Pension fund projections

MrStanners

I have a Fidelity SIPP and I've just received my Annual Benefit Statement.

In its Statutory Money Purchase Illustration it estimates what my fund will be worth in the future, and includes the statement "You should also bear in mind that inflation will reduce what you could buy in the future with the amounts shown".

There is an estimated growth rate of 2.44% for the Vanguard Lifestrategy 60%.

This seems rather low to me, it's not 2.44% above inflation just 2.44%. I know the theory that the bonds part of Lifestrategy should damp down the volatility and reduce the return but even so, given the risk involved it doesn't seem a very high projected return. I realise that what I actually get will depend on when I access the funds, at the top, bottom or middle of the market and I'm well aware I could lose money.

Fidelity say the growth rates they can quote are set by the Financial Conduct Authority. I've had a look on their website but couldn't find anything. Does anybody have a link to the FCA which shows the growth rates for shares and bonds that can be quoted?

If the growth rate is genuinely estimated over the long term (10+ years) at 2.44% then I might have to rethink my strategy, perhaps put more into p2p which is also risky but gives a better return.

Thanks.

sandsy

SMPI assumptions are not governed by the FCA but by the Financial Reporting Council. The details can be found in a document called Technical Memorandum 1 (TM1) of which version 4.1 is current:

https://www.frc.org.uk/Our-Work/Codes-Standards/Actuarial-Policy/Actuarial-Standard-Technical-Memorandum.aspx

Essentially, it requires pension providers to use their own judgement to come up with appropriate growth rates. But the income shown should be in today's money terms, I.e. After the effect of inflation at 2.5% is taken into account.

Appreciate that doesn't exactly answer your question. Got my own envelope from Fidelity on Friday but haven't opened it yet so may add more once I've done so.

Thrugelmir

MrStanners wrote: »

This seems rather low to me, it's not 2.44% above inflation just 2.44%.

Why? Investing is risky. There's no guarantee of a return.

westv

And the growth rate will include a certain amount of a*se covering.

MrStanners

Why? Investing is risky. There's no guarantee of a return.

Silly me. Fancy thinking that if investing is risky it's not unreasonable to hope for a slightly better return for the risk and volatility and being willing to wait long-term to get a return. I don't think that's unreasonable otherwise why invest in the first place.

Thank you for your reply, perhaps my hopes were too high.

MrStanners

Essentially, it requires pension providers to use their own judgement to come up with appropriate growth rates. But the income shown should be in today's money terms, I.e. After the effect of inflation at 2.5% is taken into account.

Interesting, it wasn't clear to me at all that the 2.44% allowed for inflation.
Thank you.