Hi all,
First post. Have tried searching for related information but no luck
I'm interested to learn how the Net Present Value of a Defined Contribution Pension Plan is calculated. Primary reason is to know what to subtract from the increased exemption or SCSB calculation on redundancy payments.
The latest Pen 2 from Society of Actuaries states a discount rate of 7.00% (reducing to 4.5% over final 10 yrs) and inflation rate of 2.00%.
I have found varying formulae and methods on-line but AFAIK most seem to be Defined Benefit related.
Let's say I have 2 people, both with a current Defined Contribution Pension values of €100,000. First person is aged 35 (with 10 years service) and second person is aged 60 (with 23 years service) (both with expected retirement age 65). How do I work out the NPV of each pension (for redundancy calculation purposes)?
My basic method was to assume the current value of the DC pension (100k) is the NPV and then calculate the proportion each person is entitled to take in TFLS (using the 80th's rule\scale for years of service completed).
I'm pretty sure this isn't yielding the correct answer however and hoping someone can point me in the correct direction (for example, is it more complicated: do I need to apply inflation to retirement age and then discount the value back, apply MVA as per PEN 2?....)
Thanks in advance for your time and help,
First post. Have tried searching for related information but no luck
I'm interested to learn how the Net Present Value of a Defined Contribution Pension Plan is calculated. Primary reason is to know what to subtract from the increased exemption or SCSB calculation on redundancy payments.
The latest Pen 2 from Society of Actuaries states a discount rate of 7.00% (reducing to 4.5% over final 10 yrs) and inflation rate of 2.00%.
I have found varying formulae and methods on-line but AFAIK most seem to be Defined Benefit related.
Let's say I have 2 people, both with a current Defined Contribution Pension values of €100,000. First person is aged 35 (with 10 years service) and second person is aged 60 (with 23 years service) (both with expected retirement age 65). How do I work out the NPV of each pension (for redundancy calculation purposes)?
My basic method was to assume the current value of the DC pension (100k) is the NPV and then calculate the proportion each person is entitled to take in TFLS (using the 80th's rule\scale for years of service completed).
I'm pretty sure this isn't yielding the correct answer however and hoping someone can point me in the correct direction (for example, is it more complicated: do I need to apply inflation to retirement age and then discount the value back, apply MVA as per PEN 2?....)
Thanks in advance for your time and help,