Pension calculators?

Murphy_

Hi All,

I am trying to work out what my pension total might be at retirement and after running a few of the online calculators I'm a bit underwhelmed with the figures being returned. I appreciate that it will differ depending on investment choice but is it generally understood that these calculators under value? There doesn't appear to be much growth over a 30 years or am I missing something.

I’m 30 years old.

Existing pension pot 1 - £3,566
Existing Pension pot 2 - £6,604 (current pension)

I’m currently contributing 14% with my employer adding 3% totalling £6,000.

Assuming I put it into a current account earning no interest:

£6,000 x 30 = £180,000 + £10,170 = £190,170

Using hl's pension-calculator:

Pot Total - £214,000
Tax-Free Lump Sum - £53,500
Annual Income - £6,800

Using moneyadviceservice pension-calculator:

Pot Total - £244,226
Tax-Free Lump - £61,056
Annual Income - £7,768

Using monevators compound-interest-calculator:

Initial lump sum - £10,170

£6,000 added every year for 30 Years

Interest rate 1% added once per year

Total - £224,504

Thanks in advance,

sandsy

HL and money advice service calculators give you amounts that are comparable with the value of money today, i.e. They build in an allowance for inflation.

Whereas sticking it in a current account means that the £190k will only buy the equivalent of about £90k in today's money if inflation was 2.5% a year for the next 30 years.

Moby_Tide

The HL calculator also has default assumptions that can be amended relating to growth, inflation and annuity requirements which will affect figures

Murphy_

Thanks both, I will take a look at the options in detail.

Looks like i'm going to need to seriously up my contributions or stay in work longer!

MoneyGeoff

As above, over such a long timeframe, it's very dependent on the options you choose. In the HL one if you change the management charge down to 0.5% and the growth up to 8% then the total pot becomes £526K for example.

You are also looking at annual income based on an annuity. Is that what you plan to do? There are other options. If you plug a pot of £526K into a drawdown calculator you could withdraw £2.5K per month (£30K per year for 30+ years).

jamesd

Yes, most pension calculators make really daft assumptions that under-value what you can get. One of the biggest issues is that they assume that you will be foolish and use the money to buy a dual life inflation-linked annuity. Those pay maybe 2.5% of the amount you spend on them. Modern drawdown rules would say more like 6% with a need to drop if investment returns are unusually bad for a long time.

Growth assumptions also tend not to be good, particularly for those many decades from retirement. They might use as 4% before inflation and fees when the UK stock market average is about 5% plus inflation before fees.

You're paying in quite a bit, already enough so that using sensible numbers you're really working towards early retirement. For many people that can be the incentive to up and maintain higher than typical contributions.

mgdavid

Murphy_ wrote: »

Thanks both, I will take a look at the options in detail.

Looks like i'm going to need to seriously up my contributions or stay in work longer!

Don't forget that you can expect to gain knowledge, experience and promotion in your chosen career over time, so the 17% p.a. will be a much higher value in 20-odd years time. It's also quite common that one finds children grown up and self-sufficient and mortgages paid off so you can pile extra money into pensions and savings over the last few years of work.

AnotherJoe

jamesd wrote: »

Yes, most pension calculators make really daft assumptions that under-value what you can get. One of the biggest issues is that they assume that you will be foolish and use the money to buy a dual life inflation-linked annuity. Those pay maybe 2.5% of the amount you spend on them. Modern drawdown rules would say more like 6% with a need to drop if investment returns are unusually bad for a long time.

Growth assumptions also tend not to be good, particularly for those many decades from retirement. They might use as 4% before inflation and fees when the UK stock market average is about 5% plus inflation before fees.

You're paying in quite a bit, already enough so that using sensible numbers you're really working towards early retirement. For many people that can be the incentive to up and maintain higher than typical contributions.

^^^ This, and that in particular.

They massively downplay* what you'll get with this stupid assumption you'll buy an annuity, which almost no one is doing these days who is retiring at 65 or earlier, let alone in say 20-30 years time.

So, bottom line is , double whatever most pension calculators say.

There is also a reasonable rule of thumb, when you start, put in half your age as a percentage into your pension, and remain with that % for life. So, in your case, you are doing that already, stick to that 17% as your earnings grow and you should be OK. If you wanted to retire early, increase it to 20% and keep to that through your earning lifetime, and you probably wont miss an extra 3% anyway.

* which in turn devalues the value of your savings. Simple (very) example.
Say I have saved £1M in my pension. An annuity would pay me £25k a year.
But even at very modest growth rates of that sum, I could just take out £40k a year and still have £1M left when i popped my clogs as longa s my investments grew at an average of 4% which is not exactly groundbreaking! (hence Jamesd's comment about 6% withdrawal)

michaels

Murphy_ wrote: »

Hi All,

I am trying to work out what my pension total might be at retirement and after running a few of the online calculators I'm a bit underwhelmed with the figures being returned. I appreciate that it will differ depending on investment choice but is it generally understood that these calculators under value? There doesn't appear to be much growth over a 30 years or am I missing something.

I’m 30 years old.

Existing pension pot 1 - £3,566
Existing Pension pot 2 - £6,604 (current pension)

I’m currently contributing 14% with my employer adding 3% totalling £6,000.

Assuming I put it into a current account earning no interest:

£6,000 x 30 = £180,000 + £10,170 = £190,170

Using hl's pension-calculator:

Pot Total - £214,000
Tax-Free Lump Sum - £53,500
Annual Income - £6,800

Using moneyadviceservice pension-calculator:

Pot Total - £244,226
Tax-Free Lump - £61,056
Annual Income - £7,768

Using monevators compound-interest-calculator:

Initial lump sum - £10,170

£6,000 added every year for 30 Years

Interest rate 1% added once per year

Total - £224,504

Thanks in advance,

Whilst the other answers are more relevant, all three example calcs try to illustrate the value in today's money terms but have to make an assumption on how much you pension investment will grow ahead of inflation. This depends on the assumed growth rate and the amount of fees. Setting this to 2% per annum after fees is at the conservative end of reasonable.

Murphy_

Thanks everyone, lot's of great advice and it sounds like i'm on the right track which is good to hear.