Pension Statement concerns

Curious_Moose

Well it's a good job you've retired! I'll explain...
The SMPI statement will reflect the current level of contributions. Namby's wife may well have made a decision to increase contributions by 8% p.a., there is however, absolutely no guarantee whatsover that the SMPI statement will reflect this.

Rubbish! One is given the option to increase contributions by any percentage up to 10% automatically at the onset in a proposal form. If those contributions continue to escalate as such all future illustrations will assume the same future escalation.

If she is working for a company the assumptions regarding salary escalation, increases in contributions etc will be general ones specified by the company that also incorporate some current information relating to individuals.

Who said this was a company pension? I did not neither did Namby.


Did you not see the word "if". I was simply adding further general information.



My other figures were simply to give an indication of the funds at retirement based on different assumptions. Presumably, you've checked them and confirmed they're correct? Or don't you know how?

No point in checking your calculations that are wrong and not even close is there?

You say my figures are wrong, then point out exactly where and we'll debate the maths. Otherwise everyone can see your comments are totally hollow.




Incidentally, SMPI statements may allow for tiered rate contributions, lifestyling, AVC and Protected Rights (with Age Related Rebates also being thrown in the pot). The maths does get a bit tricky, but if you know what you're doing it's ok. Oh, and don't forget TM1. I'll leave you to Google that to find out what it means.

Again your talking nonsense protected right are always shown separately and are irrelevant in this case.

Again, I was adding general information relevant to SMPI statements. You made a comment about my SMPI knowledge and I'm happy to discuss it.



If you'd like to debate any of the figures, be my guest.

Somehow, I doubt you get much beyond !!(1+i) ^ n - 1) /i} and that approach (and the amended formula to allow for salary escalation) pretty quickly becomes unworkable with lifestyling and tiered rate contributions.


There is no accurate formula for calculating compound interest with escalating contributions so yet again you talking through your backside.

Wrong again I'm afraid. I'll try and dig out the formula tomorrow. This is how it's done without a standard Actuarial formula when in addition to salary escalation, you also have contribution percentages changing with a tiered age table. In these more complicated cases, the standard Actuarial formula won't work.

1) For each month between date of calculation and NRD, calculate the monthly contribution and hold in an array. The contribution may need to take account of a tiered age related table and salary escalation.

2) For each of those contributions, project forward using the investment return selected using the equivalent monthly rate of return. Add these up on an ongoing basis and you have the fund at NRD. With lifestyling, it's more tricky as you have to consider if the member is withing a lifestyle investment fund change and make the appropriate amendment to the monthly investment return.

Did you understand that? (Yes or no will suffice)








Want to buy my spreadsheet?

No...want to buy my VB program which allows for all of the above, plus several different funds, plus different expenses for each fund plus any combination of basic Employee, Employer Protected Rights, Age Realated Rebates included/excluded from the main contributions...etc

Retired_I.F.A.

Tell you what hows about putting your money where your mouth is?

£9000 fund today plus £122 p/m gross contribution escalating annually by 8% compound yielding 8% (car/apr/yield) for a 30 year term exactly.

You said £442,000 Wheras I said £499,777

£10 ok?


edit... No sorry you said a yield of 7% = 442,000 whereas at 7% I say 427,249

Do we have a bet?

Retired_I.F.A.

Over a half hour has passed the green button shows your still on the forum and you have not taken me up on my bet. Perhaps you've spent the time reading the manual to your software and discovered your wrong or are you still looking? Anyways Keep you money I'll tell you where you went wrong for free. £442,000 is after 29.5 years and also truncated to the nearest or lower '000 yet you said after 30 years. Seems to me you don't know what your fancy software assumes let alone what the regulators tell providers what to assume in illustrations.

I'll stick with my self taught, self wrote, spreadsheets. At least I know what's assumed and what's not as the author of them.

dunstonh

If the increases are a contractual event. i.e. the plan is set to increase by 8% a year every year then the illustrations will include the increases right through to selected retirement age.

Salary linked increases (for a group PPP) either are not included (as they are unknown) or make an assumption of around 2.5% p.a. Namby hasnt said what type of pension it is so we dont know.

Curious_Moose

Retired_I.F.A. wrote: »

I'll tell you where you went wrong for free. £442,000 is after 29.5 years and also truncated to the nearest or lower '000 yet you said after 30 years.

