Predictions for pensions 2025- million dollar question

bolwin1

Richardbajor said:

........

I don't think anyone has responded to my query about whether the situation today in the stock market is below average trends and, all things being equal, ought to improve next year or if we are just about at a new normal.

The stock market is either going to go up, go down, or stay the same in 2025. The market has already priced in what it thinks is going to happen in 2025 & a bunch of (mainly) amateur investors on a forum isn't going to be 'smarter' than the market. 

Linton

Richardbajor said:

.........
I don't think anyone has responded to my query about whether the situation today in the stock market is below average trends and, all things being equal, ought to improve next year or if we are just about at a new normal.

If short term market movements really matter to your future (and 1 year is very short term) you are likely to be invested at too high a risk.  No-one has any usable idea where the markets will be in a year's time.  If a significant number of people did, they would buy or sell as appropriate now thus changing the current market price to invalidate the prediction.

shortseller09

Richardbajor said:

 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?

Who is this Stanley Morgan you speak of?

incus432

Richardbajor said:

I'm 18 months away from my ideal date to take a pension annuity

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%.

As others have said if a drop of 10%+ would faze you perhaps you really should be in safer assets. I assume the 1.5% came from 'safe' equity funds but within the pension is there not a fund just holding cash or short term gilts? If you were in a SIPP you could just buy a single gilt maturing in 12 -18m, then hold to maturity and you'd know exactly what you're getting back. Eg TY25 matures Oct 2025 and the yield to maturity is currently 4.59%. 

Richardbajor

shortseller09 said:

Richardbajor said:

 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?

Who is this Stanley Morgan you speak of?

Oooops :-)

Richardbajor

incus432 said:

Annuity rates are closely linked to the 15 year gilt (UK govt bonds) yields. In general as investors worry about equities they 'flee to safety' and gilts, so bond prices rise and yields fall.  Eg when there were fears of a Covid recession and a no-deal Brexit, yields hit an all time low of 0.162% in March 2020.  

For the future it depends where you think interest rates will go. Will inflation rise or fall? 

Thanks to everyone who replied and especially this post.

Enough people have put the fear of God into me to play safe.  I have now changed my retirement date to when I expect to take the pension and I believe the workplace pension scheme will adjust accordingly on their planned retirement pathway and invest in much safer funds which I think means a lot of bonds. They say they target a "Growth rate of CPI plus scheme charges".  I am now considering, based on this comment and others who have commented about annuity rates of taking my pension even earlier from the date I stop working in July 2025 and fingers crossed the annuity rates hold up until then. I was aware annuity rates moved around but hadn't fully considered how much they could change and wreck Plan A!

I could respond to some of the specific points made but I doubt people are that interested in my personal circumstances just as long as you know that the advice was useful and appreciated.  Not one post which wasn't. 

As long as annuity rates don't crash then I am pretty sure I have done the sums to know that both myself and my wife (who has a mostly final salary scheme anyway) will be comfortable in retirement I and can stop thinking about things like investments and drawdowns and fund performances, which is the main thing for me rather than chasing 18 months of further gains.

Hoenir

Richardbajor said:

incus432 said:

Annuity rates are closely linked to the 15 year gilt (UK govt bonds) yields. In general as investors worry about equities they 'flee to safety' and gilts, so bond prices rise and yields fall.  Eg when there were fears of a Covid recession and a no-deal Brexit, yields hit an all time low of 0.162% in March 2020.  

For the future it depends where you think interest rates will go. Will inflation rise or fall? 

Thanks to everyone who replied and especially this post.

Enough people have put the fear of God into me to play safe.  I have now changed my retirement date to when I expect to take the pension and I believe the workplace pension scheme will adjust accordingly on their planned retirement pathway and invest in much safer funds which I think means a lot of bonds. They say they target a "Growth rate of CPI plus scheme charges".  I am now considering, based on this comment and others who have commented about annuity rates of taking my pension even earlier from the date I stop working in July 2025 and fingers crossed the annuity rates hold up until then. I was aware annuity rates moved around but hadn't fully considered how much they could change and wreck Plan A!

I could respond to some of the specific points made but I doubt people are that interested in my personal circumstances just as long as you know that the advice was useful and appreciated.  Not one post which wasn't. 

As long as annuity rates don't crash then I am pretty sure I have done the sums to know that both myself and my wife (who has a mostly final salary scheme anyway) will be comfortable in retirement I and can stop thinking about things like investments and drawdowns and fund performances, which is the main thing for me rather than chasing 18 months of further gains.

