In really simple terms...

climbatron

I have a with-profits pension, do I have this right... The money that goes into the fund buys "units". Because the stock market is currently down, the units aren't worth much, and hence my recent annual statement made me quite depressed. If the stock market picks up, then the unit value goes up, and so my next statement could be a lot better.

I don't have any more money to pay in - one calculator suggested I would need to pay in 3x what I earn to get the retirement I wanted.

I know this is a huge simplification - but is that the basics of it? As I have no more money to save - is this latest forecast the best I can expect?

Thanks

Linton

No - what you described is basically how a normal equity fund works. A with-profits fund is something different.....

You pay your contributions into a central fund held by the pension company. In return you get a guarantee of a sum of money at maturity. Each year the guarantee is increased by an amount determined by the pension company called the annual bonus. This will be based on the health of the central fund. So the value of your pot will never go down. But the company wont necessarily increase the guarantees by the full profit in a year as it needs to retain some money for the bad years.

In addition when your pension matures there may be a terminal bonus determined by the pension company based on what it calculates is your share of the overall profit held by the central fund.

So the advantage of the WP fund is that you know that your pension pot will not fall in value even if there is a large fall in the stock market. The disadvantage is that the calculation of your returns is something only known to the pension company.

WP funds are largely obsolete nowadays, investors preferring the relative simplicity and clarity of equity funds.

Another feature of old WP pensions is that they may have valuable annuity rate guarantees.

We cannot comment on the state of your pension and your chance of achieving a comfortable retirement unless you give us some numbers. eg how old are you, how much are you contributing and for how long , what is the latest pension value.

TableTop

Quote - 'Because the stock market is currently down, ...'
I thought it was currently rather high?

atush

Indeed.

The op clearly doesn't understand their pension, or the market.

dunstonh

Because the stock market is currently down

Its near recent highs.

I don't have any more money to pay in - one calculator suggested I would need to pay in 3x what I earn to get the retirement I wanted.

Was that using level premiums or indexed premiums? Many of these calculators default to telling you level premiums and not indexed. this can inflate the premium required.

As I have no more money to save - is this latest forecast the best I can expect?

Savings and investments are only as good as what you pay in.

climbatron

>> The op clearly doesn't understand their pension, or the market.

True, I don't. Years ago I was given advice that told me I would get a very decent pension if I paid in x. I did that, then as it turns out because inflation wasn't taken into account I now know I won't get anything near the value I expected. I don't understand these things, hence I got an IFA and trusted their advice.

Some background...Original policy was with Norwich Union, currently worth around 32k. I am 43 and have paid into the fund for about 12 years. I currently pay in 280/month - my payments automatically increase by 5% (I think) each year.

I'm currently trying to find out from Aviva how the fund actually performed so I can compare with other funds, but it's not proving easy. Thanks for your comments Linton - WP sounds too complicated for me. My fear is that I'm throwing good money after bad. I would prefer something more transparent that tells me if the investment goes up by x your pension pot will be y.

climbatron

Some more info from Aviva. Fund value is 39k (I hadn't included protected rights). They are telling that the fund is performing well, because the bonus (4.5k) is higher than the MVR (70 quid). Terminal bonus is 15%.

Does that make sense? Is that "good"?

I still look at the final figure of an annual income of 2800 (which takes into account all bonuses and also my annual increase in contributions) and think is that it?

dunstonh

I still look at the final figure of an annual income of 2800 (which takes into account all bonuses and also my annual increase in contributions) and think is that it?

You only have £39k in there. What do you expect it to pay out?

I would prefer something more transparent that tells me if the investment goes up by x your pension pot will be y.

And Aviva give you that every year in their statements just as all personal pension providers do. The assumptions used will change over time to reflect market conditions and perceptions. That is the problem with trying to predict so far into the future.

True, I don't. Years ago I was given advice that told me I would get a very decent pension if I paid in x. I did that, then as it turns out because inflation wasn't taken into account I now know I won't get anything near the value I expected. I don't understand these things, hence I got an IFA and trusted their advice.

perhaps you should go back to that adviser as they put in place indexation which is good. Your contribution is low for someone that started late and that is having the major drag on your retirement income. That adviser will also be able to explain things to you and perhaps consider looking at more modern pensions than those that were available 12 years ago.

Linton

climbatron wrote: »

Some more info from Aviva. Fund value is 39k (I hadn't included protected rights). They are telling that the fund is performing well, because the bonus (4.5k) is higher than the MVR (70 quid). Terminal bonus is 15%.

Does that make sense? Is that "good"?

I still look at the final figure of an annual income of 2800 (which takes into account all bonuses and also my annual increase in contributions) and think is that it?

Is the £280/month net or gross? If its net the amount that goes into your pension is £280 + 25% = £350/month. Given this info and confirmation that your contribution increases by 5%/year I can work out the overall rate of return.

Is the £2800 annuity figure adjusted for inflation and is it based on your current pot or what it will be when say you reach State Pension Age?

climbatron

You only have £39k in there. What do you expect it to pay out?

I expected and was lead to believe there would be a lot more in there by this point (back to inflation). But yes, I know I can't something from nothing.

Is the £280/month net or gross?

That's the gross figure

Is the £2800 annuity figure adjusted for inflation...

I was told this figure "took into account everything they know and can predict" such as increased contributions, bonuses at current rates. I'll look up the exact wording, but I seem to remember it mentions "at age 65 your annual income will be ..." so that's the predicted figure, not based on my current pot.

dunstonh

I expected and was lead to believe there would be a lot more in there by this point (back to inflation). But yes, I know I can't something from nothing.

The credit crunch and global recession put paid to that in the short term but they should be beneficial in the long term.

I was told this figure "took into account everything they know and can predict" such as increased contributions, bonuses at current rates. I'll look up the exact wording, but I seem to remember it mentions "at age 65 your annual income will be ..." so that's the predicted figure, not based on my current pot.

I am not impressed with how they have presented that. You cannot predict anything. You make realistic assumptions but the assumptions should also relate to your circumstances. For example, is that before or after tax free cash has been paid? Is that single life, 50% spouse, 66% spouse or 100% spouse pension? Is that level income or indexed in some way?

Some will illustrate using the lowest annuity rate going (i.e. with most of the cost impacting options included). You need to know the assumptions to make sure they are applicable. to you.

Another thing is that the projection rate used for growth should reflect the growth potential. So, a low risk fund should not illustrate growth at the same level a medium risk fund would.