SIPP growth - what constitutes a good return?

Eastlands70

Ok, I've done some work on my pension plans recently and moved a Virgin Pension over to a HL SIPP and just finished transferring an old Zurich protected rights pot into the same HL SIPP. I now have it spread around 4 different funds and am making total monthly contributions of £100 (not including tax relief), rising to £150 from November onwards.

My question is, what annual percentage growth would constitute a good return? I think most pension forecasts base their projections on 7% annual growth but to be honest, I want to be aiming higher. Is 7% actually a poor return in the grand scheme of things? For example, I moved my old Virgin pot over to two funds on the HL platform in early May and in just over 4 months it has grown by 5.6%. Obviously that's only a very brief period of time and I doubt that it will continue to increase at anything like that rate but is it realistic to aim for growth of 10%-11% per annum?

purch

Eastlands70 wrote: »

is it realistic to aim for growth of 10%-11% per annum?

No.

7% is far more realistic, and in the current climate (which has been continuing for over a decade now) maybe even optimistic.

If you Invest well/smartly you will achieve better then that level in some periods, but it will be difficult to avoid lower than 7% returns in other periods.

Now you have taken the Self Invested route, it is all down to you. You can position your portfolio aggressively, defensively or try to follow a middle road, but hedging yourself against the unexpected is difficult in a self invested environment.

dunstonh

SIPP growth - what constitutes a good return?

SIPPs dont grow. They are just a container for the investments of your choice and you can have around 30,000 conventional investment plus a large variety of unconventional or unregulated.

Is 7% actually a poor return in the grand scheme of things?

In current times it is a good thing. However, 4 months is no way to measure returns. It is far too short.

is it realistic to aim for growth of 10%-11% per annum?

No. It is possible sure but its not realistic to assume you will get it and you certainly will not get it on a consistent basis. Over a complete economic cycle of 10 or so years maybe at the higher risk end but in a low inflation economy, it wouldnt be expected.

kidmugsy

Eastlands70 wrote: »

My question is, what annual percentage growth would constitute a good return? I think most pension forecasts base their projections on 7% annual growth but to be honest, I want to be aiming higher. Is 7% actually a poor return in the grand scheme of things?

Anyone who expects a great economic calamity just around the corner will snort at the complacency of assuming a positive return at all over the next decade or so.

Thrugelmir

I aim to make a net return of 2% - 3% above inflation (after allowing for all trading costs and adminstration fees). As share performance is simply too volatile to predict, and never moves in nice continual upward trends. Every so often there's a curved ball and a holding can easily lose a huge amount of value very quickly.

By being conservative there's no shocks.

Eastlands70

Thanks for the responses everyone. I kind of guessed I was being a tad optimistic with my aims. I suppose the best course of action in terms of getting the kind of pension pot I want at retirement is to invest a bit more money than I was planning to rather than hope for better than expected returns.

For the record, the 4 funds I have comprise of 3 medium-risk funds and 1 in the adventurous category.

jamesd

This historic growth rate of the main UK market has been about 5% plus inflation, so 8-9% a year over the last hundred plus years. The main UK market is "high" risk, not medium, so you may not even do that well. High because it can be expected to drop by 40-50% once or twice a decade and 20% or so a few times a decade, in between the rises, like a roller-coaster in reverse. Investing to cut the drops cuts the growth rate as well.

The last few months have been quite good for many markets. The few months before that were slower. Overall we've been in a long bull market since around the end of 2008 or start of 2009 with one significant correction during that period.

The 7% is a value mandated for projections by the FCA based on an assumption of balanced managed funds and poorer investment returns than usual over the ten to fifteen years since the analysis was done some years ago. projections then have to deduct another FCA-mandated allowance for inflation, another amount for charges, then they have to assume that you squander your money on a dual life inflation-linked annuity to generate your income, something fewer than ten percent of people actually do because those are such bad value for money compared to taking money from investments or other annuity types. So after all of those deductions from the 7% and the inefficient income method things tend to look a lot worse than they are really likely to be.

The poor assumptions required for such projections can have two effects. Sometimes they just cause people to give up because they make things look so much worse than they really are likely to be. Other times they can be a generous safety margin. personally, I greatly dislike just manipulating investment returns and prefer to use historic returns, historic stock market variations and generous safety margins. That's because the fluctuations are inevitable and I prefer people to be educated about them so they can deal with them properly instead of treating pensions like a black box that they are clueless about.

If you want to learn more about stock market variations and how to deal with risk, Firecalc is well worth a look and experimenting with. Once you understand the risk s and how to manage them you may well find yourself using more generous safety margins than the FCA's projection rules, but also knowing that if the bad things don't happen, you'll be able to retire sooner or on a higher income.

However you do it the two key rules are that you need to be increasing what you pay in with inflation and monitoring and adjusting how much you pay in regularly over the years, so you stay on whatever your target path is. There's plenty of disagreement in the details to be had but very few people would disagree with those two!

atush

that is what I am happy with, and if i get more I am ecstatic. 5% plus inflation.

Sometimes, the bad times, I have been 15% down. Sometimes, the good times, I have been nearly 20% up.

But I dont think of those times, except in passing. I think about averages.

Sterlingtimes

Over many years, my pension investments have almost all grown at 10% per annum. Even Equitable Life has achieved 5%. The dreadful exception is my wife's with profit investment with Scottish Equitable with profits which has achieved less than 3.5% per annum over 20 years.

chucknorris

jamesd wrote: »

If you want to learn more about stock market variations and how to deal with risk, Firecalc is well worth a look and experimenting with.

From your link, looking at Vanguard's longevity calculator it has made me realise that I need to retire very soon. I was to'ing and fro'ing whether I should retire next year or not. But their calculator gives some %'s that have convinced me that I need to retire next year for sure:

I am 57 in January and the %'s for my longevity are:

20 years - 69%
23 years - 59%
25 years - 51%
28 years - 39%

Obviously those are merely averages and they don't take into account that I am have a very healthy diet, exercise regularly and don't smoke. But they do drive the point home that I am entering the last phase of my life and enjoying myself should be my main priority by some margin now. I did play around with more sophisticated calculators yesterday that allowed more variables, and I also realised that I should also cut my alcohol consumption from 21 units a week to 14.

jamesd

Thanks, do you have a link to that longevity calculator? I see one one that looks to be too unreliable to trust because it gives just a 28% chance of a 65 year old male living 23 years, which is roughly the UK cohort life expectancy for males of that age.

My guess is that it's using US historic period mortality rates instead of even cohort rates for the US or better the UK.

If that is the one you used I suggest not taking its figures too seriously. I think that the ONS produces some tables that could be used to get cohort numbers for the UK.