Depressing pension statement

[Lost ranger]

Just received a projection from the pension scheme of a firm I worked for some years ago. It seems I have just over £100,000 in this particular scheme, which will give me a projected income of £2,600 a year. Index linked I believe, but if I just left the money under the mattress and took out £2,600 a year it would last me for 40 years,

Are annuity rates really that bad?

[Mr Pointy]

Yes. Which is why almost no-one would be well advised to take out an annuity at present. There are plenty of things you can do with £100k to give you a better outcome than an annuity.

You might want to check the performance & charges as well in case they are not giving you the returns you could be getting elsewhere.

[martinbiz]

"From years ago", are you sure this is not a DB scheme?

[cavey76]

£2600 index linked isnt the same as dividing £100K/£2600 and thinking it would last 40 years.

Assuming indexing grew it 1.5% a year(not sure if reasonable or not) it would be £4700/yr by year 40.

We’ll see more of these posts as people with modest pension funds say, “eh but i might aswell just spunk it as its the same as 30 years at £modestsum/yr”

FWIW - i ‘d already be on the phone to AJBell and have that bad boy transferred under my own control.

[Lost ranger]

cavey76 said:

£2600 index linked isnt the same as dividing £100K/£2600 and thinking it would last 40 years.

Assuming indexing grew it 1.5% a year(not sure if reasonable or not) it would be £4700/yr by year 40.

We’ll see more of these posts as people with modest pension funds say, “eh but i might aswell just spunk it as its the same as 30 years at £modestsum/yr”

FWIW - i ‘d already be on the phone to AJBell and have that bad boy transferred under my own control.

The point I was making was that even though the projection is indexed linked £2600 seems depressingly low. Although the £100K/£2600 approximation doesn't allow for index linking it doesn't allow for investment return either.

I don't have an issue with the performance of the fund, it's purely annuity rates that are depressing.

Incidentally the sum is from AVCs built up alongside a defined benefit pension.

[Caddyshack]

Don’t buy an annuity. Look for something that allows a draw-down or something like that.

[NDA]

A friend has recently discovered a pension worth just over £200k that she had no idea existed. I’ve no idea what the annual income for this might be (it matures this year - if that’s the right word).

It’s a world I don’t understand at all…. I think she can take a lump tax free, but wouldn’t know the best course of action. If indeed any action is needed.

Any thoughts from more enlightened members than me would be very helpful.

[Boringvolvodriver]

NDA said:

A friend has recently discovered a pension worth just over £200k that she had no idea existed. I’ve no idea what the annual income for this might be (it matures this year - if that’s the right word).

It’s a world I don’t understand at all…. I think she can take a lump tax free, but wouldn’t know the best course of action. If indeed any action is needed.

Any thoughts from more enlightened members than me would be very helpful.

Best thing would be to see a IFA to discuss _ everybody's circumstances are different

[Shnozz]

cavey76 said:

We’ll see more of these posts as people with modest pension funds say, “eh but i might aswell just spunk it as its the same as 30 years at £modestsum/yr”

I do think this is an issue. You read on here (and elsewhere) that you need a pot of a million quid for a half-decent pension these days (£30k a year if you followed the annuity argument - so hardly golf in the Bahamas money).

For the average man on the street, who would struggle to save £1k, let alone £1m, how do you convince them its a worthwhile prospect to invest in a pension when it seems so unachievable? You can see why they think bks to it and have cars on PCP and new iphones etc.

[cavey76]

Lost ranger said:

cavey76 said:

£2600 index linked isnt the same as dividing £100K/£2600 and thinking it would last 40 years.

Assuming indexing grew it 1.5% a year(not sure if reasonable or not) it would be £4700/yr by year 40.

We’ll see more of these posts as people with modest pension funds say, “eh but i might aswell just spunk it as its the same as 30 years at £modestsum/yr”

FWIW - i ‘d already be on the phone to AJBell and have that bad boy transferred under my own control.

The point I was making was that even though the projection is indexed linked £2600 seems depressingly low. Although the £100K/£2600 approximation doesn't allow for index linking it doesn't allow for investment return either.

I don't have an issue with the performance of the fund, it's purely annuity rates that are depressing.

Incidentally the sum is from AVCs built up alongside a defined benefit pension.

Kinda get it and i am not defending the insurance industry but is that low return not just a function of the fact if you’re 65 today their is great chance you’ll hit 80s rather than low/mid 70s of the generation gone by?

With some judicious share picking you could probably pocket £4K/yr in divvys off of the back of it but you are assuming the risk.

