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entwisi · 31-10-2004, 14:34

A very basic illustration is

During your working life the contributions are invested in stocks/unit trusts etc. However when you retire these are liquidated and the money is used to buy an annuity from a company. they are basically taking a gamble on how long you will live. Say you have a final salary value of £100K usually your annuity will be ~4% of the value so in this case a pension of £4K/year would be paid. They hope that you die quickly as it gives them the most profit. If you lived for 25 years (disregarding interest etc) then teh deal would break even. If you lived longer then they lose out. With people now living longer I can see the 4% figure moving downwards in years to come so you would need a higher final pension value to get the same pension return.

As I said, this is a basic illustration, there is a lot more to it!

31-10-2004, 14:34	#3
entwisi God Member Join Date: Apr 2004 Location: Up Bash Posts: 7,827 Blog Entries: 3 Liked: 44 times Rep Power: 4390	Re: Pensions a pipe dream? A very basic illustration is During your working life the contributions are invested in stocks/unit trusts etc. However when you retire these are liquidated and the money is used to buy an annuity from a company. they are basically taking a gamble on how long you will live. Say you have a final salary value of £100K usually your annuity will be ~4% of the value so in this case a pension of £4K/year would be paid. They hope that you die quickly as it gives them the most profit. If you lived for 25 years (disregarding interest etc) then teh deal would break even. If you lived longer then they lose out. With people now living longer I can see the 4% figure moving downwards in years to come so you would need a higher final pension value to get the same pension return. As I said, this is a basic illustration, there is a lot more to it!