Is this any good?

jono_greenwood

As the pension people have just been told to use 2,5,7% for illustrations instead of 5,7,9% I suppose if I'm guessing the stockmarket growth I should take 5% - 0.8% AMC so base potential growth on 4.2% including inflation?

Although I've thought about moving it out of the basic 250 tracker its in I've always come to the conclusion that as UK equities are worldwide anyway I may as well keep the charges to a minimum in the tracker.

I'd be interested in a personal viewpoint of what you would do if you were me.

Linton

jono_greenwood wrote: »

As the pension people have just been told to use 2,5,7% for illustrations instead of 5,7,9% I suppose if I'm guessing the stockmarket growth I should take 5% - 0.8% AMC so base potential growth on 4.2% including inflation?

Although I've thought about moving it out of the basic 250 tracker its in I've always come to the conclusion that as UK equities are worldwide anyway I may as well keep the charges to a minimum in the tracker.

I'd be interested in a personal viewpoint of what you would do if you were me.

Is your tracker a FTSE250 one as you say in you last post or FTSE AllShare? These are very different.

Your assumption of 4.2% is close to mine of 4%. I would advocate being pessimistic as you can always retire earlier if you are wrong. Taking an average or higher than average assumption means that there even if the average is a good prediction there is a 50% or higher chance that your plans wont work out.

Personally I dont like the FTSE100 (or allshare which is much the same) as it isnt particularly well diversified with a high % of extractive industries and little manufacturing or technology. Although the UK does have a significant manufacturing and technology industry most it is foreign owned and not quoted on the London Exchange. I would favour a globally based fund. However whilst the pot is small it doesnt matter too much as most of the rise in value comes from contributions rather than investment return.

Once the pot gets to say £10K you can sensibly look at putting some of you money into niche areas such as Far East, technology, Small Companies etc etc which can be more volatile but historically have given better returns.

jono_greenwood

Scottish Widows UK All Share Tracker

Pretty sure its this one, it was worth £45k a month ago

bigmatt1174

Scot Wids UK All Share Tracker done 7.78% over the past 5 years - however from Nov 07 to Nov 08 it lost over 40% so the recovery has been reasonable in that time. Hopefully the buying of units fron Nov 08 for a couple of months will help as these will have been relatively cheap! Since launch in 2001 it has grown by 52.4% overall.

kidmugsy

jamesd wrote: »

I think that current values are far from being the whole picture for someone who is perhaps 35 years from retirement.

Could it make sense to join the scheme while assets seem overpriced and then swap to contributing to a stakeholder or SIPP when value returns?

jamesd

jono_greenwood wrote: »

As the pension people have just been told to use 2,5,7% for illustrations instead of 5,7,9% I suppose if I'm guessing the stockmarket growth I should take 5% - 0.8% AMC so base potential growth on 4.2% including inflation?

They have been told to use 2, 5 and 8 for pensions. You shouldn't be paying that much for a tracker, more like 0.3-0.4% for a global one or 0.25% for UK.

Be cautious with those FSA rates. The PWC report makes some pretty bad assumptions, notably being invested in "57% equity, 23% government bonds, 10% property and 10% corporate bonds". Of the equity part, only a fairly small portion is outside the UK.

That's not the sort of mixture that I'd hope to see someone your age using, particularly not the very high government bond and UK equity percentages. I think they may have tripped up by including near to retirement pots as well as far from retirement pots in working out what allocation to use.

For equities, even in their mostly domestic mix, PWC says "When added to an inflation assumption of 2½%, based on the GDP deflator, this leads to a nominal equity return of 6½% to 8%" so using 5% would be well below their expectation.

Their overall expectation is badly hurt by the high government bond prices and expectation of low future returns that results. If you don't have a high government bond component, you don't really need to allow for just 0.5 to 1% plus inflation of 2.5% for 23% of the money you have in your pension pot.

It's also worth noting that they changed from a 2007 projection and we may well see similar short term thinking in future adjustments to the projection rates. Their time horizon is also fairly short - they use 15 years.

