First personal pension, single male 30 yoa

Swindon_Baggie

Hi

At 30 years of age, I have found my first employer that I truly enjoy turning up to work for.

As a first for a company I've worked for, rather than just allowing access to a FA, they do a 5% match. I know this isn't industry leading, but free money is good!


So, had my meeting with the IFA, didn't seem to be an amazing time, offering me insights, and such. However, after a quick questionnaire, he found out I was a medium investor, not too brash, not too timid, and suggested an Asian high growth fund but advised it was high risk.

I did get a load of paperwork, but left it at the office
Investment choices are a broad range of limited funds from Friends Provident.

After thinking it through, I want to split split it 50% with an index linked plus a couple of points fund, and 50% high risk.

As I have 30 odd years to see my fund grow, I can take the daily downturns, and look for the longer term growth. When I get a chance to look through the paperwork I will be looking at the high risk funds, to see past performance (ironically the only way to judge a fund) and see which achieves the greatest increase over there respective stock markets indices.

I am looking for about 20% from my high risk, leading to about 10% overall growth. Taking into account inflation and other factors giving hopefully a minimum of 5% long term.

(Was surprised that the difference between 5, 7 and 9% return was tiny, in my case, about £10,000 final fund value per percentage point)

Starting at £80 pcm personal contribution, with £160 into the fund, a 7.7% increase in that amount year on year, and a 5% return, my spreadsheet says thats about £250,000 in fund value at 60.

That seems good for about £14,000 in annuity's in todays value, which I seem to understand would be about £7000 equivalent todays value in 2040. Not bad, might try to do more to increase it.

One of the things i will be doing, is taking the offer to transfer the fund to a cash investment within the last 3-5 years, wouldn't want to wake up and find 15 years worth of investment had gone down the drain due to a stock market crash, the day before I buy my annuity!


Am I on the right track, wild speculation is accepted advise, but taken with a pinch of salt! Would anyone put more or less into the high risk.
It seems to me if 50% odd is free money, then why not bet the farm on it.

P.S. when I looked through the paperwork, I couldn't see if I could take my final fund elsewhere, FP is not an annuity best buy at the moment, by about £500 less per year per £100,000 final value. any recommendations or advise.

dunstonh

After thinking it through, I want to split split it 50% with an index linked plus a couple of points fund, and 50% high risk.

So, rather than going with a diverse spread, you want half at the low risk end and half at the high risk end and nothing in between?

When I get a chance to look through the paperwork I will be looking at the high risk funds, to see past performance (ironically the only way to judge a fund)

Past performance tells you virtually nothing when it comes to high risk funds. Generally, the higher risk sectors that performed well in the last growth period will not be the ones that perform well in the next.

(Was surprised that the difference between 5, 7 and 9% return was tiny, in my case, about £10,000 final fund value per percentage point)

At 30 it should be quite a lot. However, your contribution is quite small so thats probably why its not as much as you think. As your contribution becomes more realistic, as you have indexation thankfully, the difference will become more noticeable.

but taken with a pinch of salt! Would anyone put more or less into the high risk.

What is your definition of high risk?

P.S. when I looked through the paperwork, I couldn't see if I could take my final fund elsewhere, FP is not an annuity best buy at the moment, by about £500 less per year per £100,000 final value. any recommendations or advise.

Chances are you wont be buying an annuity when you get there. However, as with all pensions, you can transfer them.

sandsy

Swindon_Baggie wrote: »

Hi

I am looking for about 20% from my high risk, leading to about 10% overall growth. Taking into account inflation and other factors giving hopefully a minimum of 5% long term.

I'd be interested to know the thinking behind a possible 20% return? Is there a reasonable and objective basis for such a claim?

CLAPTON

basically, your projections for the future are windly optimistic as they completely ignore the affects of inflation over the 30 years.

in real terms you are pretty lucky to get a return of 1 or 2 % per annum after you consider inflation and fees i.e. in todays terms think a pension pot of about 70k to 80k

to think that you can pay into a pension fund of say about 1920 per year for 30 years and then get out about 7,000 per annum for another 25-30 years is just unrealistic

Swindon_Baggie

Hi

Hopefully I can clarify/respond to a few points.

Point 1

dunstonh wrote: »

So, rather than going with a diverse spread, you want half at the low risk end and half at the high risk end and nothing in between?

Mathematically, anything in between, doesn't seem to make sense. If you have 50% at high risk, and 50% at low risk, would you not have 100% at medium risk?

Ponit 2

dunstonh wrote: »

Past performance tells you virtually nothing when it comes to high risk funds. Generally, the higher risk sectors that performed well in the last growth period will not be the ones that perform well in the next.

If you can tell me where future growth markets are, even for a fee, I would pay you handsomely.

Point 3

dunstonh wrote: »

At 30 it should be quite a lot. However, your contribution is quite small so thats probably why its not as much as you think. As your contribution becomes more realistic, as you have indexation thankfully, the difference will become more noticeable.

At this moment in time my contributions are based on my 5% employee match. Without this I wouldn't even be bothering, as I have other finger's in other pies to provide for my retirement. The indexing is based on, what will the fund be worth based on certain calculations in my spreadsheet calculation. There is no way I am going to put £500 or £600 a month into my pension right now, no matter how tax efficient it is when I can't even afford it. If I decide to have the pension as my main retirement income, then I may rise the payments above the indexation calculations.