I’ve checked my figures and they are correct.

Before I explain why, I’ll just point out the error in your assumptions. My fund value was £442,000 and yours was £427,249. If I had made a mistake of using 29.5 years and not 30 years then that would result in a lower figure than the correct figure, not a higher figure. So your analysis is clearly incorrect.

Now previously, you said "There is no accurate formula for calculating compound interest with escalating contributions"

Unfortunately for your credibility, there is.

In this case it is [((1.07 ^ 30) – (1.08 ^ 30)) / (( 1 – (1.08/1.07)))] x (1/(1.07^0.5))

Multiply that by monthly conts of £122 x 12 and you get a fund after 30 years of £371,082

The existing £9,000 at 7% grows to £68,510

Add the 2 together and you get £439,592

Now the program I wrote to calculate the £442,000 actually gave £441,938 as it uses iteration rather than Actuarial formula and so is slightly more accurate as it calculates interest on each monthly contribution rather than assuming contributions are paid half way through the year which is what the Actuarial formula does.

I rounded it up to £442,000 to avoid issues regarding "spurious accuracy". When dealing with projections like this (which are just estimates of what a fund may be worth) there’s little point in quoting to the nearest £1.

Now if you would like me to explain how the above Actuarial formula is derived from first principles, I’m happy to do so and you will learn something about the mathematics of compound interest.

Retired_I.F.A.

I've been fishing all day and only just got back. I'll look at it tomorrow and get back to you.

Retired_I.F.A.

Please accept my sincerest apology C M I'm wrong.

Although thats not to say your right.

Let me explain, First of all your more akin to the terminology than me as I at the start of this thread did not have a clue what an array was (realise now it's what i call a table), an actuarial formula to me is just a formula, what the hell first principle means I dont have a clue (not bothered as yet to goggle it but at same time i dont see any need to) Iteration I'll try and remember when I next play scrabble means a loop. SMPI means what it means but is a new phrase to me probably invented by some pillock of a regulator with nothing better to do and TM1 ??? (Some financial software written by yanks apparently what that has to do with it I'll never know)

So on the terminology you have me at your mercy it's all !!!!!!!! to me. It just means I have to goggle to translate some of what you say into everyday English.

Anyways, it should be easy for you to understand me when I say I had without realising it deleted a vital formula in a cell in my spreadsheet sometime during this thread, which meant instead of =1.07^(1/12) (the nominal interest per deposit) which equates to 1.005654145 I'd put 1 in there instead.

So Whereas your now saying £441,938 my corrected figure is now £440,710

We are closer but still one of us is wrong. I'll prove it's you tomorrow. Right now I need some kip

BTW, Methinks that formula for escalating premiums might work out right if it's regigged a bit 0.5 relates to the half year addition of interest you mentioned it assumes. Play around with it and the 1.07 which might need to be the nominal rate instead and we could get it to come out with the corect answer of £372,200.42

dunstonh

SMPI means what it means but is a new phrase to me

It has become more popular since you retired but still only used by a few providers. Scottish Widows offer projections in both terms, as do Scottish Life and Standard Life. Pearl use SMPI on their V1 pensions mainly to try and stop financial advisers from being able to compare like for like illustration rates. The rest mostly use monetary growth basis.

Retired_I.F.A.

Thanks Dunstonh. LOL, typical of the Pearl, Remember how at one time the regulators (I think it was thePillocks In Authoity) made all companies use the same basis for illustrations, including charges ? Not sure now how long it lasted but when the regulatory body does not want anyone to be able to compare like for like it just proves what pillocks they were/are.

I was going to ask you to be the Judge here and ask you to get an illustration so we can see which of us is right but I've found Legal and General do an on line illustration including escalating premiums for their stakeholder plan. Presumably this will be the perfect judge as the charges are the max 1.5%% *10 years 1% thereafter AMC. I'll look at it later I've got more important thing to do first (going to play snooker). It's a busy life this retirement lark

chesky369

Actually, I think some people on here have forgotten the original poster some time ago. I should think Namby has probably become either bored or confused, or probably both. Internal squabbles, whilst no doubt fascinating for the participants, are a real turn-off for people with a proper concern.