personal pension fund

[nolaces]

2 years ago my aunty set up a personal pension fund for me and my brother and is kindly paying �300 a month into each of them.
it sounds a generous amount, of which i am grateful for and fully appreciate.
but,
when i received my statement the other day, it gave an approximation of what i might receive when its due and i was surprised that the amount might be only �219 a month, equalling to just over �50 a week.
does this sound right?
�50 a week isnt an awful lot in todays money, so itll be even less in the year 2026...?
and do you know if these funds can be cashed in for a lump sum when the due date arrives or do you have to take it as monthly payments?
any thoughts please?
thanks
:o)

[dzug]

Generally you have to take it as monthly payments but with an option to take part as a lump sum

[buildersmate]

You or your aunty probably needs proper advice on this.
This appears to be a 20 year Plan then, and the total amount paid in after 20 years would be �72k (20*�300*12).
With investment return you might expect the value of the Plan after 20 years to be something of the order of �100k. Annuities are running at about 6% say per �1000 of investment pot - thus the level (i.e. pension not increasing each year) pension paid from this Plan could be of the order of �6k per annum, or �115 per week. Since this is not what you are being told, something doesn't sound quite right.
These are only very rough figures - I am merely trying to scale the approx size of what might be possible.
Also, is your aunty paying these pension premiums out of taxed income? - I trust she is somehow able to claw back the income tax.

[Doc_Spock]

Does your Aunt want to adopt a needy nephew ?

[nolaces]

thanks buildersmate for your helpful answer.

i would have thought shed have delved into this thoroughly when she took it out as she has many financial strings to her bow etc and has a personal accountant, so shes clued up to such things.

yes, im sure shes getting round the tax thing.

i thought it sounded such alot of money when she first told us what she was doing for us, but when you think of the meagre amount it turns out to be at the end of 20 years, its not alot is it?

would the money have been more worthwhile putting into an ISA each month do you think?

its nice to think we will have this little bit of extra income in our old age, and dont get me wrong i am really grateful of such a kind and generous offer, but, it just seems an awful lot of money to put away each month to have to wait such a long time for well, really, not alot.

�300 a month sounds alot doesnt it, so im so surprised it turns out to be such a small monthly return, it just doesnt seem worth it, does it to you?

doc spock, i will ask her if she would like another nephew ok lol .. will let you know!

[Androcles]

Following on from Buildersmate, I agree with his estimate. The question I would ask would be do you know on what basis the projections was made. For example, if it was made on the basis of the money paid in to date, i.e. 2 years at �300 pm = �7200, then even with interest on that the pension would not be high. If it was made on the projection that the amount BM calculated should have gone in, with interest, then there is clearly something wrong.

I should check exactly what the basis is first...

[nolaces]

thanks for your reply androcles,
i dont really know anything about the ins and outs of it all to be honest, all i know is one day she told us of what shes doing for us, we thanked her and signed the papers, and that was it lol.
we got a tree load of pwk through afterwards, but ive not read any of it as its all a bit too over my head to fully understand.
but if you dont think it sounds quite right, i will have a look at the pwk.

heres a few details from the statement i received ok. it might help with your advice.

right, it started in 2007, not in 2006 - my mistake.

�300 paid in each month
�3600 in plan at the moment. (12 months worth)


''your pension will depend on how much is paid in, how our investments grow and the cost of converting your fund into a pension for life when you retire.''

''what you might get back when youre 60 in 2026''

if investments grow each year at 7.00% your pension fund could be �123,000

but allowing for inflation each year of 2.50% your pension in todays prices could be �79,500.

if the cost of buying a pension when you retitre is based on an interest rate of 0.60%

your starting pension in todays prices could be �219 a month or �2628 a year.

does that help attall as it doesnt me! lol

thanks all for your time and input on this, really do appreciate it :o)

[kempie]

The projection allows for annual inflation of 2.5% and uses that figure to equate 2026 prices to those of today.

Using the same inflation rate, buildersmate's calculation of �115pw would be equivalent to around �74

[factor-fiction]

How old will you be when the pension matures?
I understand some of the pension company's calculations but surely the annuity rate of 0.6 % can't be right!. i think a pension pot of �79500 in today's prices would give a level annuity of maybe �5000 a year in today's prices. If they are quoting only �2628 pa maybe it's a pension that will increase each year in line with RPI.
Anyway look at it this way-it's costing you nothing, your aunt is paying in �3000 a year (less tax relief so maybe it's costing her a lot less) for 20 years ,and you will potentially draw a similar sum at current day prices for 20 -30 years

[nolaces]

factor30, i will be 60.

yes i agree with you about its costing me nothing, and yes, i really do appreciate her kind gesture, its a very generous thing for her to do for us.

im not grumbling about what i will be getting if that is how it sounds, im just airing my thoughts about �300 a month being alot of money for the seemingly small amount of return at the end of the plan, and wondered if anyone might be able to comment on this, which they have done.
yeah, im grateful to have the reassurance to know there will be a little bit of gauranteed money to have in years to come.

thanks again to all who have replied.

[factor-fiction]

Depending on whether you are male or female you will probably collect teh money for 20-30 years from age 60. So you'll take more out at current day prices than your aunt put in.
Remember inflation distorts all these figures. The premiums of �300 a month will remain flat and by the end of 20 years will seem cheaper in real terms as each year passes. By the end it will seems like maybe only �150 a month now. The payment you will receive is quoted as �2628 in present day prices, but with growth and inflation in reality you'll get double that.
Given that she is paying in for 20 years and may claim for 30 years it doesn't sound too bad a deal.
Run it through a spreadsheet bringing everything to current day values and see what that shows you.

[nolaces]

hi again factor30,

im female.

i wouldnt have the foggiest idea about running such things through a spreadsheet lol, not a scooby doo about that sort of thing! lol

anyway, whatever the amount will be its better than diddly squat eh?!!

:o)