What is expected pension pot growth - No longer contributing

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scomposto

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Hi,

I have 2 pension pots on the go. One with a previous employer and one with my current employer.

I am no longer contributing to my previous employers scheme and have just left it in place since I finished up with them 2 years ago.

I logged in to my previous employers scheme today just to see the value. It currently sits at €51k, and their prediction of value at my retirement (age in 27yrs) says it will be worth €69k

That seems very low to me - that has it growing at a rate of 1.1% annually? Maybe I've got my calculations wrong but does that seem about right?


UPDATE:

Ive just done a bit more digging through some old statements. I think Im getting confused by what all this means, future vale of money etc!! Any advice or interpretation would be greatly appreciated!




My leavers benefit statement that I got after leaving the scheme stated my account balance at €52k (Dec 2021). They said on this statement that my future benefit would be as per below, with the following notes;

Total Projected Value € 105,378.84

Total Projected Value in today's money* € 68,854.52


*Your projected fund and pension in today's money simply shows you what your future benefit would buy you now if you took account of inflation between now and when you retire using an assumed discount rate of 1.00% per annum.

  • The investment returns assumed for various assets classes are outlined in the notes to this statement. The return calculated for you is 2.68% and this is based on your current investment fund choices. If you change your investment fund choices at any time in the future this assumed investment return may vary significantly.
  • The effect of charges on the projected Retirement Account is the equivalent to a reduction in the investment return of 0.22% per annum.





My latest statement I received today states my current balance at 50k. They said on this statement that my future benefit would be as per below, with the following notes;;

Total Projected Value (not provided on this statement, format of the statement has changed since the last one)

Your projected* fund in today’s money** €65,286

*The investment returns assumed for various assets classes for the Best Estimate Scenario, are outlined in the notes to this statement. The overall return (before charges) calculated for you is 4.25%% and this is based on your current investment fund choices. If you change your investment fund choices at any time in the future this assumed investment return may vary significantly. The Projected Value of your Retirement Account and your Projected Annual Pension above are based on investment returns after the deduction of estimated future charges. The effect of charges on the projected Retirement Account is the equivalent to a reduction in the investment return of 0.21%% per annum. The investment returns assumed for various assets classes for the Unfavorable Scenario are 1% lower than those assumed under the Best Estimate Scenario. **Your Projected Retirement Account Value and Projected Annual Pension in today's money takes into account estimated inflation between now and your normal retirement age using an assumed discount rate of 3% per year.
 
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The figures used in such projections are entirely notional / hypothetical. All that statement is saying is that IF your fund grows at 1.1% per year, that's what it will be worth. It's not a forecast of any sort. Maybe it will grow at a higher rate; maybe it will grow at a lower rate. Nobody knows.

The Society of Actuaries occasionally publish guidelines on reasonable growth rates to be used in such projections. If your pension company is projecting at 1.1% per year, I'm guessing that your fund is in a low-risk fund choice. Which would lead me to question - why is it in a low-risk fund choice if you have 27 years to go? Are you very risk-averse?
 
Dave Vanian said:
The figures used in such projections are entirely notional / hypothetical. All that statement is saying is that IF your fund grows at 1.1% per year, that's what it will be worth. It's not a forecast of any sort. Maybe it will grow at a higher rate; maybe it will grow at a lower rate. Nobody knows.

The Society of Actuaries occasionally publish guidelines on reasonable growth rates to be used in such projections. If your pension company is projecting at 1.1% per year, I'm guessing that your fund is in a low-risk fund choice. Which would lead me to question - why is it in a low-risk fund choice if you have 27 years to go? Are you very risk-averse?
Click to expand...
I just checked and have 85% of the investment in a medium risk strategy and 15% in global equity. I would say that I am middle of the road with my personal risk appetite.

Maybe I could update this to account for that? 50%/50% Medium Risk and Global Equity - but I probably dont know enough about this kind of thing to make a very informed decision
 
Sarenco said:
With 27 years to retirement I think you should be 100% in global equities and then revisit when you are 10 years out.
Click to expand...
Oh right, ok! They have an automatic investment strategy starting off if I remember, and it started out on a medium risk strategy and derisks from there as you get older. I actually changed it a few years back to take on a bit more on the global equities - but mayeb not enough by the sounds of it
 
Ive updated my original post with some more info - I think I may be getting confused with time value of money?
 
They use figures for growth and inflation based on recent history.

4.5% growth 3% inflation 0.22%(?) charges. Plug that into a compound growth calculator for 27 years you'll get a fund with a value of around 68000.

The problem is the inflation estimate is high but unsurprisingly so based on the last couple years.
If you think inflation will settle back to 2% then your fund would end up worth around 90k based on the 4.5% growth.

There's an argument for switching to higher risk, however here not being in high risk isn't the only contributor to the disappointing projection.
 
If you won’t retire for 27 years this pension pot is likely to be a very small component of your overall income solution. I am not saying ignore it but given how little time and patience many people have for pension planning, I would first focus on the big ticket items.

(1) Is your COAP entitlement on track? Are there any PRSI contribution gaps?
(2) Have you maximised any current employer pension arrangement eg matched contributions, optimised AVCs where possible, etc? One income element that can be overlooked is an annual bonus. Subject to revenue limits you can direct some part of a bonus to your current pension pot. Are you happy with the investment mix?
(3) If you ever worked abroad have you investigated whether any top up options exist? UK is the most obvious one here.

If you still have an appetite to review finances then the advice above from other posters about the old employer pot seems sound to me - if you can’t choose an alternative investment fund mix yourself consider getting independent financial advice and then just monitor the pot occasionally. I’d ignore the future values taking inflation into account. It’s all pie in the sky and is there just to remind you that inflation erodes the value of money over time.

Last suggestion I have is to ask have you the option to transfer it to your new current employers scheme thereby reducing your workload. Good luck.
 
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