When it comes to planning for a pension, it is easy enough for us as advisers to say this that and the next thing, but nothing is better than giving people some kind of estimate to work to. Admittedly estimates like this have to be used with caution because you will be trying to give someone a figure projected over long long periods – and who knows what will happen there, BUT, in my view if you have a figure to work to, it is far better than not having a figure.
What we do at M A P is produce what is called a cash flow and this attempts to give people a ballpark figure of what they might come out with. We will update this figure every year when we review someone’s portfolio, and so we are always trying to make the figure relevant – so what can be better than that ? At least this gives someone a figure to plan for the future and whilst it is an estimate – it is a best estimate.
We normally use what we believe is a pessimistic rate of growth of 5% p.a. and we can project this through until a persons chosen retirement age – so say for example someone has a fund today of £150k and they contribute £5k a year, then by the time they get to age 65 with a growth rate of 5% a year – the fund “should” be about £425k. Now if we extract the 25% tax free cash to savings – so that it can be used as and when desired, the remaining fund should provide a pension to age 90 of around £21,000 a year before tax.
Now if this was your pension and you had this best estimate for what you might come out with, what could be better than an estimate like this, that would then be updated each and every year thereafter in line with actual investment performance – so that you always get an up to date estimate. Bear in mind that at the end of the day it is an estimate but at least it is something to work to as opposed to sweet nothing.
QUESTION Can you tell me what pension you are likely to receive from your pension funds when you retire ? If you can answer this, then you are the exception to the rule, otherwise you should enlist for the MAP projection.
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