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[aaronjb]

*looks at pension pot*

I guess I'll be retiring at 120.

My employer (in line with most, I think) only matches up to 5%, so even if I'm putting ~12% in that's only going to get me 17%. That teacher's pension looks pretty attractive.

.. not attractive enough to be in charge of 30+ other peoples screaming little s**tbags, though

[jonathanh]

I couldn't help noticing how much my wife's pension increased over the last seven years of service. It creeps up slowly to age 60, when she would get an annual pension of £38000 and a lump sum of £49000. Then it jumps up quite dramatically, £44,500@62, £52,600@64 and £68,000@67. The lump sum stays the same as that is part of the, now closed, final salary.

Please explain, Jimmy.

I think its probably a product of a couple of things. Firstly, every year past 60 your OH isn't retired, means its a year "saved" as far as the pension company is concerned.  The pension company will predict she has about 25yrs to live at age 60 (life expectancy 85 is about the going rate for someone age 60 today I think). So, if she stays in work 2 more years they will split the money she would have received in those 2 yrs over the remaining 23 of her assumed life. £38,000 x 2 / 23 = about an extra £3,300 per yr.

Secondly, they're investing that £38,000 x 2 = £76,000  for an extra 2 yrs (plus her £49,000 lump sum that she hasn't drawn down) at say 8% return, there's another £22000 ish to spread over the 23 yrs they'll be paying her £22000 / 23 = circa £900 p.a.

Finally,  she's also contributing for those two years. Assuming she earns £60,000, that means there's an extra £60,000 x 25% x 2 = £30,000 to split over the 23 yrs, giving an extra £1300 per yr.

Adding these gets you to £43,500.

Clearly, I'm still a grand short, so I'm guessing the pension benefits are index linked in some way? If you find out what inflation rate they use for the benefits, it will probably get you to £44,500.

in this case I think the pension company is the teachers pension scheme (STEMO can confirm) so there really isn't a company involved.  Also as it is unfunded they are not " investing" anything. having said that, that's the kind of logic the Government actuary will apply to work out the late retirement factors

[TheBoy]

Current pot is at 11% in 10 months so don't think an average of 8% is out of line.

I think you'll find over a longer period, that will be far less sustainable.  Which is why the FCS says that investment companies have to show growth rates of between 4 and 8%, with long term being somewhere in the middle.

[STEMO]

I couldn't help noticing how much my wife's pension increased over the last seven years of service. It creeps up slowly to age 60, when she would get an annual pension of £38000 and a lump sum of £49000. Then it jumps up quite dramatically, £44,500@62, £52,600@64 and £68,000@67. The lump sum stays the same as that is part of the, now closed, final salary.

Please explain, Jimmy.

I think its probably a product of a couple of things. Firstly, every year past 60 your OH isn't retired, means its a year "saved" as far as the pension company is concerned.  The pension company will predict she has about 25yrs to live at age 60 (life expectancy 85 is about the going rate for someone age 60 today I think). So, if she stays in work 2 more years they will split the money she would have received in those 2 yrs over the remaining 23 of her assumed life. £38,000 x 2 / 23 = about an extra £3,300 per yr.

Secondly, they're investing that £38,000 x 2 = £76,000  for an extra 2 yrs (plus her £49,000 lump sum that she hasn't drawn down) at say 8% return, there's another £22000 ish to spread over the 23 yrs they'll be paying her £22000 / 23 = circa £900 p.a.

Finally,  she's also contributing for those two years. Assuming she earns £60,000, that means there's an extra £60,000 x 25% x 2 = £30,000 to split over the 23 yrs, giving an extra £1300 per yr.

Adding these gets you to £43,500.

