These situations make me retch, they are too common.
Background
· Dave started a with-profits personal pension 30+ years ago.
· Along it chugged quite nicely, he kept adding, the value never went down.
· A handsome guaranteed annuity awaited him.
· The annual statements were confusing – too many pages and numbers.
And then….
· With-profits annual bonuses collapsed to 0% for years.
· Like a cancer, inflation started to eat Dave’s money.
Numbers
1. In 2004 he had about £250,000.
2. 1.25% in bonuses have since been added.
3. Total UK inflation has been 75%.
4. A sensible 60:40 portfolio is up by about 175% after inflation and fees.
5. A sensible 80:20 portfolio is up by about 275% after inflation and fees.
· If Dave’s money had kept pace with inflation, there would be about £435,000 now. He still has £250,000, which is £187,500 less.
· In a 60:40 portfolio it would now be around £687,500 after inflation and fees, £437,500 more than he has.
· In an 80:20 portfolio the figures are £937,500 after inflation and fees, £687,500 more than he has.
Outcome
· Dave has lost between £400,000 and £650,000 after fees and inflation.
· Next time you get your pension statement, reach out to an adviser before it is too late.