However with the central banks purchasing bonds their values are increasing. (Positive for the funds).
Although their yields are declining and are even negative in some cases). (Negative for the funds).
The prices of existing bonds is rising, yes, as CB buy them. So positive returns, yes.
But over time, existing bond assets mature, and the pension fund buys new bonds, with much lower coupons/yields.
Lower LT interest rates means lower discount rates, meaning that future liabilities have higher present values.
Lower LT interest rates means lower discount rates, meaning that future liabilities have higher present values.
I don't understand this?
Say the pension fund has a liability to pay me €30,000 a year for the next 30 years.
No liability exists for a scheme without defined benefits but low interest rates are still a big problem. People will struggle to make enough contributions to provide an adequate retirement income (which I think has been the focus of the press commentary this week).Are most Irish pension funds Defined Benefits then???? Otherwise no such liability exists.
People will struggle to make enough contributions to provide an adequate retirement income (which I think has been the focus of the press commentary this week).
So would my 2 % to 3% be close to realism !
A real return, after all investment costs, of 0% over the coming decade would actually not be a terrible outcome for a pension fund/ARF when you consider that $8.73 trillion of developed market government debt now carries a negative yield and global equities look fully valued by most measures.
Those numbers are correct for paying those monthly amounts for 20 years from a 100K pot and with a net return of those interest rates.Orka , Questions for you please.
Retiring today , want fund to last 20 years ie 240 months.
How much monthly would I get , on each 100,000 in pension pot, ..No indexing and no dependant.
1. At 2% = 506 per month.
2. At 3% = 555 per month.
3. At 4% = 606 per month.
Are my assumptions on payout reasonably ok?
Are annuity rates about 3.5% at present ?
Many people use their pension to fund annuities, effectively turning them into defined benefit schemes. The prevailing interest rate at the time of purchase has got a massive bearing on the annual yield, as Gerry's maths illustrates.Are most Irish pension funds Defined Benefits then???? Otherwise no such liability exists.
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