My distrust of pensions is that 90% are eaten up by bad investment decisions combined with high hidden fees, charges and commissions. Particularly where one is 'advised' by a broker whose only interest is their commisison and not the well being of your pension.
So basically, if the funds that my pension is placed with had a couple of bad years towards the end of that 9 year period, this is probably the cause for what looks like poor performance (on the basis that there was a lesser sum invested overall in the earlier years)?
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Also it's my understanding of pensions that if you come to retirement when you're 'forced' to pick an annuity, if it's a bad year you can really lose out. Maybe this has changed, one of the experts on here can clarify.
Irish group managed funds posted returns of 4.9 per cent a year on average over the past 10 years, compared with an inflation rate of 1.8 per cent over the same period.
The 4.9% includes only a basic fund charge (often 0.4%), and it would not be a stretch to assume a further 1% could typically be eaten up by product charges
The 20 year return is closer to 8%.
All membes in DC schemes now have the option at retirement to choose an Approved (Minimum) Retirement Fund instead of an annuity, or a combination of both annuity and ARF.
I’ve an issue with describing a 10 year rise in fund unit prices of 49% as being a rise of 4.9% a year. A 4.9% increase per year in compound interest terms would be a rise of around 60% .Irish group managed funds posted returns of 4.9 per cent a year on average over the past 10 years, compared with an inflation rate of 1.8 per cent over the same period.
http://www.askaboutmoney.com/showthread.php?t=176024
Two more people with different company defined benefiit schemes whose income in retirement is going to be decimated.
As you know I find this whole thing confusing. Are you saying with those figures that if you invest you get a return of 4.9% put you need to subtract a fund charge of .4% and probably (why is is only probably why don't we know why do you assume) 1%. So are we taking 1.4 off the 4.9 leaving a return of 3.5.
And is inflation of 1.8 % also to be deducted?
I’ve an issue with describing a 10 year rise in fund unit prices of 49% as being a rise of 4.9% a year. A 4.9% increase per year in compound interest terms would be a rise of around 60%
How are the charges typically built into the pension? If there is a 1% management fee quoted, is that built into the fund price? Or is 1% of the fund deducted at each year end?
Even if there is 100% allocation, does the bid/offer spread effectively remove 5% of the contribution anyway?
Definined comtributions are relatively new to me, my OH's company moved to them about 5 years ago and there was a great spin on how brillant they were. I advised my OH to stick with the DB (which is not available to new entrants)
How does the Approved minimum retirement fund work? And the other options annuity + ARF (? Annual retirement fund)
An annuity I understand is that you take your pension pot to any pension provider and ask how much annually they will pay you out of the rest of your life. On your death in general you lose the 'capital' as you've basically 'sold' it to buy the annuity (I know there are other options such as survivors and orphens pensions etc)
Even if there is 100% allocation, does the bid/offer spread effectively remove 5% of the contribution anyway?
The 4.9% p.a. is compound and does represent cumulative return of 60% if you were in from the start of that 10 year period (a 49% rise in unit prices over 10 years is not mentioned anywhere - where are you getting it from?)
You make a good point that whilst 4.9% would be the return on money invested at the start of the period, the volatility of return means that someone contributing a regular amount might have fared differently. in order to address this, I looked at a case where someone made an equal contribution at the start of each year for the 10 years in question. The money weighted return in this case was 3.8% p.a. The reduced yield reflects the fact that most of the growth was in the first 5 year period.
The average managed fund return has been a healthy 7.1% per annum over the past three years. Half of the five year returns are
negative however, with an average return of -0.5% per annum over this period. Irish group pension managed fund returns over the
past ten years have been 4.9% per annum on average, compared with the Irish inflation rate of 1.8% per annum over the same time
horizon. All of the managed funds surveyed outperformed inflation over this period.
Having a closer look at the numbers it does seem it is an annualized rate and includes compounding, however the reason I though it wasn’t is because they talk about averages as below - which isn't the same as an annualized figure to me at least. Ideally I’d like to see the unit prices of the funds, so there’d be no room for confusion.
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When or if someone has the time or inclination could they show how someone contributing 5% of salary combined with 5% paid by employer over say the last 40 years works out as an actual pension. Showing for each month or year how much is taken in costs/fees/charges/commission and any other hidden things.
Until one knows that one cannot decide whether to save monehy or contribute to a pension is worthwhile.
Even now, you can walk into a pension provider and get a guaranteed return (net of charges) over 5 years in excess of 3% p.a. - This actually exceeds the best 5 year rate in best buys!
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