This is a crap pension return isn't it?

[MingeUterusMingeMingeYoni]

I will preface this by admitting I don't understand pensions very well. That is, I know the difference between defined contribution and defined benefit, I know your employer usually provides a certain contribution, I know you can't take it until a certain age and then you choose a lump sum or regular payment. But beyond that I am fairly stumped.

I have a pot of about £1800 from one job I had for a few months in 2009. The provider sends me letters about it each year. I distinctly remember 5 years ago the letter, and I know the date because I'd just had a baby, said I'd get £49 a year predicted. It's now gone down to £36 a year.

Now obviously this is a moot point as it's a tiny amount anyway. If I were relying on it, I'd starve pretty much as quickly on 70p a week as £1. But am I wrong in thinking this means the plan hasn't been doing very well? If I'd had any significant amount in there, it would've been an absolute fucker to lose that much!

I think it's invested in the stock market so I presume these things go up and down. Honestly though it seems so rubbish that I wonder if I wouldn't be better just not paying into my current pension (different pot) and using the money for other investments instead.

Have most pensions done this badly in the last 5 years? I don't actually have any info on my current one, which is a bit shameful I know, though I'm not putting a lot into it.

The pot is so tiny that any % drop is going to hit it hard.
Have you other pots you could add it too as you will be paying admin charges on it whivh will again eat into the capital.

That's the estimated return if you bought an annuity. At 2% it's better than anything you'd get in a bank.

Also, as a favour to your future self, find out what's happening to your current one (Just read thread properly) and see how much that is planning to end up at. Increase your payments if possible at least to the max your employer matches to as it's free money you are losing if you don't match the employers max.

There have been changes to how the predicted returns are calculated over the last 5 years, so that could be making the performance look worse than it actually is.

Yeah some other pots. I probably will get stung by admin charges because I've had a few jobs and none of them have a massive amount in them. Should really try and put them in together, but is this one any good?

Ifailed how is it that 2% is better than anything I'd get in a bank? As I am quite good with best savings rates and there are a number higher than that. Are you talking about something different to savings rates?

Girlsnightin what I was assuming is that wouldn't the percentage drop be the same however much I had in it? Ie if I'd had 180k instead of 1.8k, it'd still have gone down by a quarter. Is that right?

OP, there are a few savings accounts paying higher rates, but the 'benefits' of an annuity that are usually stated are that the rate is guaranteed, will go up with inflation and will pay out for life. No bank will give you that promise for an indefinite period on a savings account.
Do you know how the pension company have invested your £1,800?

I have no idea how pensions work in the UK, to be fair, but here in Australia, superannuation (or pension) funds have management (and other) fees, and your money is invested in managed funds - you can choose whether you want a low-risk, low-return (balanced/moderate), or high-risk, high-return (growth) fund.

But, I would suggest, having worked in finance for many years, that the majority of people rely on a state pension in addition to their personal pension. That doesn't mean you should work to put more towards your pension though.

It's Aviva ifailed, and three equal parts invested Aviva Pension Stewardship Managed FP, Aviva Pension Stewardship FP and Aviva Pension Managed FP. None of that means anything to me!

I know 1.8k is fuck all btw and I'd starve as quickly on £36 a year as £49. Not expecting to retire off a job I had for less than a year in 2009! Just that as this one sends me annual detailed info and the others which are People's Pension don't, this seemed a decent vehicle to improve my understanding. And hopefully be useful to some equally clueless people reading!

It may be worth checking if they charge a fee for each of the pots they hold it in, if so maybe consolidate it into one? Though, as you point out, as a pension fund £1,800 is worth naff all.

The rules these days don't require you to convert your pension pot (your £1800) into an annuity (illustrated as £36pa, but depends on a lot of assumptions), so I would focus on the pension pot, and adding to it between now and retirement. How many years until you retire?

Pensions are attractive because of the tax relief and because employers contribute, so effectively it's extra pay.

You just need to think about whether you are investing funds which are right for you and that are not going to be eaten away by too many charges.

Pretty much!

I suppose what I was thinking as well is, would this be considered a fairly standard performance for a pension, and the drop would broadly be the same even with a higher amount in there and with other providers? It seems a pretty significant drop in value over 5 years. I'm not sure what they were telling me it would pay out annually from the 2009-13 period and naturally don't still have any of the paperwork.

At least another 35 years daddaddad.

I would like to think about whether I'm investing in funds that are right for me but don't know how to figure that out! Except that I know the older you are the lower risk it should be, and I'm only 30s so can afford higher risk. That would be the sum total of my knowledge!

My contributions at the moment are quite low but it seems less attractive than using that money to eg overpay the mortgage, even with the possibility of more money from employer a long way into the future. I'm also not a HR taxpayer and I'd say about an 80% chance I won't be, so the tax advantages seem less significant.

It’s probably not that your investments are doing especially badly, it's more that annuity prices have increased significantly over the last five years due to a huge decrease in gilt yields.

You can check what you are invested in using this website:

www.trustnet.com/factsheets/p/lm65/av-stewardship-managed-fp-pn

So, you can see that fund has had reasonably good returns in recent years. If you scroll down the page, you can see its AMC (annual management charge) is 0.4% which is pretty competitive.

There's also a pie chart showing what it is invested in: international equities (ie shares, which is probably the best way to go on a 35 horizon, although that exposes you to currency risk), and fixed interest (ie bonds, I think that's less attractive - if interest rates rise, then the value of bonds fall, and that's the time to consider investing).

Funnily enough I have ex-Friends Provident work pension with Aviva. Personally, I'd have a bit more invested in the UK, eg a UK equity tracker. You should be able to login to the Aviva website and find information about the funds available.

I'm an actuary working for a pension provider (I've even programmed the sort of annuity calculations that you are talking about!), so I'll try to answer further questions. (But I can't give investment advice)

I've got a bunch of small pots from old employer schemes. Pathetic pointless amounts when taken as annuity and some of them I was putting into for years and years... I'll try to lump them together when I can find the time and even though it'll still be a shite annual amount if taken as a annuity, less than a grand a year, it'll be a reasonable one off sum maybe 15k all being well so I'll withdraw it as a lump and either stick it in the bank or use it for household expenses etc.

Fortunately latest job has a mildly better scheme which I've been in for nearly 20 years which might be a more useful annuity but even still the state pension would be the majority of any income I have. It's crazy. Let's hope it still exists!

An annuity is insurance against living a long time. If you retire at 65, on average you can be expected to live 20 years or so, but there's a high risk (from the insurer's point of view) that you will live into your nineties or longer (especially if you are female), so annuities are expensive - we all need to save a lot if we want to have enough to live on in old age.

And it's frightening to think about how the government is going to be able to afford state pensions and care as the population continues to age over the coming decades.

DadDadDad that is why its a good idea to take up smoking and heavy drinking when you apply for an annuity. Of course you stop once you're getting the money.

As a teetotal non-smoking woman I guess I'll need to acquire a heroin habit or similar, when the time comes!

Update- I found the paperwork from the one I'm in now but it was from only just after I'd started I think. Because there was a balance of £65 in it, which apparently is going to provide an income of £132 a year if I retire at 65. Either that's some manner of witchcraft, considering the 1.8k pot one is going to be £36, or they're assuming higher level of contributions/return on them.