Advice for first time pension planner

mickflynn39

Your assumptions are unrealistic. However, they are assumptions. If you want to work on them then fine. You are also using short term information and timing to make your figures appear worse. For example, the use of 10 year figures in one of the worst 10 year periods for generations. If you want to work on those figures then it is cautious to do so and fine. However, over 20 years, the figure for just average performance on balanced managed funds is 7.266% p.a. AFTER charges.

I used the same assumptions as you for a 25 year old finishing at 65 and income using market rates and real pension products with real charges and not hypothetical and the starting premium @ 7% p.a. before charges is £208pm. At 5% p.a. before charges it would be £321pm. (source:O&M Pension profiler).

I used growth rates before charges to actually make my figures appear worse to reality has someone started 20 years ago when personal pensions first came out (another point to note is that they have only been going just over 20 years - No-one has a full working life of paying personal pensions yet). So, when I use 7% p.a. in that example, its actually net growth of around 6%.

To get your figures, then £762pm would require growth before charges of 0.3%. i.e. it would actually be losing money each year.

I'm finding it difficult to understand your response as I'm sure many others are. I don't see what is unrealistic about my assumptions. Maybe you could clarify. Is it my growth rate projection? I've used 5% which is higher than the average growth rate of personal pension funds over the long term. I haven't used the 10 year figures which are the worst for a generation (I don't know what you mean by that comment). Are you referring to my comment that the last 10 years have seen growth of less than half of 4%? If you are then it's obvious that I haven't used those figures. I repeat, I've used 5% which is rose tinted glasses territory. You can't be allowing for inflation in your figures whereas I am. You appear to be using a far higher growth rate than what has historically been achieved. As I say, the last 10 years have seen growth of less than 2%. So if anything going forward the past growth rate of 4% may soon start to look a bit optimistic. Assuming a 7% growth rate is fantasyland. I do hope that after our discussion you stop telling your clients that they can expect unrealistic growth rates. You really aren't doing them any favours. It's no wonder that over 90% of pensioners receive a pension which is a small fraction of what they were led to believe they would get.

dunstonh

i've used 5% which is higher than the average growth rate of personal pension funds over the long term

I have already stated that the long term rate is 7.266% p.a. AFTER charges. You are using 5% before charges. To get REAL pensions to come out with monthly payment figures in line with your monthly payments, I had to drop the growth rate before charges to around 0.3% p.a.

Using 5% as an example projection may be suitable for a low risk investor. Nothing wrong with that assumption. However, I could still not get 5% before charges anywhere near your figures.

I've used 5% which is rose tinted glasses territory.

Rose tinted would indicate better than reality. Yet 5% is more in line with cautious investing rather than balanced or adventurous.

As I say, the last 10 years have seen growth of less than 2%.

That doesnt match reality. However, it explains your figures

So if anything going forward the past growth rate of 4% may soon start to look a bit optimistic.

That is an unrealistic assumption.

Assuming a 7% growth rate is fantasyland. I do hope that after our discussion you stop telling your clients that they can expect unrealistic growth rates.

I give realistic figures based on the risk profile and asset classes being used. You have based yours on figures pulled out of thin air.

It's no wonder that over 90% of pensioners receive a pension which is a small fraction of what they were led to believe they would get.

We already know why people get less than they assume. You have obviously chosen to ignore those responses as well.

Linton

mickflynn39 wrote: »

...... As I say, the last 10 years have seen growth of less than 2%......

Your comments really are nonsense. Anyone who takes notice of them is in danger of really damaging their wealth.

It all depends what you invest in. For example my growth portfolio has averaged 10%/year for the past 10 years.

Also if you are invested in modern funds, the quoted return is after charges. You cant take pessimistic returns and then add charges on - unless of course you want to mislead to pursue some personal agenda.

dunstonh

I decided to look at the figures, not from a provider point of view (which is what O&M does as it uses real providers and real charges). I looked at Financial Express Analytics which looks at actual returns after charges.

I took the 10 year period and input £100pm as the premium. I also selected a number of sector average benchmarks. (so not to be accused of picking the best or do what mickyflynn39 is doing which is picking the worst, multiplying it by 2 and then adjusting it by some random figure).

