Pension statements - inconsistent values

sandsy

There was a significant change in the growth assumptions that pension schemes had to use for statutory money purchase illustrations for statements prepared after 1 October 2023. So if your 2023 statement was prepared before the change, the statements are not directly comparable.

The growth rate assumption is now based on the past volatility of different asset types. (Previously pension schemes used a best estimate growth rate for each asset type.) Assets with higher volatility use a higher growth rate assumption.  Bond volatility has been unusually high in recent years. So if you are invested in funds including bonds, the illustration is likely using much higher growth rates than previously.

Also, the rules on what type of annuity to use are now more specific. I think it now has to be a single life, level annuity. Previously, many schemes assumed a joint life annuity increasing with inflation. The change would result in a much higher starting income.

gm0

The journey a particular scheme and set of trustees takes is also a function of the population, age demographic.  And the default funds used prior.  The incentives and risk mitigation intended. 
What makes sense varies a bit.  Scheme A and B may differ - and that be valid in context.

My old occupational scheme default was a FTSE All Share tracker UK 100% for a really long time.  Prior to lifestylng.  Unremarkable then - 1980s.  Odd later.  Fashions change.   Global equities good.  FX risk no longer viewed as being as important as before.  So home market bias goes badly out of fashion. c.f debate on VG funds having "too much" UK.

Then they stuck a more global equities "lifestyler" bond switcher at retirement -10 - over on top of it.

With a view to moving the majority of the population on.  But you could opt out for "freestyle" fund selection from a limited range.  Which I did.  Cheap global equities 100%. Individual Multi-asset funds only arrived quite late in the day for us other than via the lifestyler.

The FCA were pushing introduction of lifestyling hard onto trustees as an obligation to deal with sudden market drops around annuity purchase locking in a halving of pension for the whole of retirement.  With forced annuity purchase this was a real problem then.  And could be again when the last person who remembers leaves the building and something new and stupid resets the clock. 

All long before drawdown was thing.  Lifestyling with lump sum and drawdown focus and different views on the correct investment mix for those comes in a lot later on. WIth the usual occupational scheme lagging a year or three until admin renewal.

My pick your own fund 100% equities approach - of course - generated 50% losses at certain points - 2007/8 as example.

The other disadvantage of the freestyle 100% approach is that in your 50s you will need - at some point - to restructure to your de-accumulation investment posture.  Unless that is also 100% (which for most - it isn't). 
Whether this is incremental or a snap change.  And you need to be content with the market conditions of the time you have worked out what you are going to do.  

Anyone derisking DIY or advised just prior to the bond reset - buying lots of bonds at the top - will be very sore about it.  There have been a few "what the hell happened here's" on the board.  A lot of received wisdom back then - was not that it would all be as sudden as it was or the spike so high.  Same of course applies with a volatility dip for equities as with the fairly short early covid dip.

IdrisJazz

dunstonh said:

 I was notified, but like most punters, was not really aware of what was changing.

Ignoring what you are being told and then moaning about it later is rarely a good way to do things.

I remain peeved. I think 30 years from retirement is way too early to start reducing the risk - some people don't even start a pension until they are 25, and want to retire in their 50s... And this is their approach with a "flexible income focus"!!!

If only they had notified you....

Over the last 3 years, the MIF has "grown" by -0.1% compared to +22% for global equity. There is clearly quite a difference in the investment strategy.

Different research gives different outcomes but they are all in the same ballpark.   Lifestyling providers lower returns in around three quarters of cases.    It isn't about maximising return but minimising loss.

I didn't ignore what I was told.

I have found the email, and it is rather vague. It says the trustees are trying to make your money work harder to give you the retirement you want...you don't have to do anything....

It's all very reassuring.

Unfortunately, the link within the email is no longer active, so I can't see what additional information was provided.

It is not personalised (perhaps an unreasonable expectation?), but it gives no indication that we are going to move you from 100% equities to a fund that is only 30% in equities almost overnight. This is not making my money work harder, and in my view is not consistent with the approach I signed up for initially.

I take a good deal of the responsibility. I generally engage well with my pensions, and read anything I am sent. My memory if this was that it seemed like a rebranding exercise, and fully expected my selected approach to be honoured.

I feel they could have done more to explicitly state that they were imposing a slightly more cautious approach on my investment pathway - not relying on people interpreting a one-size-fits-all communication. Had I understood this, I'm confident I would have taken different action.

I doubt there's anything I can do about it - I don't have sufficient evidence to prove I've been misled about what they've done with my investments.