Why will my pension returns be so low?

[boyse7en]

OK finance gurus.

Firstly, this is not a "should I pay more into my pension?" question. I know I probably should, but can't afford to.

This is a question of where the hell is my pension money going to go when I retire?

Pension company reckons that my pension pot will be worth £142,000 when I reach age 65. From this, it estimates it will be able to pay me £3760 per year in pension.

Now I'm no mathematician, but £142,000/£3760 = 37.8 years before the "pot" runs out. Which means the pension co. will be quids-in if I don't live to over 102 years old, which i fancy is unlikely.
That is without the fact that the pot would be able to earn interest over the nigh-on 40 year period so would have a greater value over the period that £142k anyway.

So why is the return so low? What am I missing?

[boyse7en]

TooLateForAName said:

What are you missing? their profit.

Well, yes, but if i had the £142,000 in cash I'd only have to get 2.65% interest and I could pay the £3760 out of the interest and keep the lump sum untouched! I know its a capitalist society and all that, but in effect it means that Standard life will get to keep my entire pension pot

At the moment it seems to make absolutely no sense to me to keep paying int a pension that won't even pay back 1p of my investment. But millions of people are doing it, and IFAs advise taking out pensions, so it's not so much that I feel hoodwinked but more that I fancy I'm missing something somewhere.

[boyse7en]

sidicks said:

Is it just £3,760 or is that escalating at a fixed amount or with inflation?

Does that include a spouse's benefit and if so at what rate?

Is there a guaranteed period?

In addition to any or all of the above, the chances are that the insurance company that you have your money invested with is not actively seeking longevity risk, but legally has to offer you an annuity.

For this reason they are deliberately providing a low quote to encourage you to take the open market option and seek out the best available market annuity quote.

Currently a fund of £142k would get you a single life, fixed annuity of £8,200 p.a.

That a great help to start with, thanks.

Pension will increase by RPI each year. Guarantee to pay pension until i die, or for first five years if I die before then.

I'm not married, so assume no spouse benefit. It says it assumes i will be married, in which case my spouse would get half of my pension after i die.
Company is Standard Life, in case that helps