Pension Forecast

dont_use_vistaprint

I have an Aegon group pension default that an employer puts money in each month. It lets me choose a year to retire and set the growth (low, medium, high) and then tells me how much Ill get a year.

Running some estimates it seems it will pay between 1/15th and 1/25th of its final value per year, which seems a big range. What is a typical percentage you would expect, for a pension pot between 200k and 300K in value when you retire.

Do I need to do anything ? Reading up it seems I will need to buy an annuity before it pays out, will Aegon take care of that automatically ? Do I need to give notice ?

These are the rates its using to estimate, do they seem realistic ? If so it wouldn't it seem to make more sense to invest some or all the money myself in ISA's as it looks unlikely to grow



Low rate -2.47
Mid rate 0.44
High rate 3.37

We've used the following weighted average growth rates for the projections of the existing fund holding:
Low -2.68
Mid 0.24
High 3.17 ​
We've used the following weighted average growth rates for the projections of future contributions:
Low -2.68
Mid 0.24
High 3.17
An inflation rate of 2.5 % a year applies.
If the growth rate is the same as the rate of inflation, it reduces to 0%.
If the growth rate is less than the rate of inflation, this produces a negative growth rate.

Albermarle

Do I need to do anything ? Reading up it seems I will need to buy an annuity before it pays out, will Aegon take care of that automatically ? Do I need to give notice ?

When you reach retirement age ( or any time after you reach 55 ) you will be given a choice what you want to do with the pot of money you will have accumulated.
1) Leave it where it is with the option of keep adding to it if you want .
2) Buy an annuity either after taking 25% TFLS , or buy an annuity with 100% of the money .
3) Take 25% TFLS and the rest goes into drawdown ( alternatively take the UFPLS route )
4) Take the whole lot as cash ( and pay tax on 75% of it)
For options 2) and 3) you do not have to stay with Aegon and can shop around and move your fund if you wish .

Regarding the projected growth figures , I agree they do look low but I am not an expert enough to comment further. Hopefully someone else can.

What is a typical percentage you would expect, for a pension pot between 200k and 300K in value when you retire.

If you were to buy an annuity , it can vary a lot depending on the conditions.
For example if it was an annuity that did not increase with inflation and had no provisions for a spouse in case you die. then the initial annual pension would be much higher than if you bought an annuity with inflation increases and other advantages.

Linton

Your pension may not offer the full range of options that Albermarle has listed. If not it s easy to transfer it to another supplier which does.

Fewer people these days buy an annuity because the rates have fallen drastically since the 2008 crash. Typical rates are perhaps 1/35 for an inflation linked annuity and 1/20 for a fixed one for someone aged 65assuming a spouse pension paid on your death. If you have been in your scheme for more than say 20 years it is possible that it offers a higher guaranteed annuity rate, you should check.

If you opt for drawdown rather than buying an annuity a rough rule of thumb is to plan on an initial 3,5% of your pension pot increasing with inflation. If you are prepared to vary your annual drawdown according to market conditions you could reasonably hope to average out somewhat better.

Drawdown is very much more flexible than an annuity since you can vary the amount you take at anytime. Though it does give you the responsibility of ensuring that what you take is sustainable. Perhaps more importantly for many people any money in your pension pot remaining after your death is available to your spouse, family or anyone else you choose, subject to the agreement of the pension trustees. This is normally given provided your choice is not seen as perverse.

The forecasts in all pension statements are based on standardised calculations on standardised assumptions which do seem rather pessimistic to me. I would not take them too seriously. Provided your pension has a reasonable range of options you should get much the same returns as you would have got from investing in an S&S ISA. Plus of course you have your employers contribution and the tax treatment of pensions is better than for ISAs. Note that cash ISAs are unlikely to match inflation and so perhaps would be similar to the low to medium figures in your statement.

dont_use_vistaprint

It looks like the projections within the Aegon site are based on annuity not draw down, would that be the default option they would use for the calculations?

I keep seeing the term SIPP on here, is that what this pension is ? Is it just the name given to private pensions that are S&S performance dependent e.g not LGPS / final salary type or state pensions.

Linton

dont_use_vistaprint wrote: »

It looks like the projections within the Aegon site are based on annuity not draw down, would that be the default option they would use for the calculations?

I keep seeing the term SIPP on here, is that what this pension is ? Is it just the name given to private pensions that are S&S performance dependent e.g not LGPS / final salary type or state pensions.

A SIPP is a form of private pension which normally gives you direct online access to an extremely large range of funds. Other private pensions include the personal pensions offered by companies like Aegon. These typically only enable you to use a restricted set of funds and may be less flexible in other ways. However they could have lower charges.

Employer DC pensions are similar to personal pensions depending on stock market returns and very different to DB pensions (final salary, average salary etc) where your retirement income is guaranteed.