Estimating pension pot - fund performance

pledgeX · 12 November 2019 at 2:10PM

I recently received an annual statement on my pension. One of the sections was titled something along the lines of ‘What will me pension be worth when I retire’.

This used my current age (32), my current balance, my expected retirement age (67) and then provided an estimated pension pot size based on three different levels of fund performance. I’m not sure of the exact values as I don’t have the letter to hand, but they’re within +/- 1%:
- Poor (-1.5%)
- Average (-0.5%)
- Good (1.5%)

I think these were adjusted to take inflation into account, but even then, I’m shocked by how low these values are. Is this normal, or is this a case of the company being over-cautious and trying to encourage the customer to invest more?

The pensions is one of those standard group workplace multi-asset lifestyle pensions with decreasing risk levels as you approach retirement. I get that as I near retirement the fund will likely lose money in real terms due to the low risk nature, but I’d still expect a better return than that in the long run.

lisyloo · 12 November 2019 at 2:15PM

It’s normal and they are risk averse and restricted by guidelines to avoid mis-selling claims.

I would ignore these and do your own estimates.
It’s pretty easy if you can use excel.

[Deleted User] · 12 November 2019 at 2:17PM

This is nonsense. Very unhelpful. Short of a major world wide catastrophe you should expect decent growth over a 30 year period (unless you are sitting mostly in cash).

Thrugelmir · 12 November 2019 at 2:35PM

pledgeX wrote: »

I’m shocked by how low these values are. Is this normal, or is this a case of the company being over-cautious and trying to encourage the customer to invest more?

If you wish to have a decent pension in retirement. Then be prepared to save for it. The earlier you do so the greater the possibility of hitting your objective.

El_Torro · 12 November 2019 at 2:35PM

Pension providers tend to give very pessimistic projections these days, mainly because they are told to do so.

What is your pension invested in? Do you know what percentage is in equities, bonds, etc...?

Thrugelmir · 12 November 2019 at 2:59PM

El_Torro wrote: »

Pension providers tend to give very pessimistic projections these days, mainly because they are told to do so.

Better than being over optimistic. Which investors tend to be after a long bull run.

Bezzer65 · 12 November 2019 at 3:07PM

I'd much rather have the pessimistic projections than the pie in the sky ones from the late 80's

- Poor (8%)
- Average (12%)
- Good (16%)

Maybe the above is a little silly but when I signed up for a Private Pension and an Endowment policy, there were some seriously silly figures being banded about.

bostonerimus · 12 November 2019 at 3:08PM

Such projections are worse than useless as they don't provide any idea of the probability of the outcomes. The greatest difficulty people have with pension projections is the idea of uncertainty. They want a single answer, and while that exists somewhere off in the future, it is impossible to know today. So the probability of various levels of return need to be estimated according to current and historical markets and the asset allocation. Only then can statistical bounds be placed on the possible outcomes.

Anonymous101 · 12 November 2019 at 3:19PM

Isn't that adjustments to a mean. i.e. if you were to say the mean was 4% after fee's and inflation then a range of expected returns over the long run would be:

- Poor 2.5% (4%-1.5%)
- Average 3.5% (4%-0.5%)
- Good 5.5% (4%+1.5%)

This would make a lot more sense to me. To say that expected returns over an investing life are 0% or there abouts is nonsense!

Prism · 12 November 2019 at 3:37PM

For what its worth, when I first contributed to my private pension in 1997 I was given projection examples of 3%, 6% and 9% - all after inflation (in todays money as they call it)

I was invested in a mid range multi asset fund (though not one of the cheap ones like today) for much of that and contributed every month for the last 22 years. My return over that time is actually around 5% after inflation so the figures were not too far out I guess. Though my younger self always incorrectly assumed that 9% was more likely simply by wishing it so.

Albermarle · 12 November 2019 at 4:50PM

From comments on other threads , it is expected the next 10 years will not be as good as the last 10 years . Mainly because 10 years ago markets were still suffering the fallout from the big crash and this has made the following 10 years until today a good decade for investors.
So for a medium risk fund over the next 10 years you might only expect say a couple of percent above inflation each year on average. Although nobody knows really .

Estimating pension pot - fund performance

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