Clearly, I'm still a grand short, so I'm guessing the pension benefits are index linked in some way? If you find out what inflation rate they use for the benefits, it will probably get you to £44,500.

in this case I think the pension company is the teachers pension scheme (STEMO can confirm) so there really isn't a company involved.  Also as it is unfunded they are not " investing" anything. having said that, that's the kind of logic the Government actuary will apply to work out the late retirement factors

Yes, Jonathan. Malcolm has explained to me in the past that there is no 'pot', it is merely a government 'promise to pay'.
That's a teeny weeny bit scary, actually 

[STEMO]

So, basically, it's like the state pension. Current contributors are paying the pensions of retirees and my wife's pension is funded by payments from future contributions. I can see lots of ways that it could go very wrong, but I can see even more ways that the student loans could go wrong and the bill for that one could run into hundreds of billions. The government will sit back waiting for all the repayments to come in, and they won't...they just won't.

[Viral_Jim]

Its one of those things, you (quite literally) pays your money and takes your choice.

Your OH has to trust the UK government with her retirement, I have to trust a fund manager who I know would see me penniless before putting his yacht or villa in Tuscany at risk 

[Doctor Gollum]

Current pot is at 11% in 10 months so don't think an average of 8% is out of line.

I think you'll find over a longer period, that will be far less sustainable.  Which is why the FCS says that investment companies have to show growth rates of between 4 and 8%, with long term being somewhere in the middle.

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

[STEMO]

Current pot is at 11% in 10 months so don't think an average of 8% is out of line.

I think you'll find over a longer period, that will be far less sustainable.  Which is why the FCS says that investment companies have to show growth rates of between 4 and 8%, with long term being somewhere in the middle.

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

I disagree, but I'm not going to get into a discussion about it. We'll just have to wait and see if you're a rich pensioner........or not. 

[aaronjb]

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

My pension fund(s) would disagree .. one swings between 0% and 4% annual return, another is about 6-8% and the third (smallest, riskiest) swings wildly between 15% and -5%... (those are all BlackRock managed)

[Viral_Jim]

Current pot is at 11% in 10 months so don't think an average of 8% is out of line.

I think you'll find over a longer period, that will be far less sustainable.  Which is why the FCS says that investment companies have to show growth rates of between 4 and 8%, with long term being somewhere in the middle.

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

Only really in the equity market though. And it's generally accepted that equities are too volatile for a pension portfolio, particularly as you get closer to retirement.

A more common split would be 30% equities, 45% bonds, 25% cash (gov't gilts) in the decade running up to retirement.

You're running considerable downside risk with an equity heavy portfolio. 

[STEMO]

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

My pension fund(s) would disagree .. one swings between 0% and 4% annual return, another is about 6-8% and the third (smallest, riskiest) swings wildly between 15% and -5%... (those are all BlackRock managed)

Good job Bill Gross left or you'd be penniless. 

[STEMO]

I think my pension strategy wipes the floor with any of those mentioned previously. Look for someone twenty years younger than you, check out their earnings potential and, if it all adds up, marry them.   

[Viral_Jim]

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

My pension fund(s) would disagree .. one swings between 0% and 4% annual return, another is about 6-8% and the third (smallest, riskiest) swings wildly between 15% and -5%... (those are all BlackRock managed)

I'm in the highest risk portfolio that standard Life offered our scheme and that's only 55% equity. Even that has swung between -15% and +23% over the last 5yrs  .

[STEMO]

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

My pension fund(s) would disagree .. one swings between 0% and 4% annual return, another is about 6-8% and the third (smallest, riskiest) swings wildly between 15% and -5%... (those are all BlackRock managed)

I'm in the highest risk portfolio that standard Life offered our scheme and that's only 55% equity. Even that has swung between -15% and +23% over the last 5yrs  .

I just couldn't live with that uncertainty. Sleepless nights and all that. But.......you'll find that doesn't kick in till you're in your fifties, that's when you start to fret.........about everything really.

[Doctor Gollum]

Current pot is at 11% in 10 months so don't think an average of 8% is out of line.

I think you'll find over a longer period, that will be far less sustainable.  Which is why the FCS says that investment companies have to show growth rates of between 4 and 8%, with long term being somewhere in the middle.

You can pretty much guarantee 8% without even trying...

https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

I disagree, but I'm not going to get into a discussion about it. We'll just have to wait and see if you're a rich pensioner........or not. 

I'll let you know... We're destined to end up in the same firey pit