're only putting in 3% of your own money in the pension, it's hardly suprising that you have a very low pension projection.

A pension isn't a magic bean which grows and grows and grows with minimal input. The more you put in, the more you get out and if - as I suspect - you're in your fifties and only contributing a few percent, then all you are doing is planning to be poor in retirement.

Multiply your personal contributions by ten, and you might get back on track.

davidscot

dunstonh wrote: »

how old are you?
How much is going in to the pot each month?
how much is in your post?
what are the projections and to what age?
what age do you want to retire?
how are you invested?

Im 47 (not in 50's like a previous poster implied )
Monthly payments can vary but roughly £400 combined
Around 90k in the plan
Projections are growth of 7% each year and to age 60
Want to retire late 50's if possible
Invested 100% in a With Profits fund
hope this helps