Diminishing returns on a private pension

Prism

coyrls said:

Prism said:

LucyTheWestie said:

Prism said:

You should first get access to your private pension online to see what it is invested in. It is your responsibility to select the investments rather than just let decrease in value. If you can't get online access to it then maybe consider transferring to another provider that does. I needed to do this for a few of my older plans. 
There is no way that it should be losing money to be honest. As a comparision my pension has been increasing by over 13% per year in recent times but my mortage is only 1.4%. 

Really? Does this include payments by yourself or employer?  What was the % increase over the last 12 months without including what you or your employer pay into it?    

June to June not including any contributions is 10%.

I would say that was exceptional and not typical of the last 12 months' performance for most people.

The FTSE World Index which quite a few trackers follow is up about 6% over the same period. Not much in it.

LucyTheWestie

dunstonh said:

but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)

We need to know why this is as that is certainly not the usual position.

Certainly, the projections would be going down over the years but that is due to synthetic figures being used in the assumptions.   They are artificial and not real.   The value, on the other hand, should be going up.  Although you would get odd years where it would fall.   2019 was postive year but 2018 was a negative year.   2020 YTD had a significant fall but has mostly recovered.

Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)

In most cases, that is a bad thing to do as your investment returns are almost certainly higher than the interest you are paying on the mortgage.  Plus, you end up paying a lot of unnecessary tax if you do that.  Plus, you rob your retirement years of income.

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?

You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns is a different matter.

The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)

Except you wont be able to do that as you will be limited to just £4000 a year due to accessing your pension early.

I already pay the higher tax rate.

So, pension contributions are an asbolute no brainer.

My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)

Either your calculations are wrong or you are very badly invested.  Your pension provider is not to blame.  You choose the investment funds.  The funds have a remit to follow.  So, for example, if you picked a deposit fund, then it can only invest in money markets/deposits.   Hence returns would be dire.       Even the most basic medium risk bog-standard multi-asset funds from the insurers have been returning over 5% a year on average

In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements.

Many thanks for your long reply.
Your last comment interests me the most.  "In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements."
I have several pensions which I have accumulated since the 1980s.  This one in particular stands out for being misleading and confusing.   Specifically the number of times it says "it could be worth" rather that "is worth." (The projections and assumptions from the 1980's are way off the mark.) - The number of times it warns how, "the amount could rise or fall." is just painful. 
Wading through the pile of yearly statements, the change in the figures year on year produced an "interesting" graph. (I wondered why they did not include that graph in the statement pack!)

Thrugelmir

LucyTheWestie said:

dunstonh said:

but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)

We need to know why this is as that is certainly not the usual position.

Certainly, the projections would be going down over the years but that is due to synthetic figures being used in the assumptions.   They are artificial and not real.   The value, on the other hand, should be going up.  Although you would get odd years where it would fall.   2019 was postive year but 2018 was a negative year.   2020 YTD had a significant fall but has mostly recovered.

Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)

In most cases, that is a bad thing to do as your investment returns are almost certainly higher than the interest you are paying on the mortgage.  Plus, you end up paying a lot of unnecessary tax if you do that.  Plus, you rob your retirement years of income.

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?

You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns is a different matter.

The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)

Except you wont be able to do that as you will be limited to just £4000 a year due to accessing your pension early.

I already pay the higher tax rate.

So, pension contributions are an asbolute no brainer.

My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)

Either your calculations are wrong or you are very badly invested.  Your pension provider is not to blame.  You choose the investment funds.  The funds have a remit to follow.  So, for example, if you picked a deposit fund, then it can only invest in money markets/deposits.   Hence returns would be dire.       Even the most basic medium risk bog-standard multi-asset funds from the insurers have been returning over 5% a year on average

In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements.

The projections and assumptions from the 1980's are way off the mark

The endowment heyday. Better to invest and have an interest only mortgage than repay the debt. Markets are cyclical.  As sure as day follows night. Market prices ultimately become detached from the economic reality of everyday corporate profitability. Investors hate nothing more than missing out on what appears to be a gravy train. 

coyrls

LucyTheWestie said:

dunstonh said:

but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)

We need to know why this is as that is certainly not the usual position.

