Pension Returns

Nick9967

Hi all
My Friday afternoon conundrum,
Trying to play safe with my PP when I eventually get into draw down (4 years 4 months!), estimating my pot returns I know is a little folly but I need to base my finances on some sort of forecast.
I came across some figures stating pension returns from 2008 to 2018 (don't ask cant find the original website )
If these are realistic is it reasonable for me to just duplicate them for a further decade (actualy 11 years) and use this as my estimate of returns?
  it averages 5.9% over the 22 years!
is this ridiculous or a reasonable guestimate.

thanks

Calendar year	% pension fund growth
2008	-19.70%
2009	22.30%
2010	13.80%
2011	-4.60%
2012	10.80%
2013	13.90%
2014	5.80%
2015	2.60%
2016	15.70%
2017	10.50%
2018	-6.20%
x	-19.70%
x	22.30%
x	13.80%
x	-4.60%
x	10.80%
x	13.90%
x	5.80%
x	2.60%
x	15.70%
x	10.50%
x	-6.20%

Albermarle

Your pension does not have returns , it is the investments within the pension .
So without knowing what these are , it is impossible to sensibly comment,

Nick9967

SW Baillie Gifford North American Equity PensionFund code: CQ	21.31%
SW Fidelity Asia PensionFund code: ZH	16.54%
SW Invesco-Perpetual Corporate Bond PensionFund code: VH	9.33%
Scottish Widows Cash PensionFund code: CA	5.09%
Scottish Widows European PensionFund code: EE	3.18%
Scottish Widows Fixed Interest PensionFund code: FI	9.25%
Scottish Widows International PensionFund code: IN	15.69%
Scottish Widows Property PensionFund code: PY	1.10%
UK EquityFund code: EQ	18.51%

SouthCoastBoy

I model equity returns at 3.5% and inflation 2.5% so real return of 1%

dunstonh

I came across some figures stating pension returns from 2008 to 2018 (don't ask cant find the original website  )

If it really was showing such a thing then it would be completely pointless.  Pensions don't have returns.   Returns come from the investments within pensions and there are over 30,000 mainstream options available today (including another 50,000 legacy options).   

 it averages 5.9% over the 22 years!

On the other hand, that is the ballpark average for middle of the road basic insurance company balanced managed funds.  But you are not in one of those.

Thrugelmir

For some decades I've targeted 2% above the rate of inflation. There's no guarantees that investment returns will exceed inflation in any given period hence the caution. The past decade or so has been a story of monetary stimulus. Which have progressively distorted the valuation of assets. 

Albermarle

Is this 5.9% after inflation ?

arnoldy

Average total returns of FTSE250 12.7% pa since 2008. I suggest your funds are not firing on all cylinders or the costs/charges are feeding the suits not you.
FTSE All Share and FTSE-100 since 1986 (swanlowpark.co.uk)

dunstonh

Average total returns of FTSE250 12.7% pa since 2008.

The FTSE250 is not exactly a benchmark.    Most people wont come close to having the risk profile to tolerate the volatility and risk of the FTSE250.  And picking 2008 onwards is statistics manipulation to give a false reality.

Notepad_Phil

Nick9967 said:

Hi all
My Friday afternoon conundrum,
Trying to play safe with my PP when I eventually get into draw down (4 years 4 months!), estimating my pot returns I know is a little folly but I need to base my finances on some sort of forecast.
I came across some figures stating pension returns from 2008 to 2018 (don't ask cant find the original website )
If these are realistic is it reasonable for me to just duplicate them for a further decade (actualy 11 years) and use this as my estimate of returns?
  it averages 5.9% over the 22 years!
is this ridiculous or a reasonable guestimate.

For what reason do you want to know this?

If it's for the reason of calculating the amount of income that you can drawdown, then even if 5.9% turns out to be the correct average figure for the coming years, the real question you need to ask yourself is what the sequence of returns will be which brings about that result.

e.g. if you're thinking of taking out a constant annual sum of £5,000 from an inital £100,000 pot then that would leave approx £100,000 still left in your pot if the annual returns matched the yearly figures you mention in your post, however making the first and second years -19.7% and the 12th and 13th 22.30% would make the average return exactly the same, but drawing down the same yearly £5,000 would mean you only have approx £35,000 left at the end. A few more years of negativity in the first half could then mean your pot runs out completely before the 22 years are up.

My own withdrawal rate is based on withdrawing an initial 3% of my drawdown pot, which I hope is a sensible value to cover for the potentially negative outlook - but I will keep an eye on what the future brings and we do have scope to cut back if we need to.

[Deleted User]

5.9% is indeed a ridiculous estimate.  Not as ridiculous as 5.9574% but close for what is a pretty random number picked over a random (or worse) period of time.  A few points:
1. You say, you are “trying to play it safe”.  Picking average returns over 10 years won’t give you that. Not even over 100 years.  

2. Why are you trying to predict average annual returns over X years? That does not tell you how much you can withdraw. 

There are several strategies for ensuring safety:
1. One strategy is probabilistic; its called Safe Withdrawal Rate (swr).  You say “I want a high confidence level that I won’t run out of money”.  They take worst case historic sequence of returns and try to figure out how much you can withdraw without going bankrupt for 30 years.   Depending on your assets, this typically translates to 3-4%. 

2. The second strategy says “there is no such thing as SWR if you invest in highly volatile assets like stocks.  Who is to say that past provides worst case sequences of returns?  Not me. So, you then invest in annuities and bonds and that in itself tells you how much to withdraw.
3. This approach is called “variable percentage withdrawal”.  You agree with the second guy that SWR does not exist. You still invest in equities, at least 60-70% of your portfolio. But you define how much you can withdraw based on performance of your assets. This can mean sharp reductions, which you should be prepared for.