Advice for first time pension planner

mickflynn39

True, but I used your rate of growth of 4%. The actual rateof growth over the 17 years that fund has been running is over 6% (launched Sept-1994 at 50p, currently 142.5p). Would you like me to re-run the calcs using the real figures?

I can't find any funds charging 2.5% - your "industry standard". Most of the ones I use are in the 1.5% to 1.75% range, and these can often return 10%-20% p/a.

To have a sensible debate I think it is only fair to use the industry averages. Also inflation needs to be taken into account. I accept that charges are now lower on some funds than they used to be. My costs include the 'hidden' ones that are not always obvious to the investor and older funds with higher charges than some newer ones. I accept that you can improve on the returns I have demonstrated if you get a lower charging fund than the average. You could also end up worse off e.g. if you change your investments on a regular basis thereby increasing your charges. That's why I use averages to make my case.

mickflynn39

You will find 7% is closer to the average for the typical balanced managed fund where non-active investors usually use.

Like most investors, I like to have a 10% a year average and my own is managing 14% since 1994. However, lazy investors should be prepared for less and obviously short term volatility can impact on that.

Are you allowing for inflation? I am and 4% is a fact over the long term. I'm sure all investors would like 10% a year average but this is fantasyland for most. I think lazy is a bit harsh. Sounds like you've been lucky to me or are in the top 1% of financial advisers in the world.

mickflynn39

On what planet are those charges? The UK benchmark for pensions has been a TER of 1% for the last 10 years. You can get it as low as 0.20% if you want.

The charges I quote are the average over the long term. As I'm sure you know the TER can sometimes just be the tip of the iceberg. Why have 90% of pensioners that retired with a personal pension in the last 5 years only ended up with the equivalent of an inflation linked pension of only £1-2 k a year? Research shows that most of these people were expecting approx. 15 times this amount due to what they'd been told by their financial advisers when they first took out their policies.

jem16

mickflynn39 wrote: »

Why have 90% of pensioners that retired with a personal pension in the last 5 years only ended up with the equivalent of an inflation linked pension of only £1-2 k a year?

Of course it is also important to make sure that your contributions are increased each year in line with inflation and many do not do that.

mickflynn39

I'm sorry but I am not going to bother with the rest of your post as your information is totally wrong and damaging for the OP and others reading.

I stand by the information I have posted. I feel the same way about what you have posted. Here's a link to an article about pension fund charges that were exposed by Panorama last October. http://www.ifaonline.co.uk/ifaonline/news/1740415/pension-schemes-cost-policyholders-80-input

mickflynn39

Of course it is also important to make sure that your contributions are increased each year in line with inflation and many do not do that.

My question would be why don't the financial advisers explain this to their clients at the outset? I suspect the reason is that they would scare people off once they knew how much they were going to have to pay and so would therefore lose out on their lucrative commission.

jem16

mickflynn39 wrote: »

I suspect the reason is that they would scare people off once they knew how much they were going to have to pay and so would therefore lose out on their lucrative commission.

Contributions increased with inflation ( and more often than not in line with salary increase) would mean the contribution would be worth the same as when it started. You would hardly think that someone paying £50pm 30 years ago would think that £50 paid in today would have the same value.

As to advisers advising it, I would imagine they did mention index linking the contributions. However just as the lazy investor would not bother about keeping an eye on the investments ( or paying an IFA to do so), many probably chose to ignore the increase in contributions too. There was always something else that was more important to use the money for.

mickflynn39

Here's another link about charges.http://www.telegraph.co.uk/finance/personalfinance/pensions/7921524/Charges-and-fees-cutting-50-per-cent-from-British-savers-pension-pots.html

dunstonh

Research shows that most of these people were expecting approx. 15 times this amount due to what they'd been told by their financial advisers when they first took out their policies.

One of the biggest errors consumers make with pensions is to fail to index link their contributions. So someone starting with £30 in 1988 was quite good. However, still paying £30 just over 20 years later is very bad.

Here's a link to an article about pension fund charges that were exposed by Panorama last October. http://www.ifaonline.co.uk/ifaonline...lders-80-input

As was well discussed afterwards and generally acknowledged, Panorama completely got it wrong. The figures they used did not reflect reality and the calculations had mistakes in them. They too used a figure of 1.5% despite the benchmark being 1% since 2001 and pensions of 0.2% pa. being available. Sure, you can get investments of 1.5% and there can be good reason to do so. However, using a figure that is 50% higher than the benchmark was wrong. They also took comments out of context as a number of those interviewed in the programme came out afterwards and confirmed their comments were not in context.

My question would be why don't the financial advisers explain this to their clients at the outset? I suspect the reason is that they would scare people off once they knew how much they were going to have to pay and so would therefore lose out on their lucrative commission.

If you check every suitability report for someone paying level premiums you will find a warning in place that says that indexed premiums were recommended but declined. A lot of people prefer to increase manually. At least that is what they will tell you. Commission has nothing to do with it. I'm afraid that sort of comment, along with the others, just shows you are not being objective and balanced in the discussion.

Here's another link about charges.http://www.telegraph.co.uk/finance/p...sion-pots.html

Also confirmed to contain errors and manipulation of figures. Some media outlets pulled their articles based on that research when the flaws were pointed out.

mickflynn39

This is well worth a watch. http://www.youtube.com/watch?v=gajTHiHW8iA&NR=1