I am thinking about my future pension , this is because I have just got my Nest annual pension statement.
I turn to the Office of National Statistics to find out my life expectancy
Which tells me
So if I plan to spend my pot by 85 , there’s a real chance I could spend the last 15 years of my life skint.
My Nest statement is downloadable , so hear it is.
The key numbers for me are in the snip below. Like Richard Smith , I’ve pushed back my retirement date as far as I can so I can be invested for longer
My pot will have risen in 14 years from £21,000 to £29,000 -disappointing . By waiting till I’m 77, I cam expect a pension exchange rate of 10 to one. My pension needs to pay for 10 years for me to get my money back- that’s two years longer than my life expectancy. Patience doesn’t seem a virtue.
So I’m not happy to wait till 2038 and the numbers I have in my statement are no longer accurate anyway. Four months have passed between the date of calculation and the date of my statement. I wondered what would happen if I tried to calculate my prospective pension myself (based on the much higher value of my pension today)
I’m glad Nest offers me a chance to work out my pension for myself
The calculator tells me what my pot will be but it does not tell me the income that pot will provide. There is however
Here things start getting really difficult
Going back to the ONS calculator, I discover that were I a woman I could expect to live till 87. So why am I getting the same retirement income calculation as my female equivalent.
And as I delve deeper into the information given me by Nest , I read
Ok – now I’m getting to the heart of the beast, TM1 is an actuarially agreed standard created by the Financial Reporting Council
The FRC offer a helpful podcast explaining how TM1 was created. It’s standardising things to make sure that the pension dashboards don’t cause more trouble than they solve.
Unfortunately, despite the optimism of the participants, I don’t think this podcast is going to make it to the top of the playlists.
Nest, tries help me too, publishing a document that talks me through how my projections are calculated from which the information above is taken. Download here
But has this information got me any further?
Well first of all, I am a little frustrated that I can’t get a more up to date statement. If I had used my most recent statement on July 1st, my numbers would be 16 months old ( a point raised by Richard in his article on dashboard readiness in Pension Week
Secondly, I recognise the need to give consistent projections but the consistency is about the anticipated returns on assets, not the asset allocation. This means that pots can be projected to grow faster if invested in racy assets than in boring safe assets. So my pension will show better if I am invested in racy assets as I’ve chosen to by pushing my target date out till 2038.
But I’m much more concerned about the projections of retirement income which seem to be encouraging me to take no tax free cash, guarantee my pension will be paid and not include increases in my pension.
The 3.7% interest rate for me as a 74 year old is hardly generous, right now I can get an interest rate of well over 6% as a 62 year old.
In short, I am none the wiser about what my future income is likely to be from my Nest pension. The SMPI methodology is hopeless in telling me what I am going to get. That is not its fault, there just is no such certainty in a world where we are targeting pots of wealth not pensions.
Can I do this myself?
Frankly , having tried my hardest to understand the assumptions that go into paying me a pension, I have absolutely no idea what is coming up or what I should do.
I can see that the FRC, Nest and the ONS are trying to help and I found out for myself most of what I needed to make sense of projections. But even if I can get consistent projections from my provider or via the dashboard, I have been given no idea about how to get the annuity which my projections are based on.
The Government is committed to delivering an obligation on the trustees of occupational pension schemes to provide a default means to turn pots to pensions but the complexity I’ve encountered means that there needs to be something way more obvious than the course of action suggested by the SMPI illustration.
700,000 people a year find themselves in this corridor of uncertainty asking the question, can I do my own pension. I fear that only a handful can say “yes”.