Tom protects and grows his pension investment
Article last updated: 20/05/09
Tom had recently retired and was reviewing his retirement investment strategy. Because his brother had lost a substantial amount of money in shares during the 1970s he’d always been sceptical about investing on the stock market.
At 31 March 1988, Tom had a superannuation balance of $400,000 and he wanted to take a pension of $24,000 per annum.
One of Tom’s main concerns was whether his pension would last for his retirement. He recognised that he needed to invest wisely and so consulted a financial adviser. His adviser explained that by investing in market-linked growth assets there was potential to achieve better long-term returns than simply depositing his funds into a bank cash account.
But Tom was still cautious about investing on the stock market because of the increased level of investment risk.
Tom’s adviser recommended North Personal Pension with the Protected Growth guarantee option. Choosing the Protected Growth guarantee with a 20-year term gave Tom the peace of mind to invest in the share market and adopt a growth investment asset allocation.
At the end of the 20-year term Tom had received pension payments totalling more than $619,000.1 And despite his Account Value falling to around $370,000 because of market volatility in late 2007 and early 2008, he received a lump sum Protected Balance of over $418,000. If he’d invested in a cash-based account, his account would only be valued at around $320,0002.
Importantly, Tom’s investment was protected against the market falls in 2002–03 and 2007–08. In fact, thanks to the Protected Growth guarantee, Tom received more than $43,000 in excess of his Account Value at the end of the 20-year term.
1 Pension payments are indexed at 2.6 per cent per year (CPI average for the last five years) – final payment is around $40,000.
2 The cash return rate is based on the 90-day Bank Bill rate over the selected timeframe.
| Name | Tom |
| Current age | 66 years |
| Initial contribution | $400,000 |
| Salary | $24,00 pa |
| Asset allocation | Investment Strategy 70 |
| Projection | 31 March 1998 - 31 March 2008 |
Important information
The case study above is a hypothetical scenario based on past performance and is not meant to illustrate the circumstances of any particular individual. Past performance is not necessarily indicative of future performance. While we believe the information contained herein is correct, no warranty of accuracy, reliability or completeness is given and, except for liability under statute which cannot be excluded, no liability for errors or omissions is accepted.
The results depicted are based on specific assumptions. Changes in any of the assumptions may lead to a significant change in the results. While AXA Australia has endeavoured to employ assumptions that are reasonable, the assumptions cannot, by their nature, cover all situations and circumstances.
Some of the assumptions adopted represent a simplification or average result over time and thus the results produced are likely to be less volatile than may be experienced in real life.
These results do not provide financial, investment or taxation advice or recommendations and should not be relied upon as such. The results do not take into account the investment objectives, financial situation and circumstances of any particular person.
Projections are based on the various assumptions including but not limited to:
• The guarantee and administration fees are included. These will depend on the guarantee timeframe and the Account Value. Adviser fees are not included.
• Investment management fees are 0.45%.
• Investment returns are based on historical index data. For details on investment strategies and portfolio construction go to www.north.axa.com.au/casestudies.
Set pension amounts are assumed to increase by 2.6% per annum. This assumed rate is based on the five most recent previous years’ Consumer Price Index (CPI) data (Australian Bureau of Statistics, February 2007).
The results of this case study have been generated using the North Illustration Tool, which employs a range of general assumptions to model historical market scenarios. For full details please see www.north.axa.com.au/casestudies.
