Calculating (predicting) pension pot

rubberduck

rubberduck

rubberduck

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Hello

So, I have set myself the goal of retiring with a pension pot of £1,000,000 (currently 35 years old assuming retire at 67)... No real reason for such an arbitary number but I come from a humble background and obviously 7 figures is quite a big deal so why not? (much less so when i retire, I know!).

So my question relates to what is a reasonable APR to expect my pension pot to generate on average until I retire.... Yes, yes, I understand predicting global markets is difficult (especially over 32 years!) but there must be some boffins in here who can make some reasonable predictions? My gut feeling is that 3% is realistic but would love to hear from some bankers etc as to what they expect... I know interest rates are low at the moment so the glory days of big returns are long gone.

Hoprfully people can offer some genuine adivce here... Especially Dowie as he seems pretty sharp with regards to financial matters.
 
3% is a reasonable assumption.

When calculating/projecting are you also making assumptions about increased earnings and increased pension contributions as you get older?
 
I have a pension pot started in 2007 It accrues 6% salary from both me and my employer per annum, round figures average £5Kpa put in.

So 9 years approx £45k in, current value £78k. as a very rough approximation it has gained 50% in the last 9 years. Obviously the return is larger as the pot grows so it is an upward curve.

A calculation of £450pcm saved over 9 years gives a compounded annual percentage rate of 9.5% to gain the same end sum. This is very simplistic and I do not expect it did much over the banking crisis but pension funds tend to beat savings if spread well.

I retire in one year and project about £100k before I close this fund, I rely on a defined benefit pension (12kpa) alongside this one and some savings.
 
Talk to a proper pensions advisor. How much can you realistically put away and how much will your employer contribute.

Much of my working life has been for employers who contributed nothing, so mine is largely self-funded. If I could go back and do it again, those funds would all have gone to tax-free savings instead - TESSA's and now ISA's, and only once those allowances were used up would a pension pot be added to. Successive governments keep mucking around with the pension rules, I don't trust them not to shaft me some more down the line.

Your 1 million figure is interesting ... that is the current lifetime pension allowance, so if you were to go over it, you would be paying tax on it !
 
rubberduck said:
Hello...
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3% net of costs above inflation over the longer term is a reasonable assumption to plan, but as others have said you need to also consider how your contributions will change during that time. The most important and valuable contributions you can make are the earliest.

You really need to work out (with professional help ideally) your own tolerance for risk and balance this against your desired rate of return. This will help you see the probability of actually realising those returns.

peterwalkley said:
Much of my working life has been for employers who contributed nothing, so mine is largely self-funded. If I could go back and do it again, those funds would all have gone to tax-free savings instead - TESSA's and now ISA's, and only once those allowances were used up would a pension pot be added to. Successive governments keep mucking around with the pension rules, I don't trust them not to shaft me some more down the line.
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Pensions are tax free saving, and the contribution allowances are more generous than TESSAs or ISAs have ever been. The right choice depends on how accessible you need the funds to be and at what point.

peterwalkley said:
Your 1 million figure is interesting ... that is the current lifetime pension allowance, so if you were to go over it, you would be paying tax on it !
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You would indeed be paying tax on it, but this is tax on money that you've already received tax relief on. In most cases the effect is tax neutral.

The lifetime allowance is also considered an anomaly now that the annual allowance has been reduced down to £40,000. There's a lot of lobbying to have it removed entirely.
 
I got stung a few years ago, being forced to go from a final salary scheme to a defined contribution - and hence ended up after 8 years with literally nothing in my pot (I think it was about £6k -> £6k after 8 years *sigh*).

I effectively had to start again a few years ago - but thankfully the scheme I'm on is very generous (I put in 7% the company puts in 14%) and I also make additional voluntary payments, and strangely my target figure is also on or just under 7 figures, which I should get to my the time I'm 63 (I'm 44 now). That's with a base performance of 3% and a pessimistic view on future pay rises, etc...

Currently though, I am actively managing my investments, so it's slightly more risk, but at the moment it's returning about 10% a year; although the rolling 9/14 to 9/15 was -1.3%, the same rolling return for this year is 19.15% - which is sitting in a fairly standard UK biased Equity/Fixed Income tracker.

If you do that it's important to monitor it. And hire a decent IFA. I have the advantage (like a few people here) of working in finance, so know a reasonable bit about it already, plus I have access to quite a bit of financial advice in-house.
 
Mr^B said:
Currently though, I am actively managing my investments, so it's slightly more risk, but at the moment it's returning about 10% a year; although the rolling 9/14 to 9/15 was -1.3%, the same rolling return for this year is 19.15% - which is sitting in a fairly standard UK biased Equity/Fixed Income tracker.
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My managed fund above returned 22.2% excluding the monthly contributions between 8/2015 and 8/2016 so a good return this year. It is managed by my employers scheme and I do not actively do anything myself as I am not a financial expert.

I intend to use this fund for a £5k pa drawdown on top of final salary and state pensions.

I think that the pot for my final salary scheme was in the order of £290k as I took 25% tax free and recieve £12k a year but this is currently taxed at 40% until I retire. I started that pension at age 29 and was in the scheme for 27 years.
 
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