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On point paper:
Is 12% the new 8%?

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Since 2012, millions of people have enrolled into a workplace pension, but they have little idea of how their investment pot will grow and are guided by projections according to rules set by the regulator. These projections should represent a realistic estimate of how the pot is likely to grow, taking into account the mix of assets in which fund is invested. However, the last few reviews have shown steadily declining real returns.

This paper looks at what these falling future returns mean for pension investors and makes a series of recommendations for individual investors, employers and policymakers, to urgently address the looming shortfall that could occur if declining growth rate forecasts turn out to be accurate.

Read the paper

Key discussion points include:

  • Falling long-range forecasts for real returns on the money invested in pension funds mean workers must contribute half as much again to their pension to get the same predicted amount out, compared to a decade ago;
  • A typical worker on average pay, who puts 8% in their pension from age 22, would receive a pot forecast of £85,000 based on growth assumptions in 2017; for a 22-year old who started work ten years earlier in 2007, the forecast retirement pot would have been £131,000 - £46,000 higher;
  • Savers planning to contribute 8% into a pension a decade ago would now need to contribute 12% to achieve the same target pension pot taking account of potentially ‘lower for longer’ returns and;
  • Inconsistencies in projections quoted on pension statements can lead to confusion and difficulties making financial plans. The impact of inflation and charges further muddles the picture. 

 

On point papers

On point papers

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