What is this pension pot worth?

Andy_L

Pat38493 said:

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.

and more because it includes cover for a widow(er) as well

Andy_L

The treasury think the AFPS is worth 63.5% of your pay & charge that to the MOD's budget each year.

Its not that relevant to an individual (but its a useful starting point) as it includes making good historical underpayments to a larger number of people and it isn't shared out equally among scheme members. eg its worth far more to someone who serves long enough to get the immediate pension paid in their 50s compared to someone who leaves after 6 years and has to wait till state pension age

Secret2ndAccount

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

michaels

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Albermarle

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.

The guaranteed inflation increases pushes up the value a long way above that figure.
Worth well over a Million I would say.

Secret2ndAccount

michaels said:

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Here’s the latest table from Hargreaves Lansdown:

At 55, comparing row 1 with row 5 suggests that the joint life 50% adds 5% to the cost.

Extrapolating the Age 60 and Age 55 values back to Age 53, the RPI annuity gives 3208 at age 53

OP Wants 18,700 from age 53 so the cost is 18,700 / 3208 * 100k = 583k. Add 5%: 612k

From age 67 need an additional 6,300.   Similar calculation yields 101k -> 106k

612k + 106k + the 66k lump sum = 784k

So, doing the calculation on paper instead of in my head, I would like to revise my number to 784k

This assumes OP is has no health issues, does not smoke and has a spouse. If (s)he is single, a smoker, or unwell, then the cost would be lower.

Albermarle

Secret2ndAccount said:

michaels said:

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Here’s the latest table from Hargreaves Lansdown:

At 55, comparing row 1 with row 5 suggests that the joint life 50% adds 5% to the cost.

Extrapolating the Age 60 and Age 55 values back to Age 53, the RPI annuity gives 3208 at age 53

OP Wants 18,700 from age 53 so the cost is 18,700 / 3208 * 100k = 583k. Add 5%: 612k

From age 67 need an additional 6,300.   Similar calculation yields 101k -> 106k

612k + 106k + the 66k lump sum = 784k

So, doing the calculation on paper instead of in my head, I would like to revise my number to 784k

This assumes OP is has no health issues, does not smoke and has a spouse. If (s)he is single, a smoker, or unwell, then the cost would be lower.

The above is using today's annuity rates. In 10 or 20 years time they could be quite different ( better or worse) , but the Armed Forces pension would still pay out the same.
If you had done the same calculation two years ago the amount would have been a lot more than £784K

Ivrytwr3

Secret2ndAccount said:

michaels said:

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Here’s the latest table from Hargreaves Lansdown:

At 55, comparing row 1 with row 5 suggests that the joint life 50% adds 5% to the cost.

Extrapolating the Age 60 and Age 55 values back to Age 53, the RPI annuity gives 3208 at age 53

OP Wants 18,700 from age 53 so the cost is 18,700 / 3208 * 100k = 583k. Add 5%: 612k

From age 67 need an additional 6,300.   Similar calculation yields 101k -> 106k

612k + 106k + the 66k lump sum = 784k

So, doing the calculation on paper instead of in my head, I would like to revise my number to 784k

This assumes OP is has no health issues, does not smoke and has a spouse. If (s)he is single, a smoker, or unwell, then the cost would be lower.

That's awesome! Thank you very much.

michaels

Albermarle said:

Secret2ndAccount said:

michaels said:

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Here’s the latest table from Hargreaves Lansdown:

At 55, comparing row 1 with row 5 suggests that the joint life 50% adds 5% to the cost.

Extrapolating the Age 60 and Age 55 values back to Age 53, the RPI annuity gives 3208 at age 53

OP Wants 18,700 from age 53 so the cost is 18,700 / 3208 * 100k = 583k. Add 5%: 612k

From age 67 need an additional 6,300.   Similar calculation yields 101k -> 106k

612k + 106k + the 66k lump sum = 784k

So, doing the calculation on paper instead of in my head, I would like to revise my number to 784k

This assumes OP is has no health issues, does not smoke and has a spouse. If (s)he is single, a smoker, or unwell, then the cost would be lower.

The above is using today's annuity rates. In 10 or 20 years time they could be quite different ( better or worse) , but the Armed Forces pension would still pay out the same.
If you had done the same calculation two years ago the amount would have been a lot more than £784K

So what is interesting to me is how different those rates are from when I did my main retirement plan 3 years ago.

I would say that annuities now beat swr for those retiring at 55 which rather upends my plans and I suspect many others.

Pat38493

michaels said:

Albermarle said:

Secret2ndAccount said:

michaels said:

Secret2ndAccount said:

Very quick calc, I get £833,000
You have to allow for the possibility of living beyond 80, or periods of high inflation. The provider is taking all the risk. If you were working with a pot, you would have to hold some back for possibilities. That's the difference between your 653k and my 833k.

I suspect buying an equivalent index linked (any cap?) 50% spousal benefit annuity giving the same certain return at age 53 would cost a lot more than £833k - more like 1.2 -1.5m

Here’s the latest table from Hargreaves Lansdown:

At 55, comparing row 1 with row 5 suggests that the joint life 50% adds 5% to the cost.

Extrapolating the Age 60 and Age 55 values back to Age 53, the RPI annuity gives 3208 at age 53

OP Wants 18,700 from age 53 so the cost is 18,700 / 3208 * 100k = 583k. Add 5%: 612k

From age 67 need an additional 6,300.   Similar calculation yields 101k -> 106k

612k + 106k + the 66k lump sum = 784k

So, doing the calculation on paper instead of in my head, I would like to revise my number to 784k

This assumes OP is has no health issues, does not smoke and has a spouse. If (s)he is single, a smoker, or unwell, then the cost would be lower.

The above is using today's annuity rates. In 10 or 20 years time they could be quite different ( better or worse) , but the Armed Forces pension would still pay out the same.
If you had done the same calculation two years ago the amount would have been a lot more than £784K

So what is interesting to me is how different those rates are from when I did my main retirement plan 3 years ago.

I would say that annuities now beat swr for those retiring at 55 which rather upends my plans and I suspect many others.

It certainly means that it's worth considering in my view.  However, depending on your individual situation, if the annuity level if only just above the SWR, you are still might only have (for example) a 5% chance of being better off  - i.e. you are still paying a lot of potential upside for that guarantee - for basic essential income this might make sense but for luxuries depends on your risk attitude maybe?