Calculations

Question 1

How to calc maximum capped income drawdown

Answer 1

1. Calc the GAD rate members age * gilt yield (always rounded to nearest 0.25%) if you need to
2. Calc standard GAD income

Fund value * (Gad Rate/ 1000)

3. Apply capped drawdown limit

Standard GAD income * 150%

Question 2

Primary protection factor

Answer 2

PP Factor = Value at A-Day - £1.5M/ £1.5M

Question 3

DB pension value (p.a.)

Answer 3

= Final salary * service * accrual rate (e.g. 32/60ths)

Question 4

DB Pension Input for annual allowance

Answer 4

= (closing DB pension - opening DB pension) * 16

e.g.

(31/60 * £48,000 = £24,800) - (30/60 * £45,000 = £22,500) = £2,300
£2,300 * 16 = £36,800

Question 5

DB early retirement

Answer 5

= apply reduction factor per year early e.g. multiply final answer by 0.85 for 3 years 5% reduction

Question 6

How to calc employer contribution spreading

Answer 6

1. Check 210% rule
   = 2.1 * last years contribution
2. (if yes to 1) Calc excess over 110%
   = This years contribution - (1.1 * last years contribution)
3. Spread band
   £500k-£1m = 2 years
   £1m-£2m = 3 years
   £2m+ = 4 years
   i.e. +1 onto the range

*less than £500k and can all be paid that year! (i.e. this should be your second test)

Question 7

Two ways to calc PCLS in a DB scheme

Answer 7

When exam tells scheme rule

1. Calc max PCLS using scheme formula
2. Divide PCLS by commutation factor to get pension given up
3. Subtract from full pension

When scheme does not specify max PCLS

1. Max PCLS = (pension * CF)/ (1+ (0.15 * CF))

Question 8

Phased retirement calcs

Answer 8

1. Calc net income per £1,000 (or segment value)
2. Convert to a net rate
3. Required crystallisation = income needed/ net rate

Question 9

How to value a caped drawdown plan

Answer 9

Income * 25 * 0.8