If you have the time I recommend that you read the PWC report and see for yourself how the assumptions differ from how you're investing your money and whether you think their assumptions apply to you. It contains lots of useful information even if you end up disagreeing with whether its assumptions match what you do.

The FSA and PWC numbers are OK for those who are paying no attention to their investments and who are just using default balanced managed fund trackers. Those do have that sort of allocation.

Pick how you want to allow for variability. I used long term UK market performance over more than a hundred years that's included huge variation even though I'm not assuming heavy use of UK equities but you should really be monitoring and adjusting regularly to be sure you hit whatever target you set yourself. Then I also add in things like a big stock market drop to the final value, to 50% or so. I do it at the end because cutting the rate of return has a much bigger effect than a 50% drop over a large number of years.

jono_greenwood wrote: »

Although I've thought about moving it out of the basic 250 tracker its in I've always come to the conclusion that as UK equities are worldwide anyway I may as well keep the charges to a minimum in the tracker.

The FTSE250 is much more domestic than the All Share and even that is very distorted in what it covers, with a big focus on banking and natural resources. You really should be using at least a global tracker for most of the money, unless you want to get more fancy.

For UK returns there's some concern that long term results may not be as good as the average for a while as more people retire and sell. That's one reason to use lots of global investing that will include places where the population is growing, instead of the UK where it'll be contracting and selling assets for retirement.

Given your age it'd be better to also have substantial emerging markets component in there as well.

But whatever you do, don't stick most of your money in a country - the UK - where future returns are believed to be likely to be lower than the past for a while, with good reason: the retiring of the baby boomers and shrinking population. Nothing requires you to put most of your money in the UK and you shouldn't, it's only 18% of the world equity market and likely to continue to fall.

jamesd

kidmugsy wrote: »

Could it make sense to join the scheme while assets seem overpriced and then swap to contributing to a stakeholder or SIPP when value returns?

If you can transfer out the full 16% value it would be sensible to be in the scheme and do that. It's only if you can't that I have reservations about those who are more than 15-20 years from retirement being in the scheme.

Assets don't really seem overpriced at the moment. It depends on which assets you look at. Gilts? Way overpriced. US? near the top of the range but still lots of room to grow if its economy recovers. Emerging markets, Europe, natural resources and commercial property, none of those really seem overpriced today.

So pick your investments and balance your allocation according to the situation, as usual. Today that means treating gilts as plague-ridden and not increasing US exposure or possibly dropping it gradually.

But even for the overpriced ones, it's important to remember that the work scheme plans no real growth at all, just matching projected inflation. Even an overpriced market is likely to beat that by a significant margin.

jono_greenwood

OK so I've been to the meeting and cleared up some of the questions.

-the pension is transferable but at this stage they don't know how much of the company paid benefits get transferred. If its less than 2 years then the employee just gets his/her contributions back. If you leave the company then you just maintain the benefits accrued unless you have paid for less than 2 years.

-core level costs 5% of gross wages in salary sacrifice and pays a defined benefit of 16% on earnings between £5050-£42500

-enhanced level costs 7% of gross wages in salary sacrifice and pays a defined benefit of 16% on all earnings upto £300000

-A rate of 2.5% is given on the benefit paid on a yearly basis and compounds over time. The rate is designed to match inflation so if inflation is very high the rate may increase. The trustee of the funds is responsible for investing and maintaining the funds.

-if you die then the funds go to next of kin

-the funds cannot be used before 65 and at 65 no more funds can be put in. When the money is being used at that time additional funds can be put towards the annuity or drawdown.

-the funds are used as a normal pension. Upto 25% can be taken tax free and the balance as an annuity.

It sounds fairly sensible, and if I don't take it then I am essentially giving up on free money the company is willing to give me. The company has also set up a SIPP and an ISA with Hargreaves Lansdown but won't pay any money into those. I can use salary sacrifice to pay money into the SIPP.

I guess I should wait till Osbourne decides what he's doing with pensions, but is it fair to say that it would be a wise move to stop my existing stakeholder and transfer it into the HL SIPP and then do the enhanced level with the remainder of my usual monthly pension payment going into the HL SIPP in some riskier funds than the tracker I'm currently using?