Pension Statement Worries

RichardS

Hi

I'm 51 and pay £400 a month into my personal pension which has a current value of £155K. The pension is with FundsNetwork and I used a Financial Advisor when I kicked it off (so a few FA fees are involved).

My statement arrived today with projections for retirement at 65 and although the High Growth prediction for the account value is higher than the current value (£220K) the Low-Growth and Mid-Growth illustrations are lower (£102K and £151K respectively). I would have expected all three to at least have been higher than today's value? (or is that me being naive?)

Is this normal / to be expected or should I be worried by those projections?

Thanks

Marcon

I'd certainly be looking at the charges on the funds you are invested in.

RichardS

The statements shows Product Charges of 0.25% (yearly Service Fee) and 0.03% (Disclosure of retained interest). It then has Advisor Charges of 1% (payable on a monthly basis). Then each fund seems to have different charges - most of them between 0.8% and 1.0%. One of them is 1.28% and a couple of others are 1.10%.

I find it all a bit baffling (and scary) to be honest.

Terry_Towelling

Don't these growth predictions also factor in the 'presumed' effects of inflation? Also, are they based on the amount you've actually paid in rather than the value it has today? It may be valued at £155K today but perhaps you've only paid in, say, £90K. So a low-growth forecast of £102K would still represent growth overall. Have you been paying in long? For £400 pm (plus tax-relief) to become £155K suggests you've been paying in for many years or have had spectacular growth so far.

RichardS

Yes, inflation is factored in and yes I have been paying into a pension for 30 years (this current one was a transfer from a company pension a couple of years ago when I was made redundant - so the £400 a month has been since then). So from what you are saying - even if the current value is £155K I should not necessarily expect that to be higher in 14 years (even if I continue paying in £400 a month)?

dunstonh

I would have expected all three to at least have been higher than today's value? (or is that me being naive?)

It's not being naive. Its just not understanding the projection assumptions.

The FCA lowered the projection requirements and its normal to see the lower projection being a negative, the mid one being about the same and the high one showing a bit of growth.

The underlying assets will dictate that actual rate. So, if you have a lot in cash, gilts or fixed interest securities, they will create a negative drag on the projection. Then include inflation at 2.5% and an annuity assuming pretty much the lowest terms going.

Is this normal / to be expected or should I be worried by those projections?

I've got to the point where I tell people to totally ignore them as they have gone from being overstating the likely outcome 20 years ago to now understating the likely outcome.

I had one a few weeks ago where the actual income if they retired there and then was double the projection on the statement with 8 years still to go.

The current method is doing more harm than good.

RichardS

Thank you - I'm not panicking quite so much now!

Terry_Towelling

RichardS wrote: »

Yes, inflation is factored in and yes I have been paying into a pension for 30 years (this current one was a transfer from a company pension a couple of years ago when I was made redundant - so the £400 a month has been since then). So from what you are saying - even if the current value is £155K I should not necessarily expect that to be higher in 14 years (even if I continue paying in £400 a month)?

Sorry, no I'm not saying that at all. I was just musing to understand why things might look as they do. I presume the projections are based on contributions so far. Your future payments over the months/years will obviously make a difference to the end pension - assuming it continues to grow at whatever rate.

For experienced advice you're better off listening to people like 'dunstonh'

jamesd

dunstonh wrote: »

I've got to the point where I tell people to totally ignore them as they have gone from being overstating the likely outcome 20 years ago to now understating the likely outcome.
...
The current method is doing more harm than good.

Agreed! Unnecessarily discouraging.

jamesd

RichardS wrote: »

Advisor Charges of 1% (payable on a monthly basis).

1% seems quite high for a 155k pot. What services are you getting from the advisor to justify 1550 a year? Half of that is more the sort of number I'd expect to see.

sandsy

These projections are just plain wrong. Firstly, they take no account whatsoever of your £400pm contribution.

Then looking at just the projection of the existing fund, the lower, middle and higher growth rates work out at roughly -3%, 0% and 2.5% real growth after charges, which is -0.5%, 2.5%, and 5% nominal returns after charges.

The lower and upper rates are supposed to be 3% lower and higher than the middle rate so even that's not right, assuming charges are the same % irrespective of returns!

You need to add on the annualised charges % to get to the gross rate of growth being assumed in the projections. You've told us there's a 1% adviser charge. There will also be product/fund charges.