Calculating the value of a DB Pension

Lefty Bicek

Could someone explain to me, please, or point me to a template where I can just plug in the numbers -

I would like to know how to value a DB pension from the point of view that -

- I know how much is paid into it every week
- I know what the benefit will be (obviously) in X number of contribution years from now
- I know how many years of contributions have been made already

How do I get from those starting points to calculating -

- the terminal value of the fund ?
- the implied yield ?


Thanks in advance.

Johnny Sausage

do you have acopy of the scheme rules which will show the basis for calculation?

eg: one scheme i worked on before was:

(Salary x Service) / 80 = Annuity

3 x Annuity as tax free lump sum

each scheme can have different rules, if its a HSE pension there is a calculator online.

The J Stands for Jay

Lefty Bicek wrote: »

Could someone explain to me, please, or point me to a template where I can just plug in the numbers -

I would like to know how to value a DB pension from the point of view that -

- I know how much is paid into it every week
- I know what the benefit will be (obviously) in X number of contribution years from now
- I know how many years of contributions have been made already

How do I get from those starting points to calculating -

- the terminal value of the fund ?
- the implied yield ?


Thanks in advance.

There isn't a terminal value as such. The scheme promises to pay you an annuity expressed as a function of your salary and length of service. They also allow you to exchange some of that annuity payment for a lump sum at a set rate (should be in the scheme rules).

The implied yield is your employer's problem, not yours. Any deficit shows up on their balance sheet.

Are you trying to determine if you are getting a good return on the contributions and if you'd be better in a DC scheme?

Lefty Bicek

Johnny Sausage wrote: »

do you have acopy of the scheme rules which will show the basis for calculation?

eg: one scheme i worked on before was:

(Salary x Service) / 80 = Annuity

3 x Annuity as tax free lump sum

each scheme can have different rules, if its a HSE pension there is a calculator online.

Thank you, I will look into that because I should know it anyway. It isn't a HSE pension, more is the pity.

Depending what you want this for could you price what it would cost you to buy the equivalent in the open market and use it as a proxy?

Lefty Bicek

McGaggs wrote: »

There isn't a terminal value as such. The scheme promises to pay you an annuity expressed as a function of your salary and length of service. They also allow you to exchange some of that annuity payment for a lump sum at a set rate (should be in the scheme rules).

The implied yield is your employer's problem, not yours. Any deficit shows up on their balance sheet.

Are you trying to determine if you are getting a good return on the contributions and if you'd be better in a DC scheme?

I am tied in to the scheme as a condition of my employment and can not opt out, though of course I can avail of AVC's separately.

It's really an academic exercise, out of a conversation at work.

To put it in other words - let's say for argument that I started a DB semi-state pension at 35, making weekly contributions of, say E40. And can draw at 66 years of age at E210 per week, plus a gratuity of E30k...

... what kind of pot would a person paying into a private DC scheme need to get that benefit ?

I assumed there would be a neat calculation.

The yield thing is really just for comparison against historical property/bonds/equities/etc yields.

Lefty Bicek

Deleted User wrote: »

Depending what you want this for could you price what it would cost you to buy the equivalent in the open market and use it as a proxy?

I think that is precisely what I want. Thank you for the succinct version !

The J Stands for Jay

Lefty Bicek wrote: »

I am tied in to the scheme as a condition of my employment and can not opt out, though of course I can avail of AVC's separately.

It's really an academic exercise, out of a conversation at work.

To put it in other words - let's say for argument that I started a DB semi-state pension at 35, making weekly contributions of, say E40. And can draw at 66 years of age at E210 per week, plus a gratuity of E30k...

... what kind of pot would a person paying into a private DC scheme need to get that benefit ?

I assumed there would be a neat calculation.

The yield thing is really just for comparison against historical property/bonds/equities/etc yields.

E210 a week would cost very roughly a quarter of a million to buy.

The way to figure this out would be to find an online pension calculator, either from the pension authority website or from a pension company's site. Use 8t to calculate the purchase price of an annuity to give you E11k a year. Then use another calculator to figure out the monthly contribution to give s fund of the annuity purchase price plus the annuity.

Lefty Bicek

McGaggs wrote: »

E210 a week would cost very roughly a quarter of a million to buy.

The way to figure this out would be to find an online pension calculator, either from the pension authority website or from a pension company's site. Use 8t to calculate the purchase price of an annuity to give you E11k a year. Then use another calculator to figure out the monthly contribution to give s fund of the annuity purchase price plus the annuity.

Thank you kindly.

Dodge

Lefty Bicek wrote: »

To put it in other words - let's say for argument that I started a DB semi-state pension at 35, making weekly contributions of, say E40. And can draw at 66 years of age at E210 per week, plus a gratuity of E30k...

realise this academic BUT if you joined a DB semi state scheme since 1995 then your pension would be integrated with the state pension

So the calculations are a bit more complicated

Quick (rounded) example but on a DB scheme with full 40 years service and final salary of 52,000

Your occupational pension would be 252 a week and you’d get the state pension of 248

(Figures rounded l)