Calculating pot value of defined benefits pension

BaconandEggs · 19 February 2018 at 3:55PM

I have a defined benefits pension from a scheme that I am no longer a member of. The accrued annual pension in today's money is £2970/annum (with £8900 lump sum).

I can calculate the estimated benefits at retirement age, taking into account growth due to inflation.

Does anyone know would I calculate the pension pot value if this were a private pension?

In other words, what would the size of a pot need to be in order to generate £2970 per annum?

Tom99 · 19 February 2018 at 3:59PM

[FONT=Verdana, sans-serif]You can get an idea by requesting annuity quotes from an online calculator.[/FONT]
[FONT=Verdana, sans-serif]If age 60 then an index linked pension would probably cost you at least 30x/35x the annual pension.[/FONT]

westv · 19 February 2018 at 4:09PM

When I last looked (purely out of curiosity) I was quoted an annuity rate of 2.2% for an RPI index linked, 50% survivor, 10 year guarantee annuity for someone of my circumstances but age 60. :eek:

Linton · 19 February 2018 at 4:10PM

To get a crude number I would suggest you multiply the annual income by 30 and add on the lump sum but...

A DB pension Guarantees to provide what I assume is an inflation linked income no matter what the circumstances. A DC pension pot cant guarantee anything. The 30 figure is roughly the cost of an inflation linked annuity which will be guaranteed and is in the ball park for a sum sufficient to ensure that you wont run out of money by drawdown even if historically bad circumstances are repeated. This assumes you have a portfolio relatively high in equities.

You can aim to take out a higher % of the pot but the more you draw down the more likely that you will need to find income from elsewhere during crashes to avoid depleting your core funds or to run out of money before you die. Also the more likely it is that you wont be able to sustain full inflation matching.

GunJack · 19 February 2018 at 4:14PM

use a compound interest calculator, like this:-

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

starting amount = current value of pension, % rate=your guess at average inflaton over the time (guess at 2.5-3.5%), and how long you have to claiming it.

Say for instance you are 50 now, and you can claim the pension at 60, that's 10 yrs. So your £2970/annum (with £8900 lump sum) now would be worth £3991p.a. @3% in 10 yrs, and the ls £11,960.

BaconandEggs · 19 February 2018 at 4:21PM

Thank you all. Tom99 and Westv: you both mentioned age. How does this affect things? I'm 37. Does the x30 rule only apply if you are 60?

Linton · 19 February 2018 at 4:35PM

BaconandEggs wrote: »

Thank you all. Tom99 and Westv: you both mentioned age. How does this affect things? I'm 37. Does the x30 rule only apply if you are 60?

The 30X approximation is OK for comparing DC drawdown at 60, but an annuity would be closer to 40 X. Note also that once you get into details such as a younger spouses pension to be paid on your death the numbers change. Again the DC 30X is still OK whereas an annuity would cost more again.

sandsy · 19 February 2018 at 4:43PM

BaconandEggs wrote: »

Thank you all. Tom99 and Westv: you both mentioned age. How does this affect things? I'm 37. Does the x30 rule only apply if you are 60?

It’s not a rule, it’s a guess. The number will get lower at older ages. So a guess might be 25 at 65. But won’t go down constantly at the same rate.

drumtochty · 19 February 2018 at 6:04PM

Of course what has not been mentioned is that whatever sum is agreed to be the equivalent of the said pension. They deal you have with that occupational pension provider is not that you get say £100 k to cover the lump sum and annual pension but that you get the lump sum and annual pension every year.

If they do not offer a large lump sum to get rid of the long term commitment to your good self, there is no way to force the company to do that but I assume you already know that. Posters with DB schemes have come on the board and have said that is my money and I want it now.

BaconandEggs · 19 February 2018 at 6:35PM

Thanks Sandsy - yes, I should have said guess. Makes sense based on what previous posters have said.

Drumtotchy - understood. I have no intention of withdrawing/transferring. I am just curious. I am currently paying into two defined contributions pensions and wanted to get an idea of what my previous pension was like and how these new ones compared.

Thrugelmir · 19 February 2018 at 6:58PM

BaconandEggs wrote: »

In other words, what would the size of a pot need to be in order to generate £2970 per annum?

Have a play yourself.

https://comparison.moneyadviceservice.org.uk/en/Annuity/FindAnnuity/YourDetails

Calculating pot value of defined benefits pension

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