Certainly, the projections would be going down over the years but that is due to synthetic figures being used in the assumptions.   They are artificial and not real.   The value, on the other hand, should be going up.  Although you would get odd years where it would fall.   2019 was postive year but 2018 was a negative year.   2020 YTD had a significant fall but has mostly recovered.

Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)

In most cases, that is a bad thing to do as your investment returns are almost certainly higher than the interest you are paying on the mortgage.  Plus, you end up paying a lot of unnecessary tax if you do that.  Plus, you rob your retirement years of income.

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?

You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns is a different matter.

The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)

Except you wont be able to do that as you will be limited to just £4000 a year due to accessing your pension early.

I already pay the higher tax rate.

So, pension contributions are an asbolute no brainer.

My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)

Either your calculations are wrong or you are very badly invested.  Your pension provider is not to blame.  You choose the investment funds.  The funds have a remit to follow.  So, for example, if you picked a deposit fund, then it can only invest in money markets/deposits.   Hence returns would be dire.       Even the most basic medium risk bog-standard multi-asset funds from the insurers have been returning over 5% a year on average

In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements.

Many thanks for your long reply.
Your last comment interests me the most.  "In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements."
I have several pensions which I have accumulated since the 1980s.  This one in particular stands out for being misleading and confusing.   Specifically the number of times it says "it could be worth" rather that "is worth." (The projections and assumptions from the 1980's are way off the mark.) - The number of times it warns how, "the amount could rise or fall." is just painful. 
Wading through the pile of yearly statements, the change in the figures year on year produced an "interesting" graph. (I wondered why they did not include that graph in the statement pack!)

Are you plotting the current values over time or the projected final values over time?  The change in projected values is more likely to be due to changing legislation about how these should be calculated, rather than the fund value.

Is this a "with profits" or a "unit linked" fund or a portfolio of funds?

LucyTheWestie

coyrls said:

LucyTheWestie said:

dunstonh said:

but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)

We need to know why this is as that is certainly not the usual position.

Certainly, the projections would be going down over the years but that is due to synthetic figures being used in the assumptions.   They are artificial and not real.   The value, on the other hand, should be going up.  Although you would get odd years where it would fall.   2019 was postive year but 2018 was a negative year.   2020 YTD had a significant fall but has mostly recovered.

Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)

In most cases, that is a bad thing to do as your investment returns are almost certainly higher than the interest you are paying on the mortgage.  Plus, you end up paying a lot of unnecessary tax if you do that.  Plus, you rob your retirement years of income.

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?

You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns is a different matter.

The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)

Except you wont be able to do that as you will be limited to just £4000 a year due to accessing your pension early.

I already pay the higher tax rate.

So, pension contributions are an asbolute no brainer.

My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)

Either your calculations are wrong or you are very badly invested.  Your pension provider is not to blame.  You choose the investment funds.  The funds have a remit to follow.  So, for example, if you picked a deposit fund, then it can only invest in money markets/deposits.   Hence returns would be dire.       Even the most basic medium risk bog-standard multi-asset funds from the insurers have been returning over 5% a year on average

In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements.

Many thanks for your long reply.
Your last comment interests me the most.  "In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements."
I have several pensions which I have accumulated since the 1980s.  This one in particular stands out for being misleading and confusing.   Specifically the number of times it says "it could be worth" rather that "is worth." (The projections and assumptions from the 1980's are way off the mark.) - The number of times it warns how, "the amount could rise or fall." is just painful. 
Wading through the pile of yearly statements, the change in the figures year on year produced an "interesting" graph. (I wondered why they did not include that graph in the statement pack!)

Are you plotting the current values over time or the projected final values over time?  The change in projected values is more likely to be due to changing legislation about how these should be calculated, rather than the fund value.

Is this a "with profits" or a "unit linked" fund or a portfolio of funds?

Plot everything!  Look at the trends.   :-)

LucyTheWestie

Thrugelmir said:

LucyTheWestie said:

dunstonh said:

but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)

We need to know why this is as that is certainly not the usual position.

