Average pension pot growth

[PositronicRay]

It always used to calculated on 7% P.A. for illustration purposes, and reckoned to be about right. Is this a bit optimistic now? Would 4% be a better figure to use?

[softtop]

Interest rates will rise at some point though when who knows. I would use 4% as a safe number

[oldaudi]

Don't forget to add a rate of inflation too. Whatever that is at the moment.

[oop north]

The projection rates pension companies can use have changed - now mid range growth forecast is 2.5% + inflation (but before charges are deducted). Used to be 7% including inflation

In reality, who knows? I don't

[PositronicRay]

Just wondering, I'll need to start digging into the pot in 3yrs or so.

I don't suppose it matters really, it'll be what it'll be. It's only money after all.

[LeoSayer]

Depends what it's invested in, but I'm normally conservative to avoid disappointment.

If it's in equities then it might be best to use both good eg. 8% and bad eg. -8% scenarios to illustrate the risk over the short term before you start drawing on it.

Personally, I tend to leave inflation out of it and just show performance above or below inflation. It's helps to keep the numbers relative to now.

[sidicks]

LeoSayer said:

Depends what it's invested in, but I'm normally conservative to avoid disappointment.

If it's in equities then it might be best to use both good eg. 8% and bad eg. -8% scenarios to illustrate the risk over the short term before you start drawing on it.

Personally, I tend to leave inflation out of it and just show performance above or below inflation. It's helps to keep the numbers relative to now.

You make some good points.

Personally I think too many people focus on the expected / average return and ignore the potential distribution of returns - the average return for equities is a combination of lots of strong years (10-15% +) and lots of poor years (<-5-10%) with few years that actually produce 'average' returns.

Particularly when the OP is referring to just a 3 year investment horizon, then the uncertainly around the returns from risky assets such as equities and credit is significant - you could easily lose 20% on an equity portfolio over such a short period.

Over a short time horizon like this, then the OP should be thinking about investing in short-dated, fixed income assets!

Edited by sidicks on Saturday 12th December 18:42

[Simpo Two]

oop north said:

The projection rates pension companies can use have changed - now mid range growth forecast is 2.5% + inflation (but before charges are deducted).

2.5% before charges? That'll be about the same as a current account then.

[sidicks]

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

[HarryW]

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

What's the current inflation rate? A bit less than the management fees rate probably....

[sidicks]

HarryW said:

What's the current inflation rate? A bit less than the management fees rate probably....

Probably not...

[HarryW]

sidicks said:

HarryW said:

What's the current inflation rate? A bit less than the management fees rate probably....

Probably not...

Inflation for 2015 has been around 0% afaik. Fees are?

[sidicks]

HarryW said:

Inflation for 2015 has been around 0% afaik. Fees are?

CPI inflation has been 0% in some months. That's certainly not the same as saying that future RPI inflation will be zero!!

Which current accounts are paying 2.5% without significant restrictions on account usage? After tax...

Edited by sidicks on Sunday 13th December 20:12

[CarlosFandango11]

HarryW said:

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

What's the current inflation rate? A bit less than the management fees rate probably....

As the OP is asking about an investment return for illustration purposes (an investment return to project what the return on an investment might be in the future), so the current inflation rate (i.e. historic rate of inflation) is not relevant. Instead, an estimate of future inflation would be appropriate to use.

[Simpo Two]

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

The clue is in 'before charges'.

[bogie]

Seems spot on to me

My pension pot has increased just over 40% since 2008 (sounds great, eh?)

Inflation since 2008 is 23% ish (not so good really)

gives about 2.2% growth per year since 2008

0.5% fees already deducted from growth figure

[CarlosFandango11]

Simpo Two said:

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

The clue is in 'before charges'.

I would be curious to know which current accounts you think will pay (2.5% + inflation - charges) for the long term on a pension sized amount (I.e. 10k+)?

[Simpo Two]

CarlosFandango11 said:

Simpo Two said:

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

The clue is in 'before charges'.

I would be curious to know which current accounts you think will pay (2.5% + inflation - charges) for the long term on a pension sized amount (I.e. 10k+)?

The clue is in 'before charges'.

[CarlosFandango11]

Simpo Two said:

CarlosFandango11 said:

Simpo Two said:

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

The clue is in 'before charges'.

I would be curious to know which current accounts you think will pay (2.5% + inflation - charges) for the long term on a pension sized amount (I.e. 10k+)?

The clue is in 'before charges'.

So future long term inflation at say 2% (and that is on the low side), charges at 0.5%, gives a projected investment return net of charges of 4%. Enough "clues", can you point out a current account that pays 4% interest for the long term on 10k+?

[Simpo Two]

CarlosFandango11 said:

Simpo Two said:

CarlosFandango11 said:

Simpo Two said:

sidicks said:

Simpo Two said:

2.5% before charges? That'll be about the same as a current account then.

Which current accounts are achieving 2.5% + inflation?

The clue is in 'before charges'.

I would be curious to know which current accounts you think will pay (2.5% + inflation - charges) for the long term on a pension sized amount (I.e. 10k+)?

The clue is in 'before charges'.

So future long term inflation at say 2% (and that is on the low side), charges at 0.5%, gives a projected investment return net of charges of 4%. Enough "clues", can you point out a current account that pays 4% interest for the long term on 10k+?

Well let me see. The original premise on which my comment was based was: 'The projection rates pension companies can use have changed - now mid range growth forecast is 2.5% + inflation (but before charges are deducted).'

So your pension pot grows at 2.5% before charges (we'll ignore inflation because that's basically zip). Your average IFA, if you have one, will typically take 1% to pretend to monitor your pension. That's 40% of the growth gone. But behind that, and unavoidably, the various tiers of clever folk who then manage/invest your pension will all be chipping 0.5% off here and there. And then there's bid/offer spread and all sorts of other things Joe Punter has no idea about. Essentially, 2.5% gross before charges is no growth. And that's why I said that the money would do as well in a current account. All you're doing is feeding the industry. What you want is growth AFTER all charges.

And of you think £10K is a 'pension sized amount', I shall bring you some soup in your old age