These are real figures after charges and using a 10 year period from 01/04/2001 to 31/03/2011 supplied by Financial Express showing £100pm added each 1st of the month (total of £12,000)

UK All Companies sector £17,174 (annual equiv of 6.969%)
Balanced Managed £16,790 (6.536%)
Cautious Managed £15,619 (5.148%).

So, you can see that after charges, during one of the worst 10 year periods in generations, the averages still came out close to projections issued 10 years ago.

So, if you got your 7% illustration from 2001 and invested in balanced managed funds (which is by far the biggest area people do) then you have actually outperformed the illustration issued at that time as the illustration uses 7% before charges (so 7% minus 1% = 6% after charges). The fund managed 6.536% on average after charges.

With a cautious investment you would typically use the lower projection rate on the illustrations as a guide. So, even that has beaten the 5% projection (5%-1% = 4%. actual average was 5.148%)

jem16

mickflynn39 wrote: »

dunstonh you talk a load of incomprehensible twaddle. You offer up a lot of so called evidence that just seems like the ramblings of a deluded fantasist.

How about real figures from Trustnet over 5 years

http://www.trustnet.com/Investments/Perf.aspx?ctr=QS&univ=P&Pf_AssetClass=A:&Pf_Sector=P:BAL&Pf_sortedColumn=Performance[Cur].P60m,NameFull&Pf_sortedDirection=DESC

Or Citywire over 10 years


http://citywire.co.uk/money/fund-and-fund-manager-performance/-/life-and-pensions/balanced-managed-life/fund-league-table.aspx?CitywireClassID=2169&RankModelID=9

Lokolo wrote: »

jem is a retired female (I think!),

Female - yes. Unfortunately still plugging away in teaching.

mickflynn39

Or Citywire over 10 years

I'm quoting the average of all pension funds. I'm not being selective to make things look better than they actually are. I'm also allowing for inflation. So you are saying pensionfundsonline.co.uk has got it wrong? I hope for your students sake you don't teach money management. I notice you aren't yet retired. Maybe your pension fund didn't turn out to be all it was cracked up to be.

jem16

mickflynn39 wrote: »

I'm quoting the average of all pension funds.

I've listed real returns for Balanced Managed which is what your average pension contributor would be in.

I notice you aren't yet retired. Maybe your pension fund didn't turn out to be all it was cracked up to be.

I'm not old enough to be retired yet. As to my pension, if you knew anything about pensions you would have realised that I'm a member of a final salary pension which, for me at least, has no investment risk and is exactly all it was cracked up to be.

dunstonh

I'm quoting the average of all pension funds.

All 54,000 of them? Including cash deposit, gilts and fixed interest?

It's no wonder you are coming out with such low figures

dunstonh you talk a load of incomprehensible twaddle.

I'm sorry that you feel that real figures using real pension providers and real investment fund data is twaddle.

One thing that is noticeable is you keep switching between including inflation and not including it. In some cases you are doubling the requirement to cover inflation.

Look, its clear that you feel its better to live in poverty in retirement than take action to provide for yourself in retirement. However, it isn't fair on others who do want to look after themselves.

mickflynn39

I've listed real returns for Balanced Managed.

Once again we have an example of being selective. How many times do I have to say my information is based on the average of all UK pension funds? I notice you don't answer my question so I will ask it again. Is the information on the pensionsonline.co.uk website incorrect? A simple yes or no will do.

dunstonh

Once again we have an example of being selective.

Of course it was selective. I didn't post Asia, Japan, N America etc as the list would have gone on and on. I showed three very common areas. Balanced managed is by far the single biggest area used by novice investors. The money held in pensions in that fund dwarfs the rest.

How many times do I have to say my information is based on the average of all UK pension funds?

That would not be at all representative though to the average consumer as they are not likely to be anywhere near as heavy in low risk assets apart from the final years as they get closer to retirement.

I notice you don't answer my question so I will ask it again. Is the information on the pensionsonline.co.uk website incorrect? A simple yes or no will do.

Your interpretation of it is incorrect. The inclusion of defined benefit schemes is incorrect when looking at money purchase schemes.