Predictions for pensions 2025- million dollar question

Richardbajor

I'm 18 months away from my ideal date to take a pension annuity but do have savings to give me some flexibility as to when to take it in the event of a crash or short downturn, and with the knowledge that funds largely recovered after 2008 within a couple of years or so.

I have discounted the idea of drawdown as I want safety and know an annuity would give me that. I am in an ethical fund within one of the bog standard workplace pension schemes and the last two years it has returned 9.6% over the past year (December to December- I check my fund value once a month so it obviously swings around a lot and this is actually a lower return than a few months back) and 18% over 2 years which I think would be seen as historically above average returns?  They project something like 1.5% in ultra safe funds and 6.5% in riskier funds, both of these being averages rather than future projections.

Beyond the ethical fund choice, I let the pension company take care of the investments and, like most pension companies, they base their risk on age to retirement. So the tweak I can do is change my projected retirement age to go safer as currently I have it set as 7 years until retirement.

6 months from taking my annuity I would want to go safe but maybe not 18 months away. I hate the idea of taking 1.5% (and maybe no guarantee on that) for a relatively long period when I'm currently averaging 9%.

I know no-one can predict the future and also that pension decisions are meant to be taken over much longer periods. We couldn't have seen events like Ukraine and Covid and no-one can predict the outcome of the early stages of a Trump presidency, but I wanted people's general gut feelings on likely fund performance next year.  Are we still a bit below normal and recovering from Ukraine & Covid or is this a new normal? By example, and I only have  a vague correlation between the ftse250 and my fund value, the ftse250 was 21,700 just before covid, after a crash 18 months after covid it was up to 23,500 and 20,500 today. So is this the new normal or are we still due a recovery to get back to normal? The projections from companies like Stanley Morgan seem to think good but they would say that wouldn't they?

I'm sure there are some noobie mistakes in my assessment (especially concerning fund investments) so please feel free to correct any errors.  Not asking for specific advice as this would be impossible to predict accurately but a general vibe would be helpful for my decision making on whether and when to go safe or not.

Hoenir

Richardbajor said:

6 months from taking my annuity I would want to go safe but maybe not 18 months away. I hate the idea of taking 1.5% (and maybe no guarantee on that) for a relatively long period when I'm currently averaging 9%.

How would you feel if your portfolio took a negative turn ? Being more aggressively positioned the downside of the portfolio being worse than that of a defensive portfolio. Risk is a double edged sword. There's a premium on equities for good reason. Appetite for risk is very much a personal decision. Easy to become complacent when times have been good for an extended period of time. 

LHW99

I think the reason lifestyling / reducing "risk" was originally that, if you were taking an annuity, because the lower "risk" funds would have a high(er) level of bonds so that even if the capital value of those bonds decrease, the income from them would increase, so you would generally get a similar amount as annuity income because that is also dependent on bond yields.

Those lifestyle funds would often start moving towards bonds from 5 or even 10 years before the nominated retirement date. Since more people go to drawdown, lifestyling is less popular, but only changing 6 months before seems a little late to me, if the aim is to protect the fund for an annuity.

badmemory

Have you had an actual quote for an annuity.  It might be worth looking.  I got one at 70 for mine & just withdrawing that amount per year would mean it would last until 90.  I think this is why people seem to be moving away from them.

Albermarle

Richardbajor said:

I'm 18 months away from my ideal date to take a pension annuity but do have savings to give me some flexibility as to when to take it in the event of a crash or short downturn, and with the knowledge that funds largely recovered after 2008 within a couple of years or so.

I have discounted the idea of drawdown as I want safety and know an annuity would give me that. I am in an ethical fund within one of the bog standard workplace pension schemes and the last two years it has returned 9.6% over the past year (December to December- I check my fund value once a month so it obviously swings around a lot and this is actually a lower return than a few months back) and 18% over 2 years which I think would be seen as historically above average returns?  They project something like 1.5% in ultra safe funds and 6.5% in riskier funds, both of these being averages rather than future projections.

Beyond the ethical fund choice, I let the pension company take care of the investments and, like most pension companies, they base their risk on age to retirement. So the tweak I can do is change my projected retirement age to go safer as currently I have it set as 7 years until retirement.

6 months from taking my annuity I would want to go safe but maybe not 18 months away. I hate the idea of taking 1.5% (and maybe no guarantee on that) for a relatively long period when I'm currently averaging 9%.

I know no-one can predict the futureand also that pension decisions are meant to be taken over much longer periods. We couldn't have seen events like Ukraine and Covid and no-one can predict the outcome of the early stages of a Trump presidency, nor can we predict many other unknown things that might happen as no one can predict the future. but I wanted people's general gut feelings on likely fund performance next year.  Are we still a bit below normal and recovering from Ukraine & Covid or is this a new normal? By example, and I only have  a vague correlation between the ftse250 and my fund value, the ftse250 was 21,700 just before covid, after a crash 18 months after covid it was up to 23,500 and 20,500 today. So is this the new normal FTSE 250 is a very minor index in global terms or are we still due a recovery to get back to normal? Nobody knows as nobody can predict the future The projections from companies like Stanley Morgan seem to think good but they would say that wouldn't they?

