Pension Calculator Differences

tony4147

I use 2 pension calculators, Standard Life and the HL calculator. When I put figures in I get two different completely different figures. I have checked and checked through the assumptions that both Companies use and can find very little difference.

Can somebody in the know try these two calculators and let me know what is causing the wide variations I see?

The information I'm inputting is -
Age 50
Male
Existing funds of £116K
Total contributions £812/month
Retirement age 67
Both are set for 7% growth, 1% fee, 50% spouse, 3% (HL) or RPI (2.5% SL), no state pension included

HL Calc says £19,700/yr
SL Calc says £13,800/yr

The only thing that I can't see is when you input the personnel contribution on the HL calc I input £812/month, is the HL calc then adding tax relief on this? so that the contribution is higher?

sandsy

OK, I've had a bit of a play. I think they're treating tax relief the same way.

Based on my messing around, my guess is that the two calculators are using very different annuity rates. The SL ones look closer to what I'd expect. The HL ones are no way near where I'd expect them to be and would result in overstating the projected income.

I believe there's two main differences in the annuity rates:

1) In the important information section, HL state the annuity rates are 'not current' and not gender equal. whilst we can't be sure what they mean by 'not current', I suspect they're using an out of date mortality basis which understates longevity and future mortality improvements.

2) I also suspect that the annuity interest rate is 0.5% lower in the SL projection.

tony4147

Glad that somebody has explained that, I've asked the question before and had little response.
To my knowledge a lot of people are using the HL calculator to estimate if their on target or not.
It would be helpful if a person could see what the final pot is, the HL calculator gives this figure the the Standard Life calculator doesn't.

dunstonh

My calc on those figures comes out at £12,374.44 a year with a pot of £388,503 when shown in todays terms. It comes out at £18,829 a year with a pot of £591,153 when shown in future money terms.

My guess is that SL is using todays spending power and HL is using monetary value.

I would expect insurers to be more cautious but (again a guess) that difference seems too much to be down to annuity rate being out of date (it would have to be massively out of date)

tony4147

dunstonh wrote: »

My calc on those figures comes out at £12,374.44 a year with a pot of £388,503 when shown in todays terms. It comes out at £18,829 a year with a pot of £591,153 when shown in future money terms.

My guess is that SL is using todays spending power and HL is using monetary value.

I would expect insurers to be more cautious but (again a guess) that difference seems too much to be down to annuity rate being out of date (it would have to be massively out of date)

The HL and SL are both showing it in "todays terms"

dunstonh

tony4147 wrote: »

The HL and SL are both showing it in "todays terms"

In which case, HL's calculator is flawed.

However, I just looked at the assumptions used by HL and they automatically index the monthly contribution by 2.5 p.a. They do not show level contributions.

tony4147

dunstonh wrote: »

In which case, HL's calculator is flawed.

However, I just looked at the assumptions used by HL and they automatically index the monthly contribution by 2.5 p.a. They do not show level contributions.

The SL index the contributions by 4%

dunstonh

If I index it at 4% then it comes to £14268 in todays terms. So, the difference is not great.

So, looking at it, there are three logical answers. 1) the data input is wrong or 2) an assumption differs that you are not aware of or 3) HL's calculator is using obsolete annuity rates.

Looking at the projected lump sum, on my calc, I get £447,971 fund value giving an annuity of £14,268. HL gives a fund value of £418,623 with annuity of £19,672

So, with similar fund values but massively different annuities, you have to look at the annuity rate as being the issue.

tony4147

dunstonh wrote: »

If I index it at 4% then it comes to £14268 in todays terms. So, the difference is not great.

So, looking at it, there are three logical answers. 1) the data input is wrong or 2) an assumption differs that you are not aware of or 3) HL's calculator is using obsolete annuity rates.

Looking at the projected lump sum, on my calc, I get £447,971 fund value giving an annuity of £14,268. HL gives a fund value of £418,623 with annuity of £19,672

So, with similar fund values but massively different annuities, you have to look at the annuity rate as being the issue.

It must be annuity rate on the HL calculator that is different, this was also suggested by Sandsy in a reply above.
So your figures aren't that far out from the figures produced by the Standard Life calculator.