Pension question

[everybodylookatyourhands]

I have a question about pensions if anyone can help. I have a Group Personal Pension through my work and the pension provider is Scottish Widows.

There is a section on the app that shows what the projected income would be from 68, and what I might need (based on a percentage of my current salary). The "what I might need" is £29,130. I may be asking an impossible question as you can't see the app, but does anyone know if this is what I may need in todays terms (i.e. if I was taking a pension today), or what I might need when I come to retire (around 2050)?

If I might need £29,130 per year in 2050, that isn't going to be much in 25 years time with inflation etc. If it is based on if I was to retire today, then that is pretty useless information. Shouldn't pension providers be telling us how much we will need come retirement or am I not understanding this? My projected income is more that the "what I might need", and says I am on track for a comfortable living standard, but I am thinking that is in todays terms and if the figure they state is what I will get in 2050 then I think I am going to be very poor.

I have tried Googling and using MS Copilot for the answer but I don't think I am asking the right question. Can anyone explain this to me in really simple terms!

Thanks

I'm not sure how they'd calculate how much you'd need in 2050 terms as we don't know what the rate of inflation would be. So I'm guessing it is using today's value.

If you already have more than that and will still be paying in fir next 25 years you'll probably be more than comfortable though.

Usually these things are stated in terms of today's money. Does that make sense in terms of the figure in relation to your current salary?

Thank you both for your responses. I think what is confusing me is that they predict what my pot will be worth so they take into account growth etc, so they think that is what the pot will be worth come retirement, but are basing it in todays terms. Guess we can't predict that far in the future, and I should just try to pay as much in as I can and hope for the best.

Watch out - mine also assumes that I'll be making the same contributions until retirement - eg. if I'm paying 1000/month now, that I'll continue to be paying 1000/month for the next 25 years or whatever.

@UpsideDownChairs yes that is a good point and I am mindful that I’m probably earning the highest I’m likely to. I actually want to change jobs/have a big career change which will likely result in a reduction in pay and knock on for a reduction in pension contributions. On the flip side, I might be able to up the contribution when my mortgage is paid. I guess I can only save what I can afford to save.

I asked an adviser! We must be a similar age. They said to aim for a £1m pot to provide the equivalent to £25k Pa from age 60. This is trying to guess what inflation may be, based upon the past.

what’s the projected overall fund value?

You’ve just had me open my app and take a look! If you click on where it says “this could be worth” it takes you through to the assumptions they’ve made ie if your investments continue to grown at a medium rate and you continue with the same monthly contribution then “it could be worth x”. You can select low to see how that impacts and you can modify your retirement age and contribution to see how that impacts.

Another thing to consider how much you ‘need’ is to work out your absolute minimum to pay the bills, food, utilities etc. ideally you would have some reasonable expectation of an inflation proof income stream to cover that. Anything over you can leave invested and spend it for ‘extras’ eg holidays, major purchases.

good luck.

Question @Overthemoun if you don’t mind

the £1m pot for £25k, does this assume to take the tax free lump sum or not?

Yes 25% tax free lump sum then the pot to provide income from age 60. Quite some time away so a lot of inflation between now and then

Thank you! That makes sense

I've had a quote a many moons ago about £500k pot and £12.5k yearly amount but then they went bust and didn’t answer my question

Typically these illustrations do include projected growth on the fund, but are still in today's money terms. So how does that work? The answer is ... they only allow for investment returns IN EXCESS OF INFLATION in the projection.

So let's imagine you think investment returns will be 5%pa but inflation will be 3%pa. That means you only allow for 2%pa projected growth on the fund.

I agree with @snowlaserthese calculations usually exclude inflation both in the investment growth and in the estimate of how much you will need for retirement. The increase in your “pot” is from growth above inflation and as another pp stated taking account of contributions between now and retirement by assuming you will continue to contribute at the same level as you are now