There's various options when it comes to annuities. Take your time to consider them. Might be that more than one provides your solution. 

incus432

Hoenir said:

Richardbajor said:

incus432 said:

Annuity rates are closely linked to the 15 year gilt (UK govt bonds) yields. In general as investors worry about equities they 'flee to safety' and gilts, so bond prices rise and yields fall.  Eg when there were fears of a Covid recession and a no-deal Brexit, yields hit an all time low of 0.162% in March 2020.  

For the future it depends where you think interest rates will go. Will inflation rise or fall? 

Thanks to everyone who replied and especially this post.

Enough people have put the fear of God into me to play safe.  I have now changed my retirement date to when I expect to take the pension and I believe the workplace pension scheme will adjust accordingly on their planned retirement pathway and invest in much safer funds which I think means a lot of bonds. They say they target a "Growth rate of CPI plus scheme charges".  I am now considering, based on this comment and others who have commented about annuity rates of taking my pension even earlier from the date I stop working in July 2025 and fingers crossed the annuity rates hold up until then. I was aware annuity rates moved around but hadn't fully considered how much they could change and wreck Plan A!

I could respond to some of the specific points made but I doubt people are that interested in my personal circumstances just as long as you know that the advice was useful and appreciated.  Not one post which wasn't. 

As long as annuity rates don't crash then I am pretty sure I have done the sums to know that both myself and my wife (who has a mostly final salary scheme anyway) will be comfortable in retirement I and can stop thinking about things like investments and drawdowns and fund performances, which is the main thing for me rather than chasing 18 months of further gains.

There's various options when it comes to annuities. Take your time to consider them. Might be that more than one provides your solution. 

Good advice.  Also when it comes to buying the annuity, make sure you shop around  - the amount you can get can vary a lot with insurer.  Get an idea first with Moneyhelper  https://comparison.moneyhelper.org.uk/en/tools/annuities 

An IFA - if you can find one who will just do execution only-  can get the best rate even after paying their fee (aim for 1% of the pot). Otherwise try Sharing Pensions https://www.sharingpensions.co.uk/annuity_quote.htm or Retirement Line https://www.retirementline.co.uk/ who are well known brokers - used them recently to buy a fixed term annuity and they were very clear about options and also super efficient

OldScientist

Richardbajor said:

incus432 said:

Annuity rates are closely linked to the 15 year gilt (UK govt bonds) yields. In general as investors worry about equities they 'flee to safety' and gilts, so bond prices rise and yields fall.  Eg when there were fears of a Covid recession and a no-deal Brexit, yields hit an all time low of 0.162% in March 2020.  

For the future it depends where you think interest rates will go. Will inflation rise or fall? 

Thanks to everyone who replied and especially this post.

Enough people have put the fear of God into me to play safe.  I have now changed my retirement date to when I expect to take the pension and I believe the workplace pension scheme will adjust accordingly on their planned retirement pathway and invest in much safer funds which I think means a lot of bonds. They say they target a "Growth rate of CPI plus scheme charges".  I am now considering, based on this comment and others who have commented about annuity rates of taking my pension even earlier from the date I stop working in July 2025 and fingers crossed the annuity rates hold up until then. I was aware annuity rates moved around but hadn't fully considered how much they could change and wreck Plan A!

I could respond to some of the specific points made but I doubt people are that interested in my personal circumstances just as long as you know that the advice was useful and appreciated.  Not one post which wasn't. 

As long as annuity rates don't crash then I am pretty sure I have done the sums to know that both myself and my wife (who has a mostly final salary scheme anyway) will be comfortable in retirement I and can stop thinking about things like investments and drawdowns and fund performances, which is the main thing for me rather than chasing 18 months of further gains.

One of the reasons for investing in bonds before buying an annuity is that it, to some extent*, locks in the amount of income that can be purchased. For example, if yields fall, then annuity payout rates will also fall, but bond prices (and the value of bond funds) will rise. As we have seen over the last few years, the opposite is also true, if yields rise then annuity payout rates will also rise, but bond prices will fall. It is price multiplied by payout rate that determines the amount of income. In other words, by investing in bonds, the amount of income you can buy in 18 months should be roughly equal to the amount you can buy now (this is why lifestyle funds designed for annuity purchase become bond heavy close to retirement).

* Technically, for the income stream to remain close to constant, the duration of the annuity (roughly equal to half of life expectancy at purchase plus the delay to purchase) and the duration of the bond fund need to be roughly equal ('duration matched'). The duration of the fund depends on what index it is tracking, e.g., 'all stocks' gilt funds such as VGOV currently have durations of around 9.3, while 'over 15 year' gilt funds (e.g., Vanguard U.K. Long Duration Gilt Index Fund) have a duration of about 16 years (these are nominal gilt funds, an RPI annuity should, in principle, be duration matched to a inflation linked gilt fund).