Pension statements - inconsistent values

IdrisJazz

I’m rather frustrated by what I consider to be unreliable estimates on my pension statements.

Example 1 – My Lloyds Banking Group pension statement in 2023 gave me:

Current value: £61000

Projected pot: £87400

Projected annuity: £3020

The same pension in 2024 shows:

Current value: £68641

Projected pot: £182,050

Projected annuity: £12,200 (level)

With just investment growth through the year (no additional payments), my projected pot has more than doubled, and my projected income has quadrupled.

 

Example 2 - Compare this with my current employer’s pension statement:

Current value: £38500

Projected pot: Not provided!

Current contribution level: £1006 pm

Projected annuity: £1,525 (increasing with inflation)

 Both these pensions are based on retiring in 2041. My current plan should therefore be expecting me to make 17 x 12 further contributions of £1000 – over £200,000 in further contributions, and yet this will net me a paltry £1500 pa!

Both claim to be using the assumptions consistent with the Statutory Money Purchase Regulations, but the assumptions about increasing annuity payments differ. Even considering this, one or both of these estimates seem to be unreliable. Both clearly state no TFC taken.

I have no intention to buy an annuity, but this is my only way of comparing them as my current employer is unable to provide my projected pot value.

I am comfortable that my retirement funding is on track, since I am pretty pensions-literate, but I don’t feel that these communications are helpful if the figures provided, albeit only estimated, are wildly different.

Am I missing anything important?

IdrisJazz

I'm an idiot!

On reading again, my current employer's scheme is estimating £1525 per MONTH! What an idiot!

Still interested to hear why my LBG estimates have increased so much though!

Mark_d

Example 1
The 2023 projected pot of 87400 is either wrong, or invested in something with little growth.

2024
The current value is higher than in 2023 - as expected.  The projected pot is roughly based on annual growth of 7% - which is reasonable.  The annuity figure is not unreasonable.

Example 2
The projected annuity is wrong.  Potentially this is linked with the inability to calculated the projected pot.

dunstonh

Both claim to be using the assumptions consistent with the Statutory Money Purchase Regulations, but the assumptions about increasing annuity payments differ. Even considering this, one or both of these estimates seem to be unreliable. Both clearly state no TFC taken.

Projections are synthetic calculations using a range of assumptions.    Sometimes the assumptions are very pessimistic.  

I am comfortable that my retirement funding is on track, since I am pretty pensions-literate, but I don’t feel that these communications are helpful if the figures provided, albeit only estimated, are wildly different.Am I missing anything important?

The projection methods are the same as those introduced in 1988.  A few tweaks here and there over the years but they still use the 1988 requirements.    They are long overdue a change but the regulator is the only one that can decide that.  Advisers are not required to use those methods though as you tend to find stochastic modelling, monte carlo or similar is more typically used.

vacheron

I don't think you are missing anything, as you suggested, my advice to anyone less literate is look ONLY at todays actual fund value, and then use this with a simple excel spreadsheet to add your projected fund performance and monthly contributions, and ignore anything your provider "projects". 

I've had projections from Scottish Widows, Friends Provident, and now Royal London and all have been absolutely miles off the mark.

They use loads of assumptions, often massively err on the side of caution, and many are still convinced that you are purchasing an annuity..... and some are just incomprehendable garbage.

As per your experience, my latest Royal London projection also confidently informs me that if I keep paying the my current contribution of £3,025 per month until my retirement age of 67 (17 years time) that I am projected to have amassed a total fund of £157,000 which could provide me with a pension of £4,350 per annum. 🤦‍♂️

It scares me that some people may be using these to plan their future! 

Albermarle

Current value: £61000

Projected pot: £87400

Projected annuity: £3020

The same pension in 2024 shows:

Current value: £68641

Projected pot: £182,050

Projected annuity: £12,200 (level)

Does it say anything about whether the calculations are in real terms/todays money, using an estimate of annual inflation? 

Hoenir

If you want a quick rough and ready guide with which to make comparisons. Take the current fund valuation and see what level of annuity that would buy you if you were 67. As the years pass you can track whether you are on schedule to reach your objectives. Not suggesting that you need ever buy an annuity. But this methology provides a good backstop. Whatever the current market conditions maybe. 

Southend_2

One of my pensions' annual statement this year contained the following info...

When providing you with a value of your estimated pension at retirement, regulations specify the basis on which we must calculate this value. From 1 October 2023 we are required to provide you with an estimated pension assuming you choose a single life annuity (with no surviving spouse’s pension), no annual pension increases and a five year guarantee payment period. Previously, we would have provided you with a value including a spouses pension, annual pension increases and a five year guarantee payment period.

The value of your estimated pension at retirement will also change depending on market conditions. Since 5 April 2023 the change in market conditions has meant that the cost of purchasing an annuity has become much cheaper. As a result of both the change in regulatory requirements and market conditions, the value of your estimated pension at retirement is likely to look significantly more generous than in previous years.

IdrisJazz

Mark_d said:

Example 1
The 2023 projected pot of 87400 is either wrong, or invested in something with little growth.

2024
The current value is higher than in 2023 - as expected.  The projected pot is roughly based on annual growth of 7% - which is reasonable.  The annuity figure is not unreasonable.

Example 2
The projected annuity is wrong.  Potentially this is linked with the inability to calculated the projected pot.

Thanks everyone for your responses.

Mark's comment on example 1 above has triggered something. 

The Lloyds pension was invested in their highest risk lifestyling option. However, I realised a few years ago that the lifestyling was resulting in no equity funds TWENTY YEARS from retirement. I'm still quite upset about this. 20 years is way too early to be switching out, and I think I've lost a fair bit of value as a result.

A couple of years ago I left the lifestyling option and switched most of my holdings out of their "mixed investment fund" into UK and Global equities. This might explain the assumed growth rate change, though the timings don't work out exactly.

dunstonh

A couple of years ago I left the lifestyling option and switched most of my holdings out of their "mixed investment fund" into UK and Global equities. This might explain the assumed growth rate change, though the timings don't work out exactly.

The projection rates are changed for equities, bonds and cash.   So, a change in asset classes would change the projection rates.

Albermarle

The Lloyds pension was invested in their highest risk lifestyling option. However, I realised a few years ago that the lifestyling was resulting in no equity funds TWENTY YEARS from retirement. I'm still quite upset about this. 20 years is way too early to be switching out, and I think I've lost a fair bit of value as a result.

It does not make sense that a highest risk lifestyling option should switch totally out of equites so long before retirement. Normally 10 years out would be typical and even then would be a gradual drop.