[williaa68]

Lost ranger said:

Incidentally the sum is from AVCs built up alongside a defined benefit pension.

Then that’s good - the AVCs can go towards your tax free lump sum without reducing the value of your DB pension?

[anonymous-user]

I don’t get it?

I have a statement that recently told me it costs around £48k to purchase £1k pa? If my pension is worth £8k pa is my transfer value 8 * 48? Or more?

I’m 32 it makes a difference?

[IntriguedUser]

NDA said:

A friend has recently discovered a pension worth just over £200k that she had no idea existed. I’ve no idea what the annual income for this might be (it matures this year - if that’s the right word).

It’s a world I don’t understand at all…. I think she can take a lump tax free, but wouldn’t know the best course of action. If indeed any action is needed.

Any thoughts from more enlightened members than me would be very helpful.

How does that even happen? who doesn't know 200k exists in a pension

[Grr_Boris]

Lost ranger said:

The point I was making was that even though the projection is indexed linked £2600 seems depressingly low. Although the £100K/£2600 approximation doesn't allow for index linking it doesn't allow for investment return either.

I don't have an issue with the performance of the fund, it's purely annuity rates that are depressing.

Incidentally the sum is from AVCs built up alongside a defined benefit pension.

Average real interest rates on UK IL gilts over the next 30 years are circa -2.5%.

If you don’t want an index-linked annuity then you can obviously achieve a much higher guaranteed income from a level annuity, which can then be directly compared against a (non-guaranteed) variable income plus potential retention of capital from an alternative approach.

Edited by Grr_Boris on Sunday 11th July 13:45

[TwigtheWonderkid]

IntriguedUser said:

NDA said:

A friend has recently discovered a pension worth just over £200k that she had no idea existed. I’ve no idea what the annual income for this might be (it matures this year - if that’s the right word).

It’s a world I don’t understand at all…. I think she can take a lump tax free, but wouldn’t know the best course of action. If indeed any action is needed.

Any thoughts from more enlightened members than me would be very helpful.

How does that even happen? who doesn't know 200k exists in a pension

A depressingly large amount of people. The same people who complain that they've just found out they've been paying £200 a month by direct debit for 10 years to something they thought they'd cancelled, and haven't, used and are demanding their £24K back!!!

[Caddyshack]

IntriguedUser said:

NDA said:

A friend has recently discovered a pension worth just over £200k that she had no idea existed. I’ve no idea what the annual income for this might be (it matures this year - if that’s the right word).

It’s a world I don’t understand at all…. I think she can take a lump tax free, but wouldn’t know the best course of action. If indeed any action is needed.

Any thoughts from more enlightened members than me would be very helpful.

How does that even happen? who doesn't know 200k exists in a pension

My father in law was contacted by a company, he put money in during the 70’s for 2-3 yrs and had forgotten, it "matured" with £70k in it

[Mr Whippy]

Annuity providers are competitive in their market.
The issue has always been risk.

Anyone who out-performs the annuity is risking much more.

Otherwise why won’t the insurers just take on more risk to offer better rates?


It’s a bad time to be old and planning on living off savings.
The fruits of the baby boom are now somewhat difficult to take because everyone wants to take them at the same time...

[MikeKite]

Mr Whippy said:

Annuity providers are competitive in their market.
The issue has always been risk.

Anyone who out-performs the annuity is risking much more.

Otherwise why won’t the insurers just take on more risk to offer better rates?


It’s a bad time to be old and planning on living off savings.
The fruits of the baby boom are now somewhat difficult to take because everyone wants to take them at the same time...

"It’s a bad time to be old and planning on living off savings."

Why?

[Grr_Boris]

MikeKite said:

"It’s a bad time to be old and planning on living off savings."

Why?

Longevity is increasing and interest rates are very low, whilst inflation is likely to increase.

[Mr Pointy]

Mr Whippy said:

It’s a bad time to be old and planning on living off savings.
The fruits of the baby boom are now somewhat difficult to take because everyone wants to take them at the same time...

You must be kidding - it's the best time. There are plenty of good investment institutions with low charges, multiple funds with differing levels of risk & easy methods of transfer between them. Add that to unprecendented levels of availability of financial & investment education & advice (in both senses of the word) & it's never been better for someone with savings.

Gone are the old days of 1.5% charges for one letter a year, scrabbling around on a pittance of an annuity & losing large portions of your pension to a life company when you die. Now you can pay 0.2% & pass it all on to your heirs outside IHT.