Value of pension is freaking me out

Workerdrone

QrizB said:

NannaH said:

The good old days!
I doubt that very many had even a £50k pot in 1990 though.  
I know my FiL got around 7% on £120k 15 years ago.  

“In 1990, a man aged 65 could have obtained an annuity rate of 15.5 per cent compared with 8.75 per cent today. This has come about because annuity rates are based on the yield on gilts and these have plummeted from 12 per cent in 1990 to 4.5 per cent - 26 Feb 1999’

Annuity rates are also based on life expectancy, which has improved considerably since 1990.

A man who was 65 in 1990 was born in 1925, had probably been smoking since he was at primary school (I exaggerate, I know) and could expect to live to 79 (if my quick Google was correct).

No, you don’t exaggerate at all. My grandas aunt Alice gave him capstan full strength from age 7. He stopped in his 50’s but the damage was done. Quadruple bypass in his early 70’s and dies with dementia at 84. Lovely kind man. Just a product of circumstance

zagfles

Thrugelmir said:

zagfles said:

Thrugelmir said:

zagfles said:

Deleted_User said:

zagfles said:

Audaxer said:

zagfles said:

Audaxer said:

Deleted_User said:

NedS said:

Deleted_User said:

NedS said:

Deleted_User said:

1) why is the fact you are retiring in 3/4 years an issue? - if you are buying an annuity, then it certainly is but if you are going into drawdown, its not.

Because 5 years before and after retirement is the period of vulnerability to sequence of return risk.  Withdrawing from a pot temporarily reduced by the market (aka “drawdown”) can be devastating.  Basics. 

True, but if the outcome is 'devastating', the Safe Withdraw Rate for drawdown wasn't very safe, was it?

Quite right. There is no “safe” constant withdrawal rate from a highly variable pot subject to market whims.  Its a misnomer. 

Erm, well clearly there is - the problem is that you will only know with hindsight in 30 years time that it was safe. Pretty sure 1% would be a SWR for a well diversified portfolio regardless of sequence of returns.

None of it is “safe” and “pretty sure” isn’t good enough to say “safe”.  Safe is a deterministic claim. The future is probabilistic rather than deterministic. And unknown in advance, hence we call it “future”. 

There will always be a non zero probability of failure as long as you are invested in a market.  SWR was developed based on (I think) a 90 year dataset in the US.  Saying next 30 years (one third of the interval!)  will be like sampling from that dataset is a statistical fallacy. 

Putting stats aside, the basic mathematical point is that you can’t have a guaranteed constant withdrawal rate from a highly variable function. 

If you don't think even a 1% withdrawal rate is safe there is little point in being invested, because you could take 1% per year rising with inflation from a savings account, and it would still last throughout a 30 year retirement. 

How do you know? Try that with 10% inflation and 1% interest rates. Which isn't massively far off what we have today.

Okay, just tried it on a spreadsheet. £100k savings with no interest and withdrawing £1,000 per year increasing by 10% each year. It would still last 25 years which is not bad considering it is very unlikely that we could have 10% inflation every year for 25 years. The point I was trying to make is that there would be no point in investing if a 1% withdrawal rate wasn't thought to be safe.

Inflation averaged 10% between 1970 and 1990. In other countries inflation has been far higher over decades, and not just in obvious basket cases like Venezuela or Zimbabwe, but in countries like Turkey where inflation currently 36% and has been that sort of level for decades. 

Turkey is an interesting case. Inflation has been under 10% between 2004 and 2017. It went nuts in 2021.  

President Erdogan has a novel theory: the lower central bank’s interest rate, the lower inflation.  And he enforced this approach by terrorizing his bankers. Unfortunately for consumers he could not terrorize the market or lira. So Erdogan blamed “international financiers” (aka the joos) as usual. 

We’ve seen elements of this approach in democratic countries since 2020 but nothing quite as crazy.  Anything is possible but I still don’t believe its likely here. Inflation hurts poorer people the most. It gets into newspapers and our governments cant just throw journalists in prisons to stop it. 

I'd have thought inflation would hurt richer people the most. Wages tend to rise faster than inflation, even or especially in high inflation times, as that was the main causein the 1970s! Benefits tend to rise with inflation, mortgages and other loans reduce in real value, as do savings, so those with loans are better off and those with savings are worse off.

Wages rise with productivity. Technology has dumbed down many roles. Anything administrative requires far less skill and knowledge level. 

1970s obviously saw massive improvements in productivity then!! Wage inflation got to nearly 30%

People didn't spend their time at work browsing the internet, looking at their phones or other non productive activities.

