What is this pension pot worth?

Ivrytwr3

I'm trying to work out what what this pension pot would cost overall. It's a military pension which is why i can't seem to use regular online calculators. Rough figures, no need for an exact amount!

• Non-contributory
• Finishes at age 53
• 33 years service

• Lump sum of £66k, then £18700 per year until SPA
• £25k per year at SPA

Is this a good pension in today's day and age? Some of the younger lads/lasses are asking about military pensions and although we can see what they COULD get in years to come, they would like to know what the overall pension pot value.

Anyone able to help?

MarkCarnage

It's a defined benefit pension, so it's 'worth' the revenue streams you describe....what these amount to will depend on how long someone and their dependants live and what inflation does. 
CETVs attempt to put a capitalisation value on these and a look at many other threads will show how divergent these can be, between schemes and over time. Largely dependent on changes in discount rates (heavily dependent on gilt yields), changes in longevity expectations, and the specific rules of each scheme. 
Sounds like the younger ones are thinking more in terms of Defined Contribution pensions. I have no idea whether current military pensions are on the same basis as the one you quote. A DB scheme doesn't have a 'pot' as such, but a contractual right to receive benefits as outlined in the rules of the scheme. If it's unfunded, then a CETV won't apply either. 

FIREDreamer

Ivrytwr3 said:

I'm trying to work out what what this pension pot would cost overall. It's a military pension which is why i can't seem to use regular online calculators. Rough figures, no need for an exact amount!

• Non-contributory
• Finishes at age 53
• 33 years service

• Lump sum of £66k, then £18700 per year until SPA
• £25k per year at SPA

Is this a good pension in today's day and age? Some of the younger lads/lasses are asking about military pensions and although we can see what they COULD get in years to come, they would like to know what the overall pension pot value.

Anyone able to help?

Index linked with 50% spouse, I would estimate £800k to £1 million.

JoeCrystal

One of the best pension schemes in the country in my eyes. 

Pat38493

Another way to look at it would be - how much would it cost you to purchase an annuity that pays out the amounts described.

It might well be nearly well over £500K to purchase those kind of benefits, possibly a lot more with the early payout date.

Another way to look at it is that such schemes are often estimated to be worth 20% to 30% of your salary each year.

MarkCarnage

how much would it cost you to purchase an annuity that pays out the amounts described.

Which is likely to be pretty close to a CETV valuation in most cases....though accepting that it's unlikely to be available for this scheme. 

Pat38493

MarkCarnage said:

how much would it cost you to purchase an annuity that pays out the amounts described.

Which is likely to be pretty close to a CETV valuation in most cases....though accepting that it's unlikely to be available for this scheme. 

Yes but if the purpose is to explain to potential recruits whether this is a good pension or not, the answer is clearly yes.  (assuming you survive long enough to claim it!).

Ivrytwr3

Pat38493 said:

Another way to look at it would be - how much would it cost you to purchase an annuity that pays out the amounts described.

It might well be nearly well over £500K to purchase those kind of benefits, possibly a lot more with the early payout date.

Another way to look at it is that such schemes are often estimated to be worth 20% to 30% of your salary each year.

That's what i meant! Thank you.

Ivrytwr3

MarkCarnage said:

It's a defined benefit pension, so it's 'worth' the revenue streams you describe....what these amount to will depend on how long someone and their dependants live and what inflation does. 

That makes sense. So i've £18700 * 14yrs = £261800k (takes them to SPA). Then £25k * 13yrs (to age 80) = £325k. + £66k lump sum.

So it's 'worth' approx £653k up to 80 years old.

Thanks all.

Pat38493

Ivrytwr3 said:

MarkCarnage said:

It's a defined benefit pension, so it's 'worth' the revenue streams you describe....what these amount to will depend on how long someone and their dependants live and what inflation does. 

That makes sense. So i've £18700 * 14yrs = £261800k (takes them to SPA). Then £25k * 13yrs (to age 80) = £325k. + £66k lump sum.

So it's 'worth' approx £653k up to 80 years old.

Thanks all.

Actually a lot more than that because it will be adjusted for inflation each year once in payment.

MarkCarnage

Ivrytwr3 said:

MarkCarnage said:

It's a defined benefit pension, so it's 'worth' the revenue streams you describe....what these amount to will depend on how long someone and their dependants live and what inflation does. 

That makes sense. So i've £18700 * 14yrs = £261800k (takes them to SPA). Then £25k * 13yrs (to age 80) = £325k. + £66k lump sum.

So it's 'worth' approx £653k up to 80 years old.

Thanks all.

Yes, plus whatever inflationary increases apply, and allowing for living beyond 80! Which will take the number to the ball park £800k - £1m mentioned earlier....give or take. An annuity provider will price in longevity and RPI estimates to their modelling.