Pension Forecasts

Saga

Are pension-at-retirement forecasts normally quoted in today's money or in the "future's money" (ie taking into account what the pound is forecast to be worth etc)?

eskbanker

To the best of my knowledge they're generally projections (of what the outcome would be under certain conditions) as opposed to forecasts (of what they think will happen), but all relevant assumptions should be clearly stated alongside headline figures.

Saga

I think I wasn't clear in my original question, so sorry. The actual "forecast" (that's the pension scheme's wording, not mine, but this isn't about semantics) says:

Here’s what you could receive from the Retirement Investment Scheme at age 60. The estimate is before you take any lump sum and is shown in today’s money terms: £xxxxxxx

I'm trying to make sense of the bit in bold. Does this mean the figure given above is what they've forecast/projected/whatever (based on their list of 9 assumptions) and then "de-applied"/rolled-back inflation to show what the pension income will be in 2021 money? If so, if this normal practice for pension forecasts/projections/whatever? I'd always taken retirement figures as in-the-future monies at that time's inflation and then if I was really bothered rolled-back an estimate of inflation to give a today's value, but now it seems I've been doing this twice if the above interpretation is normal.

jamei305

It's as if you retired today, so if it shows £20,000 but you are due to retire in 2046, then by 2046 the actual amount you receive will be £20,000+ inflation e.g. £32,000 or whatever.

Saga

But I have a different figure elsewhere showing the current fund value, like the £20K in your example.

Albermarle

There  will be two projections - one of the fund value when you retire , in todays money . If you are still contributing there will probably be an assumption that contributions will continue at the current rate.
Then there will be a projection of what pension income in todays money that could be derived from the projected fund value .

There are a number of assumptions on the fund growth ( on the pessimistic side ) and that the fund will be used to buy an annuity , which is less common nowadays as they are poor value for money .

dunstonh

I think I wasn't clear in my original question, so sorry. The actual "forecast" (that's the pension scheme's wording, not mine, but this isn't about semantics) says:

The pension scheme is wrong to use the word forecast if it is a DC scheme.  DB pensions and state pension are fair to use the word forecast given the way they work.

With DC schemes, projections use a range of assumptions, which includes a deduction for inflation (to answer your question).   However, the assumptions are very pessamistic and do not necessarily give a real world projection.    I have seen projections that say the income is actually 10 times lower than what the current value could pay out.
So, you need to understand the assumptions.

I'd always taken retirement figures as in-the-future monies at that time's inflation and then if I was really bothered rolled-back an estimate of inflation to give a today's value, but now it seems I've been doing this twice if the above interpretation is normal.

With DC schemes, providers used to have the choice to show either monetary basis (without inflation) or SMPI basis (with inflation).  However, some years back they were required to show projections with an assumed inflation rate (currently 2%).