Target for Average Pension Pot growth

bamgbost

Is there a standard target for the growth of a pension pot. Obviously to beat inflation i guess.
But if one consistently gets 2% rise every year, is this enough? Would there be a time to consider switching what funds are being invested in?

Just wondered, as I review my pension portfolio, what is a satisfactory growth rate, on average? Any thoughts?

JoeCrystal

You should take inflation into account personally. 2 percent increases against 2 percent inflation only mean the value have not increased at all in today's term.

Moonwolf

I use growth over inflation and I have it as a factor in my spreadsheet.  Some people have an inflation line and a growth line but over 25 - 30 years of retirement I can't see guessing them separately will be anymore accurate than predicting the difference, and it is the difference that is important.  

I use 2.5% growth over inflation as a default but check "what-if" with 2% and 1.5%, in my case each .5% has me running out of DC pot about 4 years earlier.

2.5% over inflation is probably a little over generous but my core expenditure is covered by DB and state pensions.  I would use 2% if I only had DC pots. 

Of course real general inflation, CPI and personal inflation might all be different and if there is a big difference between growth and inflation, then you might have to tweak your behaviour or spending to accommodate it.

Linton

The average target should be what you need.  Have you considered what level of return you may need to retire when you would like to at an acceptable standard of living?  The higher your target the more volatile the returns and the greater the chance of not meeting your target when you need to.  So it's a matter of balance.  Though we dont know  your age and it may be rather early to go into such considerations 

Over the medium to long term 2% would be very poor, why would you be satisfied with that since it would be below inflation and probably well below average savings rates? If you invested in widely diversified equity (share) funds over the past 25 years you would have averaged near to 8%/year.  However that has varied considerably. In the 10 years from August 2000 the average was close to zero.  No-one knows what will happen in the next 25 years.

If you let us know what fund(s) you are invested in and how much time you have until retirement people wil be able to comment on your choice.

bamgbost

Thanks for the comments so far guys. My Q is a General one really,  to help me and hopefully help others in future who come across the thread.

I have roughly 30 years til state retirement age. So I have a bit of time and can defo take more risk, than a 60 year old i guess.

I am doing ok currently. And contribute towards my pension each month. I have 3 pots in total and they currently sit in employers default funds. 1 has done really well and doubled in value over 8 years. whereas 1 has only increased by 4% over 4 years.

The latter is what has prompted my Q really, as to what is a realistic growth expectation, and when is a good time to reconsider the current investments.

Hope this is all clear

Hoenir

Investment returns are extremely variable. Over many years I set the long objective of returning inflation plus 2%. This makes allowance any charges. The more you can save earlier the greater the possibilty that you'll meet your target. As it's reinvestment of income from the portfolio that ultimately does much of the heavy lifting in the latter years. 

dunstonh

Is there a standard target for the growth of a pension pot.

No.  Such a thing would not be possible due to the wide variety of assets that can be held.     You can use a projection rate based on the assets you use though.

Would there be a time to consider switching what funds are being invested in?

 Some people may drop a risk profile as they move from growth to accumulation.  Some people will be sure they are buying an annuity and derisk for that.    

Just wondered, as I review my pension portfolio, what is a satisfactory growth rate, on average? 

Without knowing the assets, no-one can answer that.

A safe option is to assume no growth and no inflation and take you calculations as the spending power today.  It will likely understate reality but that is not necessarily a bad thing.

SouthCoastBoy

I model 1% growth after inflation for equities and -1.5% growth after inflation for cash. 

bamgbost

Thanks all, sounds like we all just wanna beat inflation. hopefully by 2%+ is ideal. thanks!

Hoenir

bamgbost said:

Thanks all, sounds like we all just wanna beat inflation. hopefully by 2%+ is ideal. thanks!

Market movements can be misleading. Ultimately the markets will reflect the real world of commerce. Global growth is projected to be a little over 3% in both 2024 and 2025. Having one's feet grounded avoids disappointment.  When equities have an extended period of dull performance. 

Bostonerimus1

There are at least two perspectives on how much return you should target; how much you need for your retirement goals and how much you expect from your asset allocation. The first will involve the amount of your contributions and their frequency along with the return and will give you a final pension pot size to meet your capital and income needs. The second is just the expected return of the combination of investments in your portfolio which is usually estimated from historical data. A cap weighted, stock heavy portfolio might get you an annual average of 8% over the long term. With inflation around 2%, if you were to get 2% above that ie 4% then that would be far below many portfolios. Whether or not that's enough for you will depend on your circumstances.