I'm sure there are some noobie mistakes in my assessment (especially concerning fund investments) so please feel free to correct any errors.  Not asking for specific advice as this would be impossible to predict accurately but a general vibe would be helpful for my decision making on whether and when to go safe or not.

Comments in bold,( you may notice a pattern)

As mentioned in the previous posts, it is not worth risking a big drop at this stage, just because of FOMO of a bit of extra growth.

incus432

badmemory said:

Have you had an actual quote for an annuity.  It might be worth looking.  I got one at 70 for mine & just withdrawing that amount per year would mean it would last until 90.  I think this is why people seem to be moving away from them.

Not sure what you mean here. Most annuities are for life so it would last until you die.  Did you mean if you took the amount of the annuity as drawdown instead?

incus432

Richardbajor said:

I'm 18 months away from my ideal date to take a pension annuity but do have savings to give me some flexibility as to when to take it in the event of a crash or short downturn, and with the knowledge that funds largely recovered after 2008 within a couple of years or so.

I have discounted the idea of drawdown as I want safety and know an annuity would give me that. I am in an ethical fund within one of the bog standard workplace pension schemes and the last two years it has returned 9.6% over the past year (December to December- I check my fund value once a month so it obviously swings around a lot and this is actually a lower return than a few months back) and 18% over 2 years which I think would be seen as historically above average returns?  They project something like 1.5% in ultra safe funds and 6.5% in riskier funds, both of these being averages rather than future projections.

Beyond the ethical fund choice, I let the pension company take care of the investments and, like most pension companies, they base their risk on age to retirement. So the tweak I can do is change my projected retirement age to go safer as currently I have it set as 7 years until retirement.

6 months from taking my annuity I would want to go safe but maybe not 18 months away. I hate the idea of taking 1.5% (and maybe no guarantee on that) for a relatively long period when I'm currently averaging 9%.

I know no-one can predict the future and also that pension decisions are meant to be taken over much longer periods. We couldn't have seen events like Ukraine and Covid and no-one can predict the outcome of the early stages of a Trump presidency, but I wanted people's general gut feelings on likely fund performance next year.  Are we still a bit below normal and recovering from Ukraine & Covid or is this a new normal? By example, and I only have  a vague correlation between the ftse250 and my fund value, the ftse250 was 21,700 just before covid, after a crash 18 months after covid it was up to 23,500 and 20,500 today. So is this the new normal or are we still due a recovery to get back to normal? The projections from companies like Stanley Morgan seem to think good but they would say that wouldn't they?

I'm sure there are some noobie mistakes in my assessment (especially concerning fund investments) so please feel free to correct any errors.  Not asking for specific advice as this would be impossible to predict accurately but a general vibe would be helpful for my decision making on whether and when to go safe or not.

You also need to consider that annuity rates can change as well, quite dramatically (they are linked to 15 year gilt rates)  - see chart. So buying an annuity in Dec 2020 would have been a bad deal for example.

source:  https://www.sharingpensions.co.uk/annuity-rates-chart-latest.htm

Altior

This analysis is about as good as it gets for free, imo. My own opinion is a money market fund is a very appealing place to be in the short - medium term. The challenge is when to flip back into risk taking, however another unusually low central bank rate era doesn't look an immediate prospect. 

It's obvious, but worth reiterating perhaps that there's no need to have every egg in the same basket. You can hedge your position. 

Can The Stock Market Keep This Up?

QrizB

badmemory said:

Have you had an actual quote for an annuity.  It might be worth looking.  I got one at 70 for mine & just withdrawing that amount per year would mean it would last until 90.  I think this is why people seem to be moving away from them.

At 70 and in reasonable health you've a pretty good chance of living to 90. You can think of an annuity as longevity insurance. You can also choose an annuity with value protection or a 20-year guarantee.
Of course, if you're sure you're going to die before then due to eg. a life limiting illness, you should qualify for an enhanced annuity.

Cus

If you are committed to buying an annuity then I would move it all into bond funds.
  
I never fully understood the issue with the crash in bonds 2 years ago if you were planning an annuity, as if you have £100k to buy an annuity you could have got £3k a year before, now you can get £6k, but your fund is now worth £50k so you end up the same.

incus432

Cus said:

If you are committed to buying an annuity then I would move it all into bond funds.
  
I never fully understood the issue with the crash in bonds 2 years ago if you were planning an annuity, as if you have £100k to buy an annuity you could have got £3k a year before, now you can get £6k, but your fund is now worth £50k so you end up the same.

And if you held it in cash or MMF you'd have twice as much....

Also depends highly on which bond funds you held and the terms of those - they performed very differently. Short term much less volatile