Actuarial value

jcrgordon

I am about to be made redundant and am entitled to, amongst other things, a monthly payment of £1,212.12 until I reach the age of 60 which is exactly eight years from now. I have been told that the total value of this is £116,363.66 (which I agree is accurate) and it will be paid as an immediate lump sum actuarially adjusted.

1. What is the actuaruial adjustment and how can I calculate it to verify my employers calculations?

2. If I receive this lump sum then I will be liable to pay income tax on it at 40% whereas if I received the monthly payments I would only pay basic rate income tax. Can I claim that extra tax back from my employer and how can I calculate the amount that I should claim?

Thanks.

dampsquib

If under your terms and conditions, you are entitled to the monthly payments OR something of equivalent value, then if your employer imposes the latter, in addition to them reducing the lump sum to take account of you receiving the money early, you should also be able to have the amount grossed up to compensate for the additional tax burden caused by the early payment.
Can't offer any advice on the actuaruial adjustment calculation, but you could ask your Union to get the calculation checked.

ylesia

Hi

The actuarial adjustment will be to adjust the lump sum to the value as at the payment date eg. £1212.12 payable in 8 years time is not worth £1212.12 in today's money.

The actual value will depend on the discount factor that they use, for example a discount factor of 5% per annum would lead to an actuarial adjustment of a reduction of around £20,000 to the lump sum.

dampsquib

ylesia wrote: »

Hi

The actual value will depend on the discount factor that they use, for example a discount factor of 5% per annum would lead to an actuarial adjustment of a reduction of around £20,000 to the lump sum.

I suspect it will be more complicated than that, as the payments may be indexed linked against inflation. It's just an educated guess (as I know of similar situations), but I suspect from the nature of the payments that jcrgordon must work in a privatised bit of the Civil Service that has been TUPE'd over the wall into the private sector.

ylesia

yes and if they are indexed linked this will affect the discount factor, an actuary can only make an assumption about future inflation. A whole range of assumptions will go into the calculation of the discount factor, I simply gave an example.

There are other adjustments that could be made eg. for expenses, mortality etc. but the main one will be the choice of discount factor.