The primary objective of Fidelity’s myPlan (“the tool”) is to help you identify a savings strategy and to begin to create a plan to address some of the key risks you may face before and during retirement. The tool gathers information about your situation and roughly estimates how a portfolio similar to yours may grow over time. The tool allows you to explore changes and see the potential impact they may have on your retirement plan.
Using a number of simple questions, we gather general information about you and provide a rough estimate of the value of the assets you are projected to hold at retirement and the income they might subsequently produce when you retire. However, you should be aware that several factors may have a significant influence on the assets you hold in retirement – see ‘Assumptions’ below.
The projections or other information generated by Fidelity’s planning tools or calculators regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time.
The results displayed by the calculator are not intended to offer investment advice or recommendations regarding your retirement planning based on your personal situation and you should not rely on the calculator to make your retirement planning decisions. The calculator is not a substitute for a comprehensive retirement plan. You should seek financial advice if you require more detailed help with your retirement planning.
Assumptions
State Pension
MyPlan includes a simple assumption that you receive the full State Pension at the level payable from age 68. It does not include any allowance for additional or second state pension (S2P or SERPS). It does not include any increases above inflation. If you choose a retirement age before you reach age 68 within the tool, the impact of receiving the State Pension from age 68 until your life expectancy is not included. myPlan may therefore understate or overstate the true level of state pensions to which you may be entitled at retirement.
If you were born before 6th April 1978, you may still be entitled to receive a State Pension before you are 68, possibly from as early as 65. The tool does not take this into account and may underestimate your State Pension. If you wish to understand the value of any State Pension you may receive, you should contact the Department for Work and Pensions online at www.gov.uk/yourstatepension
Retirement Income
At retirement there are various ways of using your savings. You may choose to buy a guaranteed regular retirement income, called an annuity, or take pension drawdown which leaves your money invested while you take an income from your savings. This tool assumes you will buy an annuity with all of your pension savings and will not take any tax free cash.
The level of annuity you can purchase at the time will depend upon a number of factors including the size of your retirement fund, your health and lifestyle choices, and rates available in the market at the time you retire. The tool assumes you will use all of your projected savings as calculated by the tool and based on the data you enter, to provide an annuity. The tool makes a conservative assumption about annuity rates, however the annuity you may actually receive may be less (or more) than has been assumed within the tool.
Investment Assumptions
The calculator’s results regarding the hypothetical accumulation of assets are based on Fidelity’s assumption on how markets will behave in future. The assumptions for market variability are based on historical market performance. This is also used to determine how closely linked the returns from the different asset classes are. However, the market’s past performance does not predict how it will perform in the future, so Fidelity determines forward looking assumptions for the average return on each asset class. The calculator provides one set of results on the assumption that the markets perform in line with these average assumptions, and another set of results that reflect poor outcomes. It should be noted that the actual risk associated with a portfolio of investments may be higher than the volatility of the underlying asset classes would indicate, due to factors such as the type of investment, the complexity of the underlying assets or a lack of diversification in the portfolio.
Other income in retirement
MyPlan allows you to enter any additional income you expect to receive in - this could be from a defined benefit pension, rental income, or any other source of income you might expect have. Rather than enter a pound value, you enter it as an approximate percentage of your income - to which we will apply earnings inflation, as set out in the section below on your goal. This means that both your retirement income goal, and your other sources of income in retirement, are both working in the same way: as a percentage of your final income before retirement.
Your Savings
The tool assumes that any savings you enter continue at the same level. This may not be the case if you change employment before you retire, your employer changes the level of pension provision that they offer, or you decide to increase or decrease your levels of savings in the future.
Inflation and Salary Growth
The calculations provided by this tool are adjusted to reflect the effects of inflation. This is known as “real terms”. We have made this adjustment so that you can see a retirement shortfall based upon the estimated costs of goods and services when you retire.
To calculate the pre-retirement income, we assume that your salary grows at a rate of 3% per annum. This is based on consumer price inflation (2%, the target inflation rate of the Bank of England) plus the rate by which salary growth exceeds price growth (1%, based on the historical difference between salary and price inflation as taken from National Statistical data).
Source: Fidelity International.
Pensions Taxation
Contributions to approved pension schemes benefit from tax relief. Tax relief is removed under certain conditions, such as if your contributions exceed an annual allowance each year, or if your pension fund at retirement is above a threshold known as the lifetime allowance. At retirement, normally up to 25% of a pension fund can be used to produce a tax free lump sum (subject to the rules relating to the lifetime allowance). myPlan does not include any allowance for the effects of taxation and assumes that you will not take a tax free lump sum. If you have queries about the effects of taxation, you should contact HMRC (www.hmrc.gov.uk), your local tax office or speak to your tax adviser.
Life Expectancy
The calculator assumes that you live until age 96. This is substantially longer than the current average life expectancy, as you may not be average. We want to ensure that if you live longer than average that you will not run out of assets in your retirement.
Working Life Strategy, or Lifestyling
You should be aware that many pension schemes offer a lifestyling or life staging investment approach under which the risk level of the assets within your pension plan is reduced as you approach retirement. These approaches are designed to protect you from investment market falls seriously reducing the value of your pension fund when you are close to retirement. myPlan does not include any allowance for lifestyling or life staging investment strategies. The effect of a lifestyling strategy might mean that returns are higher or lower that the amount projected depending upon market conditions.
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