Certainly, the projections would be going down over the years but that is due to synthetic figures being used in the assumptions.   They are artificial and not real.   The value, on the other hand, should be going up.  Although you would get odd years where it would fall.   2019 was postive year but 2018 was a negative year.   2020 YTD had a significant fall but has mostly recovered.

Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)

In most cases, that is a bad thing to do as your investment returns are almost certainly higher than the interest you are paying on the mortgage.  Plus, you end up paying a lot of unnecessary tax if you do that.  Plus, you rob your retirement years of income.

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?

You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns is a different matter.

The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)

Except you wont be able to do that as you will be limited to just £4000 a year due to accessing your pension early.

I already pay the higher tax rate.

So, pension contributions are an asbolute no brainer.

My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)

Either your calculations are wrong or you are very badly invested.  Your pension provider is not to blame.  You choose the investment funds.  The funds have a remit to follow.  So, for example, if you picked a deposit fund, then it can only invest in money markets/deposits.   Hence returns would be dire.       Even the most basic medium risk bog-standard multi-asset funds from the insurers have been returning over 5% a year on average

In the vast majority of cases where people say their pension is not performing, it is actually the person misreading or misunderstanding the information on the statements.

The projections and assumptions from the 1980's are way off the mark

The endowment heyday. Better to invest and have an interest only mortgage than repay the debt. Markets are cyclical.  As sure as day follows night. Market prices ultimately become detached from the economic reality of everyday corporate profitability. Investors hate nothing more than missing out on what appears to be a gravy train. 

....don't mention the mis-selling, fat cats and all the other nasties!

AnotherJoe

LucyTheWestie said:

coyrls said:

Your plan to increase payments to your company pension after withdrawing the money from your private pension is unlikley to work because you will be subject to the Money Purchase Annual Allowance (MPAA), which will restrict your total pension contributions to £4,000pa.  The MPAA comes into effect once you withdraw anything above the PCLS (25% tax free) from a DC pension. 

Doh!  I knew there would be a catch!!   (well done for bringing that one to my attention)

I'd say that losing £50k on £144k is a far bigger catch. Only slightly behind is doing that to save what, 2% ? on a mortgage.

[Deleted User]

coyrls said:

I have noticed when people are comparing pension performance they tend to discount the contributions they have made.  Many posters talking about the recovery of their pensions seem to include their contributions made during the recovery as part of the recovery of their pensions.  You are comparing a pension where you continued to make contributions to one where you are no longer making contributions.  All other things being equal the "performance" of the pension to which you are making contributions will always exceed the one to which you are not making contributions.

I look at money-weighted and time-weighted returns. Year to date return is around zero, which means we are back to Jan 1st. Most diversified portfolios will be showing similar performance - 

[Deleted User]

I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot? 

“You were taught incorrectly. Or possibly misunderstood.    You should certainly clear short term expensive debts before investing.  However, long term cheap debts that cost less in interest than investment returns “

Wow. That is a very strong and confident statement about the future. The more certain someone is about the future, the worse the advice. In reality we do not know future investment returns. 

And while in the long term stocks are likely to do well, a 55 year old with a significant debt is exposing himself to significant risks. 

Individual circumstances vary, and incurring lots of tax wouldnt be smart but the general advice is:
- borrow when you are young
- get rid of the debt and make use of Fixed Income as you get closer to retirement https://www.goodreads.com/book/show/18428492-deep-risk

[Deleted User]

Prism said:

coyrls said:

Prism said:

LucyTheWestie said:

Prism said:

You should first get access to your private pension online to see what it is invested in. It is your responsibility to select the investments rather than just let decrease in value. If you can't get online access to it then maybe consider transferring to another provider that does. I needed to do this for a few of my older plans. 
There is no way that it should be losing money to be honest. As a comparision my pension has been increasing by over 13% per year in recent times but my mortage is only 1.4%. 

Really? Does this include payments by yourself or employer?  What was the % increase over the last 12 months without including what you or your employer pay into it?    

June to June not including any contributions is 10%.

I would say that was exceptional and not typical of the last 12 months' performance for most people.

The FTSE World Index which quite a few trackers follow is up about 6% over the same period. Not much in it.

This is showing 3.5%. 

https://markets.businessinsider.com/index/ftse-aworld