How do i work this out

vvvvvvvvvvvvvvvv

On a calcultor?what buttons do i press to get the result?

Mable was a member of a final salary scheme for 5 years from 1st Jan 2009.Her date of leaving was 31 december 2013.In her scheme final pensionable earnings is defined as the highest value of pensionable earnings in the last 5 years before leaving.

Year 1 = £15,000
Year 2 = £16,000
Year 3 = £17,000
Year 4 = £19,000
Year 5 = £18,000

If at 31st december ,2013 Mable had reached pension age her pension would be payable immediately.Based on accrual rate of 1/80 and her service of 5 years(from 1st January 2009 to 31st December 2013),she would be entitled to an annual pension of:


1
__
80 x 5 x 19,000 = £1,187.50

kangoora

Not sure if serious

1 divide by 80 times 5 times 19000 = 1187.5

atush

Plus the 19K will have been uprated from Dec 2013 to pension date via the index for that pension set in the rules (ie CPI, RPI x% etc) so wil in fact be more than the above.

vvvvvvvvvvvvvvvv

What does this mean in laymans language?

"The company will pay a fixed rate for future service accrual of 10.5% of pensionable salary"

hyubh

vvvvvvvvvvvvvvvv wrote: »

What does this mean in laymans language?

"The company will pay a fixed rate for future service accrual of 10.5% of pensionable salary"

What is the context? If this is referring to the 'future service rate' of an open DB scheme, the term 'fixed' ultimately doesn't mean much because the employer will have to make up the difference if the 'fixed' rate proves too low to fund the benefits promised.

vvvvvvvvvvvvvvvv

hyubh wrote: »

What is the context? If this is referring to the 'future service rate' of an open DB scheme, the term 'fixed' ultimately doesn't mean much because the employer will have to make up the difference if the 'fixed' rate proves too low to fund the benefits promised.

Thank you

I think your right in the context too.

vvvvvvvvvvvvvvvv

Another query from me:o

On a section 32 pension letter it says:

"If you place your policy into deferment for more than 7 weeks,we will increase the GMP by 1/7% for each complete week in the period of deferment following your 65th birthday"

What is 1/7% in calculator language?

Example-how do i calculate say GMP say £10,000 and i defer it by 7 week? or 20 week? or 1 year?

Maelwys

vvvvvvvvvvvvvvvv wrote: »

Another query from me:o

On a section 32 pension letter it says:

"If you place your policy into deferment for more than 7 weeks,we will increase the GMP by 1/7% for each complete week in the period of deferment following your 65th birthday"

What is 1/7% in calculator language?

Example-how do i calculate say GMP say £10,000 and i defer it by 7 week? or 20 week? or 1 year?

I'm pretty sure it just means that as long as you're deferring taking it for their minimum period (7 weeks) or more, then for each week multiply the figure by [1 plus 1/7th of a percent]. Or about 1.0014286.

So with £10,000 after 7 weeks you'd have a 1.0043% gain for £10,100.43, and 20 weeks would be a 2.8963% gain for £10,289.63... etc.

Over a year you'd be looking at a gain of just over 7.7% (£10,770.57)

LXdaddy

Maelwys wrote: »

I'm pretty sure it just means that as long as you're deferring taking it for their minimum period (7 weeks) or more, then for each week multiply the figure by [1 plus 1/7th of a percent]. Or about 1.0014286.

So with £10,000 after 7 weeks you'd have a 1.0043% gain for £10,100.43, and 20 weeks would be a 2.8963% gain for £10,289.63... etc.

Over a year you'd be looking at a gain of just over 7.7% (£10,770.57)

My reading is that as long as you defer for at least 7 weeks they you get an increase of one seventh of one percent for each week deferred. So if you defer for 7 weeks you would get an increase of 1%. If you start with £10,000 then defering by 7 weeks you would get £100 extra.

In calculator terms if w is the number of weeks deferred you could do
w / 7 / 100 + 1 * 10000 = to find the total
so for 7 weeks the calculation is
7 / 7 is 1
1 / 100 is 0.01
0.01 + 1 is 1.01
1.01 * 10000 is 10100

Maelwys

LXdaddy wrote: »

My reading is that as long as you defer for at least 7 weeks they you get an increase of one seventh of one percent for each week deferred.

Yep, but it'll depend when they actually calculate what 1/7th of one percent is.

The way it's phrased above "we will increase the GMP by 1/7% for each complete week in the period of deferment" suggests that every week during deferment a fresh 1/7th of a percent is added... meaning that the effect would be cumulative.

If so it'd be:
((1 / 700) + 1) * [Current Sum]
and would get recalculated every week.

However if they just multiply the number of weeks by 1/7th of a percent it'd be:
(([Weeks] / 700) + 1) * [Initial Sum]
and would be calculated just once.

It'd not matter massively over shorter periods, but over a year it'd mean the difference between getting 7.71% or 7.43%. I suspect they'd probably use the option that costs them less, but the OP would likely need to read the small print to be certain.

agarnett

vvvvvvvvvvvvvvvv wrote: »

What does this mean in laymans language?

"The company will pay a fixed rate for future service accrual of 10.5% of pensionable salary"

Sounds to me more like a sentence in the communication to members of the ending of contributions to some DB scheme and the start of a much lesser value DC scheme in its place. A DB scheme could have been costing the company anything up to 40% of salary in recent years whereas by making big changes, the employer looks to be reducing its exposure right down to a contribution of just 10.5% of salaries for future service. Its liability for continued support of previously earned DB scheme benefits will not go away, but from their point of view, by stopping paying into it for future years' service, they have made a big step towards "stopping the rot" to their bottom line.

I wonder if the mention of Section 32 is also part of the same communication - one which offers the chance to transfer out accrued benefits from the existing DB scheme which is ending (into a Section 32 buy out plan, or into one of another couple of options proposed by the employer/existing scheme.

Maelwys makes a fair point and I would argue that if the language is exactly as stated then the contract would be for a compounded enhancement of 1/7 percent per week i.e. the higher of the two. I am getting deja vu from reading that text ... i am wondering if I have some paper somewhere relating to my own Section 32 buy out policy which says much the same.

And as for your original question OP, if it isn't yet clear, you only need to check the example already given i.e.
1
__
80 x 5 x 19,000 = £1,187.50

which is a correctly executed sum.

It uses the highest year's salary within the past five years service up to the end of 31st December 2013 which I am guessing is when the old DB scheme became "frozen", and taking the highest earning year in the last five is no doubt irrespective of whether the actual service is greater or less than five years.

In the example given, Mabel had exactly five years service as at 31st December 2013, and her highest year was not actually the last year but the year before that, so the figure of £19,000 became the base for her pension if she had retired the same day the old scheme became frozen. Taking the best year in the last 5 doesn't sound half bad actually. In most schemes, the base "final" salary used might be the actual final year's gross pensionable salary, else maybe some career averaged salary. The example given seems a better deal.

By giving that particular example, it doesn't mean that Mabel actually did retire on that date. It just shows an example of how every member's deferred pension base figure is being calculated as at 31st December 2013 for the file. That date is in the past and for each member the base pension as at 31st December 2013 will not change. However before the pension comes into payment it will have been inflation protected to a degree.

As others have said, as and when members reach their scheme retirement age, the old scheme will actually be expected to pay out (if it survives long enough!) the sum calculated as at 31st December 2013 but enhanced by index-linking in some fashion e.g. increased in line with CPI or some other accepted index, but bits of the entitlement may be at greater or lesser %age increases depending on exactly what the scheme rules are, and exactly how each member's entitlement was comprised e.g. vis-a-vis any periods of contracted out employment.