Pensions
Auditor
This is a complex
calculator because it is a complex subject.
This calculator will
help highlight how close to your target
you are with regard to establishing
a decent pension.
It will only provide
a very general picture and we strongly
recommend that we conduct a proper audit
of your position in which we will assess
all of your current arrangements and
make suitable recommendations. That said
if you enter all the information correctly
and it suggests that you need to save £300pm,
and you are only saving £50 then
it is fair to say that some additional
planning will be needed.
Compliance note - We
believe that it is compliant, and it
has been passed as compliant by more
than one network.
1 .Enter
the rate of accrual as 60 if you are
in a 1/60th scheme, 80 if 1/80th etc. Enter
1 if this section is not applicable:
2. Enter
the total number of years service you expect
to have by the time you want to retire. Enter
0 if not applicable:
3. What
is your salary as defined by the pension scheme?
Normally only includes basic pay, no bonuses
or overtime. Enter 0 if not applicable:
4. Enter
the current value, in total, of your pension
funds, plus any other plans that you are treating
as pension savings, e.g. 12000. Enter 0 if
none:
5. Enter
your current monthly investment , to
all of the above. Use GROSS contribution values
for pension investments, e.g. 150. Include
any Employer contributions:
6. Enter
the number of complete years to retirement:
7. Enter
your assumed growth rate, e.g. 9 for 9%:
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
8. Enter
your assumed inflation rate, e.g. 5 for 5%:
0
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
9. Enter
your desired annual retirement income
10. Enter
your expected annuity rate.
1
2
3
4
5
6
7
8
9
10
11. Projected
Pension* Fund:
12. Projected
Pension * using your annuity rate:
13. Projected
Fund in real terms
14. Projected
Pension in real terms using your inflation
and annuity assumptions for fund based pensions,
with any Defined Benefit pension added:
*This calculator
assumes that you use the whole fund for
pension. In reality you may take some
of it as tax free cash.
Explanatory Notes
Accrual
Rate - The rate at which you
accumulate pension for each year
of service. You need to know this.
Guessing is very risky as it may
lead to an over optimistic assessment
of your pension position. That
said most good schemes provide
one sixtieth of salary for each
year of service, (hence the oft
quoted pension being 40/60, i.e.
two thirds of salary for 40 years
service with the same employer)Expected
Years Service by Retirement -
This refers to any time that you
have spent or will spend in a good
company defined benefits scheme
(one that pays you a pension according
to the number of years service,
rather than according to the size
of any fund that you may accumulate).
Most large employer schemes are
of this type.
If you have
been in such a scheme for ten
years, and expect to stay until
retirement in twenty more, then
enter 30.
If you have spent
five years with such an employer
and then left, enter five. However
note that this calculator assumes
that your current salary is the relevant
one, whereas in fact presumably your
scheme salary was lower. In this
case the calculator will OVERESTIMATE
your pension.
If you have benefits
from such a scheme and want to see
how they affect you then run the
calculator using the term, the salary
value that you had when you left
the scheme, and the term to retirement
that applied when you left the scheme.
This will be more accurate, but still
not to be relied upon.
Value
of Current Investments - The
current value of all of your long
term savings, be they pension funds,
shares, deposits etc. EG if £12,000
in pensions, £3,500 in ISAs/PEPs
and £12,000 in deposits/shares
etc enter 27500.Savings
Rate - How much each year you
are setting aside for long term investment,
either explicitly to pensions, or
implicitly in general savings. If
your arrangements seem to be falling
short of your desired pension you
need to adjust this figure to see
how much you need to invest to meet
your target. Include any employer
pension contributions if known.Inflation
and Growth Assumptions - Choose
your own, but note that the highest
growth rate allowed in formal projections
is 9% (for which inflation is assumed
to be 4.5%) and the cautious one
is 5% (with inflation of 0.5%).
As well as the absolute levels
of each, it is important to understand
that over the long term there cannot
be a huge difference between growth
and inflation, and differentials
of over 4.5% will lead to over
optimistic pension projections.
Because of
the way that the math operates
there is an added complexity
when considering the effect of
Inflation on Regular Savings.
In short if you invest £1000
a year then , because of inflation,
it appears that each year you
invest less and less in real
terms. If you want to se what
happens if you invest the same
amount in real terms then set
the Inflation at 1, and use a
conservative growth rate.
Enter in the form
1.06 for 6%.
In the internal
math the growth rate is reduced by
1% to represent fund charges, as
per Stakeholder. Your actual pension
costs may be different.
Annuity
Rate - Choose your own assumption,
but if you want to be cautious then
6-7% is a good guide. Enter as a
decimal, e.g. 0.07.Desired
Pension - The annual pension
you would like if you were to retire
today.Projected
Pension Fund - The value of the
fund at retirement.Projected
Pension - The pension that the
fund will provide for your selected
annuity rate.Fund
Value in Real Terms - The value
of the fund in today's money.Pension
Value in Real Terms - This is
the number that counts. The value
in today's terms of your pensions,
both from any fund, and from any
employers scheme. State Pensions
are ignored.
This calculator, and
the figures shown by it, are for illustrative
purposes only and should not be relied
on. For more detailed information based
on your own circumstances, please speak
to your financial adviser.
