So I’ve gotten myself a bit more organised so I decided to calculate what sort of overall return I’ve been getting from my Pension but the numbers that I’m coming up with don’t seem right. What I’ve effectively done is to total all my contributions and separately total all the growth (or loss as the case may be) that is derived from investment return. I’ve then divided the total growth by the total investment to give me a percentage return. The trouble is this gives me a number that is way way too high to be realistic comparison to the growth figures quoted. Should I be dividing this percentage by the number of years I’ve had the pension? That’s the only way to make the numbers seem sensible.

The pension advice service might be able to help

http://www.pensionsadvisoryservice.org.uk

I think you want to know your compound return. Quite complicated as you have lots of payments and it’s not just a matter of dividing by number of years. I do something similar for my investments but that’s not so hard to do as have a reasonable number of lump sums to deal with.

This calculator could help if you’ve always paid the same amount each month – estimate the annual return until you hit your current total:

http://www.mackenzieinvestments.com/calc/jsp/InvRegDeposit/InvRegDeposit.jsp

@gonefishin
It’s quite complicated to do accurately but you can get an approx number as follows

You should not be dividing as its compound growth you’re trying to calculate – so you need the N’th root where N is the number of years you’ve had the pension and you need to express the percentage return by adding 1 (or 100%). Calculators and spreadsheets let you do n-th root, so for example if you had 15% growth over 3 years the annual rate is calculated as 1.15 ^ (1/3) = 1.0476 or 4.76%)

Hope that’s helpful

I’m afraid it’s more complicated than that!!!

In the simple situation where you have not made any contributions it’s fairly simple:

Return = (end value – start value)/start value

To get the annualized return you then take he nth root as jambalaya describes

But you’ve made I assume monthly contributions so for each month the return is

Monthly Return = (end value – start value – monthly contribution)/start value

The total return is then given by

Return = (1+R1)*(1+R2)*….(1+RN)-1

Where R1 is the return in month 1 etc.

This again needs to be annualized

But the problem is that you won’t have monthly values for your pension so as an approximation your annual return for each year is

Annual Return = (end value – start value – monthly contribution*0.5)/start value

In my day job I sell systems that do this sort of thing so hopefully I understand the mates behind it! And to any CFAs I’ve made some simplifications I know, but given the amount of data the OP probably has its the best I can do!

Thanks for that guys. I realised it would be realted to finding the nth root driving into work this morning. I’ll trying something this evening. You’re right drofluf I don’t have much data beyond monthly contributions and year end values but it’s all in a spreadsheet so data manipulation should be fairly straighforword.

Alternatively I might just put my fingers in my ears and go “lalalalalalalalalalal” and pretend it will all be okay!

Easy. Your overall return is the pension you get at the end, any other number is just a guess.

And if there is no payment to spouses etc on death, then it could be zero 🙂

I had a pension statement a few weeks back, I’m worth a fair bit to the wife if I die, I think I’ll start getting the dog to check my food 😉