What, whereas they did in the 1960's

Twentytwothousand

I can now access details. Not massively the wiser really - lots of different pots all managed under Aviva wrappers.  No specfic investments but headings like 28% technology and global headings like AV Lions Trust Sustainable future.   Then another list of biggest investments - e.g. Puma, Spotify, Alphabet inc. with their percentage of total pot but they're all quite low percentages.  And lost another £2k since I last posted.   Sounds as if some of my investment might be in funds that are more volatile than I'm happy with given plan to retire in three  years and do draw down.    Do I ring each pension provider (I have four pots in three pensions) and ask for a breakdown of risk as they assess it?  

[Deleted User]

Twentytwothousand said:

I can now access details. Not massively the wiser really - lots of different pots all managed under Aviva wrappers.  No specfic investments but headings like 28% technology and global headings like AV Lions Trust Sustainable future.   Then another list of biggest investments - e.g. Puma, Spotify, Alphabet inc. with their percentage of total pot but they're all quite low percentages.  And lost another £2k since I last posted.   Sounds as if some of my investment might be in funds that are more volatile than I'm happy with given plan to retire in three  years and do draw down.    Do I ring each pension provider (I have four pots in three pensions) and ask for a breakdown of risk as they assess it?  

First do some reading so you can understand and process the information. Start with Edwards DIY pensions 

Thrugelmir

Twentytwothousand said:

I can now access details. Not massively the wiser really - lots of different pots all managed under Aviva wrappers.  No specfic investments but headings like 28% technology and global headings like AV Lions Trust Sustainable future.   Then another list of biggest investments - e.g. Puma, Spotify, Alphabet inc. with their percentage of total pot but they're all quite low percentages.  And lost another £2k since I last posted.   Sounds as if some of my investment might be in funds that are more volatile than I'm happy with given plan to retire in three  years and do draw down.    Do I ring each pension provider (I have four pots in three pensions) and ask for a breakdown of risk as they assess it?  

Unlikely they'll offer advice. Not their remit. Does Aviva offer a set of default portfolios for a range of circumstances? Would at least provide a safer harbour while you research your options in more detail and not rush into sudden knee jerk decisions. . 

dunstonh

Unlikely they'll offer advice. Not their remit. Does Aviva offer a set of default portfolios for a range of circumstances?

They have their mixed equity funds 20-60 and 40-85.   They are the default on many of their ex Norwich Union or Aviva original products.   On ex AXA or Friends Provident plans, they have their own alternatives.

Twentytwothousand

Thrugelmir said:

Twentytwothousand said:

I can now access details. Not massively the wiser really - lots of different pots all managed under Aviva wrappers.  No specfic investments but headings like 28% technology and global headings like AV Lions Trust Sustainable future.   Then another list of biggest investments - e.g. Puma, Spotify, Alphabet inc. with their percentage of total pot but they're all quite low percentages.  And lost another £2k since I last posted.   Sounds as if some of my investment might be in funds that are more volatile than I'm happy with given plan to retire in three  years and do draw down.    Do I ring each pension provider (I have four pots in three pensions) and ask for a breakdown of risk as they assess it?  

Unlikely they'll offer advice. Not their remit. Does Aviva offer a set of default portfolios for a range of circumstances? Would at least provide a safer harbour while you research your options in more detail and not rush into sudden knee jerk decisions. . 

I think I'm probably in their default portfolios.   

Twentytwothousand

dunstonh said:

Unlikely they'll offer advice. Not their remit. Does Aviva offer a set of default portfolios for a range of circumstances?

They have their mixed equity funds 20-60 and 40-85.   They are the default on many of their ex Norwich Union or Aviva original products.   On ex AXA or Friends Provident plans, they have their own alternatives.

These are both ex Norwich Union pensions - one with protected rights (which seems to mean nothing) and one without. 

dunstonh

Twentytwothousand said:

dunstonh said:

Unlikely they'll offer advice. Not their remit. Does Aviva offer a set of default portfolios for a range of circumstances?

They have their mixed equity funds 20-60 and 40-85.   They are the default on many of their ex Norwich Union or Aviva original products.   On ex AXA or Friends Provident plans, they have their own alternatives.

These are both ex Norwich Union pensions - one with protected rights (which seems to mean nothing) and one without. 

Protected rights was abolished many years ago. So, it doesn't mean anything to you any more.

An old Norwich plan wouldn't have BG American in its default list.    If it's a post-2001 plan taken out prior to rebranding to Aviva, then the defaults would either be the With-Profits fund or the mixed equity fund (would have been called balanced managed at the time).   From memory, external fund house links didn't come in until around the early 2000s.

Twentytwothousand

Plot thickens - most of my money is invested in funds with the Risk Rating 6.  A few smaller bits in Rating 4.  So presumably I should have derisked this back in October before the funds lost so much. Still dropping alarmingly (appreciate alarming is a relative term but over £20k in a month is 15% of this particular pension and the other pensions have stayed steady).  Is it time to get a financial advisor?   Have had two lots of Pension Wise and a long chat with Aviva!