FSA Pension Growth Rates - Net or Gross?

sk99

Can somebody explain how pension providers calculate investment projections.

I received an investment projection for a lump-sum that I will be transfering into a new pension scheme. This included three standard projections based on the FSA growth rates of 5%, 7% and 9%.

Out of curiosity I did my own compound interest calculation using their figures and came up with different (higher) results.

Is this because a management fee % is subtracted from the FSA growth rates before the projection is calculated?


Cheers

sandsy

They're gross of charges.
On the projection, you will also see a table showing the charges and underneath that, a statement showing the effect of charges on the growth rate, ie. the effect of charges is to reduce the growth rate from 7% to 5.3%. If you project at that latter rate, you should come up with pretty much the same answer as the projection.

DavidLaGuardia

sandsy wrote: »

They're gross of charges.
On the projection, you will also see a table showing the charges and underneath that, a statement showing the effect of charges on the growth rate, ie. the effect of charges is to reduce the growth rate from 7% to 5.3%. If you project at that latter rate, you should come up with pretty much the same answer as the projection.

How on earth do you know what the OP's reductiuon in growth rate is? Or did you mean to put e.g. instead of i.e.?

With the FSA projections you are meant to be able to compare the cost of charge between companies. Unfortunately the costs that are included usually only cover explicit annual charges and other fund expenses may be omitted. The method of caluclation is not always precisely the same. This all makes like for like comparisons very diffcult.

You need to consider the costs of the contract and the costs of the funds that are included, some of which are not entirely transparent!

If you want to do it yourself and are not an expert, you are possibly best off with a simple plan like a stakeholder undtil you have a sufficient fund to seek expert advice. Be wary though, Stakeholder pensions have a cap on charges, but the actual cost on the funds may be higher than assumed in the projection becuse many internal trading costs are never included in the published cost of the fund.