Point 4

dunstonh wrote: »

What is your definition of high risk?

The risk status of the funds as listed in the Friends Provident brochure, or more accurately, risking my money when the possibility of high loss or high growth is 50/50.
The 'Would anyone put more or less into the high risk?' was based on should I put 55% or 45% of the fund into high risk.
Based on point 1, is it worth putting money into medium risk funds. Then my high risk may effectively have to produce higher gains to get my life time average calculation.

Point 5

dunstonh wrote: »

Chances are you wont be buying an annuity when you get there. However, as with all pensions, you can transfer them.

What else can you do with the pension fund. I am aware of the possibility of the 25% tax lump sum removal, but am not sure of the other options.

Point 6

sandsy wrote: »

I'd be interested to know the thinking behind a possible 20% return? Is there a reasonable and objective basis for such a claim?

Basically the Asia fund has achieved, as far as I can remember, about 30-40% longterm growth. The risk seems to come from when you enter or exit it. 12% drop in one month, however, I have 30 years, and a one month drop would make me feel a bit ill, but I shouldn't have to worry too much.
So the assumption is based on a lower growth profile.
If I have £200 in my fund, £100 would grow at 1% or 0% above but matching inflation, and the other £100 would grow at 20%+. So that calculates as an average of 10%. Seeing as there are fees, and possible losses, I assumed a 5% actual growth.

Point 7

CLAPTON wrote: »

basically, your projections for the future are windly optimistic as they completely ignore the affects of inflation over the 30 years.

in real terms you are pretty lucky to get a return of 1 or 2 % per annum after you consider inflation and fees i.e. in todays terms think a pension pot of about 70k to 80k

to think that you can pay into a pension fund of say about 1920 per year for 30 years and then get out about 7,000 per annum for another 25-30 years is just unrealistic

The payments are calculated to increase at this moment by 7.7% per year, ignoring investment return, so the initial £160pcm payment would be £172.32pcm next year and higher year 3 and so on.
Also in my assumption of output, I saw todays annuity's paying out an average of £6000pa per £100,000 of fund, so a fund at £250,000 would pay out £15,000 pa today. After research, my belief is that £1 would be worth about 50p in 30 years, so halving the actual yearly payments based on todays prices.


I hope that clarified a few points, I don't want to start a flame war, but am actually interested in assistance.

Swindon_Baggie

BTW, completeley forgot, I can pretty much guarantee a 20-40% growth, seeing as the pension payments are taken pretax.

If I stay at the 20% margin (less than £36000 tax break) then my £254,945.02 fund value only costs me £167,747.07.

If I only get a 0% return on my investments, then £167,747.07 buys me a £242804.79 fund.

Yes thats a £12,000 difference for 5% interest, this is what I was talking about in terms of lack of investment return value.

CLAPTON

Swindon_Baggie wrote: »

Hi

Hopefully I can clarify/respond to a few points.

Point 1

Mathematically, anything in between, doesn't seem to make sense. If you have 50% at high risk, and 50% at low risk, would you not have 100% at medium risk?

Ponit 2

If you can tell me where future growth markets are, even for a fee, I would pay you handsomely.

Point 3

At this moment in time my contributions are based on my 5% employee match. Without this I wouldn't even be bothering, as I have other finger's in other pies to provide for my retirement. The indexing is based on, what will the fund be worth based on certain calculations in my spreadsheet calculation. There is no way I am going to put £500 or £600 a month into my pension right now, no matter how tax efficient it is when I can't even afford it. If I decide to have the pension as my main retirement income, then I may rise the payments above the indexation calculations.

Point 4

The risk status of the funds as listed in the Friends Provident brochure, or more accurately, risking my money when the possibility of high loss or high growth is 50/50.
The 'Would anyone put more or less into the high risk?' was based on should I put 55% or 45% of the fund into high risk.
Based on point 1, is it worth putting money into medium risk funds. Then my high risk may effectively have to produce higher gains to get my life time average calculation.

Point 5

What else can you do with the pension fund. I am aware of the possibility of the 25% tax lump sum removal, but am not sure of the other options.

Point 6

Basically the Asia fund has achieved, as far as I can remember, about 30-40% longterm growth. The risk seems to come from when you enter or exit it. 12% drop in one month, however, I have 30 years, and a one month drop would make me feel a bit ill, but I shouldn't have to worry too much.
So the assumption is based on a lower growth profile.
If I have £200 in my fund, £100 would grow at 1% or 0% above but matching inflation, and the other £100 would grow at 20%+. So that calculates as an average of 10%. Seeing as there are fees, and possible losses, I assumed a 5% actual growth.

Point 7

The payments are calculated to increase at this moment by 7.7% per year, ignoring investment return, so the initial £160pcm payment would be £172.32pcm next year and higher year 3 and so on.
Also in my assumption of output, I saw todays annuity's paying out an average of £6000pa per £100,000 of fund, so a fund at £250,000 would pay out £15,000 pa today. After research, my belief is that £1 would be worth about 50p in 30 years, so halving the actual yearly payments based on todays prices.


I hope that clarified a few points, I don't want to start a flame war, but am actually interested in assistance.

you choose to learn or you don't

if £1 today is to be worth £0.50 in 30 year then that assumes an inflation rate of under 3% per annum

just check what it is today

just check averages prices 30 years ago (1980)

and 6% annunity is a non-indexed one with no partner pension..