Age to take my personal pension

Shimrod

I suspect a lifestyling pension investment, and at age 65 it assumes fully out of equities and into low risk investments. Once fees are taken into account these deliver less than inflation and that's why the annual pension estimate drops at 70 and 75

tacpot12

The assumptions confirms that the illustration factors in price inflation (2.5% pa), that your current regular contributions continue, and the invested funds continue to grow until you buy the annuity that gives you the guaranteed income. 

I've tried to model their calculation and can see that for ages 55, 60 and 65 (so upto retirement age) my model works IF you haven't contributed. This could be a fault with my model or it could be that they aren't counting any of your contributions as 'regular contributions' so that the fund is only growing due to the performance of the funds. I would ask them what level of contributions were used in their illustration of your guaranteed pension. 

While you are at it, you might as well ask them what fugure they used for the performance of the funds after charges. My model suggests their figure to be about 3.2%.

I still can't explain why they say your pension falls if you take it later. It doesn't make any sense. Even at the conservative growth rate of 3.2%, you are outstriping the rate of inflation in their assumptions. Including contributions of £9000 a year further increases the rate at which the fund is growing in excess of inflation.

My model estimates the final value of your funds to be: 

At 60: £263,000
At 65: £322,000
At 70: £384,000
At 75: £450,000

Given that annuity rates RISE as you get older, you would expect to see rapidly rising levels of income with each year you defer retirement, especially if you keep contributing at your current rate. The effect of the low rate of inflation stated in the assumptions cannot outstrip the growth and extra contributions you are making, so your income should always go up if you defer retirement.  







 

DRS1

Until I read @tacpot12's post I would have thought the explanation lay with the assumption that you stop contributing at 65.

I think the best thing to do is to focus on the current value of the pension what you contribute to it and what it is invested in rather than the projected pension in 10 or 20 years time.  The one thing you can say about the projections is that they won't come true.

Shimrod

DRS1 said:

Until I read @tacpot12's post I would have thought the explanation lay with the assumption that you stop contributing at 65.

I think the best thing to do is to focus on the current value of the pension what you contribute to it and what it is invested in rather than the projected pension in 10 or 20 years time.  The one thing you can say about the projections is that they won't come true.

I think the assumptions for growth are going to be more pessimistic than @tacpot has allowed. I had a look at one of my pension statements from last year, and the assumed growth rate for equity investments was 2.4%. For multi-asset funds it was 0.5%, so after allowing for fees if the fund is lifestyled then it would show a reduction in fund value (and income) from 65. 

you would think though that the reduced years it has to fund would see the estimated income still go up though.

Albermarle

Shimrod said:

DRS1 said:

Until I read @tacpot12's post I would have thought the explanation lay with the assumption that you stop contributing at 65.

I think the best thing to do is to focus on the current value of the pension what you contribute to it and what it is invested in rather than the projected pension in 10 or 20 years time.  The one thing you can say about the projections is that they won't come true.

I think the assumptions for growth are going to be more pessimistic than @tacpot has allowed. I had a look at one of my pension statements from last year, and the assumed growth rate for equity investments was 2.4%. For multi-asset funds it was 0.5%, so after allowing for fees if the fund is lifestyled then it would show a reduction in fund value (and income) from 65. 

you would think though that the reduced years it has to fund would see the estimated income still go up though.

These figures are very low, so I would guess that these are after inflation ( 2.5%?)has been taken into account ?

Shimrod

Albermarle said:

Shimrod said:

DRS1 said:

Until I read @tacpot12's post I would have thought the explanation lay with the assumption that you stop contributing at 65.

I think the best thing to do is to focus on the current value of the pension what you contribute to it and what it is invested in rather than the projected pension in 10 or 20 years time.  The one thing you can say about the projections is that they won't come true.

I think the assumptions for growth are going to be more pessimistic than @tacpot has allowed. I had a look at one of my pension statements from last year, and the assumed growth rate for equity investments was 2.4%. For multi-asset funds it was 0.5%, so after allowing for fees if the fund is lifestyled then it would show a reduction in fund value (and income) from 65. 

you would think though that the reduced years it has to fund would see the estimated income still go up though.

These figures are very low, so I would guess that these are after inflation ( 2.5%?)has been taken into account ?

That's correct. It's the only statement I had easily to hand, but the last statement I had from another pension (since transferred) had negative growth estimates after fees.

Edit: I've just checked my ii application form - that shows a 12% decrease in funds over 10 years in today's prices with just one (4%) withdrawal in year one when projected at the lower growth rate. That's using a growth rate of 2% on collective funds and -1.6% on cash.

DRS1

I had a look back at some old annual statements for one of my Aviva pensions.  They seem to have consistently assumed 7% investment return and 2.5% inflation.  I am thinking those assumptions may have been prescribed by regulations?

Albermarle

DRS1 said:

I had a look back at some old annual statements for one of my Aviva pensions.  They seem to have consistently assumed 7% investment return and 2.5% inflation.  I am thinking those assumptions may have been prescribed by regulations?

The providers used to be a bit overoptimistic in their projections, but nowadays they tend to be too pessimistic.
Some offer more than one scenario; high growth, medium growth etc 

snowlaser

Shimrod said:

I suspect a lifestyling pension investment, and at age 65 it assumes fully out of equities and into low risk investments. Once fees are taken into account these deliver less than inflation and that's why the annual pension estimate drops at 70 and 75

It's only a guess but this would be my guess too.  Because you have set a retirement age of 65 it probably is projecting that by age 65 all your investments will be something like 25% cash 75% bonds from age 65 onwards, which then fails to even keep pace with inflation over the next 10 years, leading to lower pension amounts in today's money terms.

In reality presumably you would not follow that kind of an investment strategy if you planned to retire later than 65, or planned to do income drawdown.

lionel_hutz

Thanks for all the comments, that’s been really useful. I’m going to take a look at what my pension is invested in and compare to other funds as well as a a few other pensions I think