Pension benefit projection, how long do they think I'm going to live?

PhilKerby

Hi. 
I'm slightly confused and wondered if someone with a little more knowledge on this forum could set me straight.
I've just received my annual pension review document from Royal London. The document shows what the final fund value could be and underneath it shows what my annual taxable pension could be. Assuming I retire (and start taking a pension) at the age of 65, based on fund value / annual pension, it looks like they are making provision for me surviving until I'm 105. Is it normal for the anticipated annual pension to be approx 2.5% of the value of the pension pot? That doesn't sound like much to me.
Sorry if this is naive question, just keen to understand.
Many thanks
Phil

JoeCrystal

You have to understand that it is based on whatever the annuity rates at the moment which are dire plus pessimistic projection on the fund value returns. 

Linton

The insurance company doesnt need to know how long you will live, pensions are based on average life expectancy, so some people will win and some will lose. 

The forecast calculations assume that the pension is index linked, or eqivalently is expressed in current values,  and so the break even age will be a lot less than 105.   In any case thanks to the regulator's caution, pension forecasts are seen as very pessimistic.

dunstonh

And dont forget inflation is factored into the figures to show a today's spending power.  An automatic 2% annual reduction.
The worst projection I have seen was understating by around 10 times what was possible with a reasonable drawdown.    Around 5 times is more common.

t looks like they are making provision for me surviving until I'm 105.

Is the annuity indexed or level on the assumptions?