Pension Illustration of Retirement Benefit question

Dustykitten

Just reading DH's pension stuff and there is a line I don't understand under the 'we have made the following assumptions' bit

The real yearly rate of interest will be -0.60% at your retirement date.

Can anybody explain what that means?

Also if you have a scheme which you are no longer paying into as you have changed jobs do you still pay an annual charge on the old scheme as they are still 'managing' it?

Many thanks

kidmugsy

By "real" rate of interest they mean nominal rate minus rate of inflation.

The "nominal rate" is, for example, the rate you see quoted on savings accounts: we pay you 2.5% per annum style of thing. The inflation rate will presumably be measured as the rate of change of RPI or CPI - a footnote ought to explain which. So if the inflation rate were, say, 3.1% per annum, 2.5% - 3.1% = -0.6% per annum, or as they put it, -0.6% yearly.

sandsy

That's the rate used to illustrate index-linked annuities that increase each year in line with an inflation index such as RPI. It approximates the rate of return that insurance companies could receive on annuity assets invested in index-linked government bonds so it's supposed to be representative of annuity interest rates available in the marketplace. It changes each year to reflect changes in returns available so it will be lower than the rate shown on previous statements as it's currently at its lowest ever level.