Robin Powell
This article is important to pensions though it’s aimed at people with portfolios of directly held shares.
Pension funds of course don’t pay a dividend, they pay a pension which is an encashment of the fund.
But people base their drawdown on the income they can get from equities and bonds and that’s where the 4 or 5% rule comes from. Of course the intention to take a rising income that this low level of withdrawal allows for isn’t always followed. Indeed the way people buy annuities suggests that most people think the income they get in retirement is level and has no inflation protection.
The adviser who was there at outset may not be there in years to come and there’s no incentive on adviser or provider to see your income increase. This is not a bad thing if you want to build up capital in your “pot” but it is not the way that pensions work.
The guided retirement funds will pay an increasing income and so will collective pensions (aka CDC).
So I conclude by extending Robin Powell’s post to explain that thinking of pensions as what can be afforded by drawing the dividend income and the bond payment is an admission that the capital need always be there. A much better way for most people to think of pensions is of a retirement wage paid as long as you or your spouse (if you have gone) are alive.
Whether the assets to meet payments come from capital growth or dividends/coupons is of no interest to the pensioner, what matters is that an income is paid for life.