DIY pension definition and related questions

aekostas

zagfles said:

aekostas said:

Thanks for all the other answers. Out of curiosity, what would have been a reasonable (not optimal) return over this period?

It depends on the level of risk - I had a small amount in a bog standard stakeholder pension over a bit shorter period and that went up about 160% (ie to 2.6 x the original value) from about 2002-2020. But I also had an ISA that went up about 300% (4 x original value) between 1997 and now but that was mainly in stuff at the high end of the risk scale (emerging markets etc).

Mine started with zero and was/is drip-fed with the same amount every month; I think these two cases are too hard to compare with each other.

zagfles

aekostas said:

zagfles said:

aekostas said:

Thanks for all the other answers. Out of curiosity, what would have been a reasonable (not optimal) return over this period?

It depends on the level of risk - I had a small amount in a bog standard stakeholder pension over a bit shorter period and that went up about 160% (ie to 2.6 x the original value) from about 2002-2020. But I also had an ISA that went up about 300% (4 x original value) between 1997 and now but that was mainly in stuff at the high end of the risk scale (emerging markets etc).

Mine started with zero and was/is drip-fed with the same amount every month; I think these two cases are too hard to compare with each other.

If it was the same amount every month it's possible although fiddly, either modelling in a spreadsheet or using a bit of maths - you can use the geometric series formula here: https://en.wikipedia.org/wiki/Geometric_progression

total = a(1-r^n)/(1-r)

a is the amount, r is the rate. As you made monthly conts, a is the monthly cont and r is the monthly factor, eg if it went up by 1% a month r would be 1.01

So if you put in 100 a month and it went up 1% a month then after 22 years, ie 264 months, the pension would be worth 100*(1-1.01^264)/(1-1.01) = £128,306

If however your pension is now £100,000 your monthly rate must be less than 1.01, so reduce it and retry:

Try 0.7% a month, ie r=1.007, gets £75805, so too low

So try 0.85% a month ie r = 1.0085 and get £98140, so a bit more than that, just keep tweaking the guess up or down as appropriate and it won't take too long to get it accurate. Doing it in some program would be quite easy to avoid manually guessing. There's probably some online calculator somewhere.

Then once you've got the monthly rate you can covert it an annual rate eg a monthly rate of 0.85% is 1.0085^12 - 1 = 10.69%

Of course this just gives a weighted average rate over the term, the actual rate will have fluctuated during the term.

aekostas

Thanks, I think that's what I did on an online calculator and I have the number per annum; it's a reasonable norm that I am looking for.

aekostas

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

Thrugelmir

Impossible to predict. There's a multitude of factors to consider. Not least the number of times that the value of your investments will fall during that period. As an excessive illustration, every 50% fall requires a 100% increase to recover the lost ground.  What you choose to invest in will likewise determine the outcome. 

dunstonh

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

At what risk level and using what assets? 

zagfles

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

Probably something like 5-6% pa for a stakeholder pension, that's what my stakeholder returned. More risky options would have returned more. I would guess future returns will be less for a variety of reasons.

aekostas

I am asking historical, not prediction, for a medium-risk fund.

[Deleted User]

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

You can google for historic returns. Look for total return net of inflation.  I think it has been 7-8% per year over the last 120 years or so.  The future is unknown but thats the only indicator we have. 

dunstonh

aekostas said:

I am asking historical, not prediction, for a medium-risk fund.

Its always a risk looking at figures in a historical sense.  20 years ago, medium risk meant about 10% p.a.   However, inflation was higher.  Today, it would be around 5.5%