Pension contribution Panic

Spivo46

I am paying big numbers into AVC's and a workplace pension for a couple of years now. Also about to pay £17k of my redundancy in as well! The pension balance is the same as it was 2 years ago and i fully understand why that is. Can someone please explain why it makes sense to continue piling money in and watching it shrink in value please? It feels like piling money into a Black Hole/Wheelie Bin. Would i be better off taking my wages and paying the 20% tax! I am looking for some educated guidance that i am still doing the right thing please. I will need to access some of my 25% tax free money in 12 months - Thank you!

cloud_dog

Could you confirm who the AVC account is with, what funds the AVC monies are invested in, and how much in total are we talking about (in the AVC)? 

Spivo46

Account with Aviva. its classed as a moderate/cautious fund and about 50k (smaller part of the total fund of 500k in total)

cloud_dog

Spivo46 said:

Account with Aviva. its classed as a moderate/cautious fund and about 50k (smaller part of the total fund of 500k in total)

So, I would presume that this fund is likely to hold a reasonable/ significant portion of the investments in bonds.  Bonds had an unusually bad year yesterday (due to coming out of QE, inflation, quickly rising interest rates), so you need to bear that in mind, and that was in addition to the more recent turmoil affecting equities due to potential slow down ion economic growth.

If you listed the fund someone might be able to compare the performance against other similar funds / benchmarks and see if the performance is bad or simply appropriate for the investment exposure it has.

dunstonh

First you say:

he pension balance is the same as it was 2 years ago and i fully understand why that is. 

Then you say:

Can someone please explain why it makes sense to continue piling money in and watching it shrink in value please? 

So, the reality is that you do not understand why that is.

Investments zig zag on a daily basis but in an upward direction.   Over the long term, you average round 1 in 5 being a negative year.   2022 was a negative year.   So, was 2018.  (2015/16 had a strong negative period that straddled the calendar years and didn't result in either being negative), Some areas were negative in 2012, 2008 was a big negative year.

You average out the ups and downs.   Currently we have been in a downward period, which is a good time to be buying.  When it goes up, it will be these cheaper units you have bought that make the most money.  Not the ones you bought in 2021 when markets were higher and you were not worried about it.

Workerdrone

Investments zig zag on a daily basis but in an upward direction.   Over the long term, you average round 1 in 5 being a negative year.   2022 was a negative year.   So, was 2018.  (2015/16 had a strong negative period that straddled the calendar years and didn't result in either being negative), Some areas were negative in 2012, 2008 was a big negative year.

You average out the ups and downs.   Currently we have been in a downward period, which is a good time to be buying.  When it goes up, it will be these cheaper units you have bought that make the most money.  Not the ones you bought in 2021 when markets were higher and you were not worried about it.

Similar feeling here. I have one pot of which 25k was the growth. It's 100% in equities. Ive seen that paper profit sink to 5k over the last year and a bit (well actually I've seen it sink to £400 at one point) whilst putting in £17kpa. It does feel rather strange being unable to crack the psychological 100k barrier. Ive learned just to rill my eyes and press on against that unachievable target. I get how the OP feels about piling money into a black hole, but also keep coming back to reading advice like Dunstonh's above. Basically this is the time where you make money by buying units at a lower price.

Pat38493

Someone once said “the stock markets reward the patient, and punish the rest”.

As Dunstoh said, when markets go down you are buying units at a “bargain” price.  The question is not what is your investment worth today but how will it evolve over the next decades until and after your retirement.  Long term history indicates that it will probably increase but with a lot of short term volatility.

I am in the same situation - putting money in at the full AA rate but my investments balances are pretty much staying static as they are losing money as fast as I’m putting it in.  I will stick to my guns. 

Workerdrone

I must remember to dredge up this post when the tide eventually turns and comment on how it worked out

Spivo46

Pat38493 said:

Someone once said “the stock markets reward the patient, and punish the rest”.

As Dunstoh said, when markets go down you are buying units at a “bargain” price.  The question is not what is your investment worth today but how will it evolve over the next decades until and after your retirement.  Long term history indicates that it will probably increase but with a lot of short term volatility.

I am in the same situation - putting money in at the full AA rate but my investments balances are pretty much staying static as they are losing money as fast as I’m putting it in.  I will stick to my guns. 

Thank you, i appreciate the feedback. My main concern was the short term (in 12 months) when i want to take as little of the 25% tax free as possible, but still around 10%. At that point i will be "locking in some losses" with a view to eating into it yearly going forward. Its just bad timing and misfortune. I don't think pension information is shared at the level it needs to be generally. I would estimate the majority of the population don't really understand that is a certain amount of gambling involved. 

Spivo46

Workerdrone said:

I must remember to dredge up this post when the tide eventually turns and comment on how it worked out

...and i hope that day comes sooner than expected

Pat38493

Spivo46 said:

Pat38493 said:

Someone once said “the stock markets reward the patient, and punish the rest”.

As Dunstoh said, when markets go down you are buying units at a “bargain” price.  The question is not what is your investment worth today but how will it evolve over the next decades until and after your retirement.  Long term history indicates that it will probably increase but with a lot of short term volatility.

I am in the same situation - putting money in at the full AA rate but my investments balances are pretty much staying static as they are losing money as fast as I’m putting it in.  I will stick to my guns. 

Thank you, i appreciate the feedback. My main concern was the short term (in 12 months) when i want to take as little of the 25% tax free as possible, but still around 10%. At that point i will be "locking in some losses" with a view to eating into it yearly going forward. Its just bad timing and misfortune. I don't think pension information is shared at the level it needs to be generally. I would estimate the majority of the population don't really understand that is a certain amount of gambling involved. 

Yes - ideally you don't want to be taking a large amount out at times when the market is down.  Best thing you can do is model your retirement in some kind of spreadsheet or modelling tool and see if the plan you have will survive these kind of unfortunate timing issues.

I am probably going to stop or curtail work in the next 1-3 years and I am still heavily in equities, so I am exposed to a lot of further short term losses - I have used a demo version of Timeline to model this and it still seems ok when modelled against history - also I am not that committed that I could not delay things if needed.