The Trustees of Defined Contribution and Additional Voluntary Contribution Schemes are required to provide members with an estimate of the likely benefits receivable on retirement.
The estimate is known as a Statement of Reasonable Projection (SORP). A SORP is prepared using guidance issued by the Society of Actuaries in Ireland. This guidance sets out the various parameters underlying the calculations of a SORP.
What is changing?
Statutory changes have been made to the assumptions used to calculate members’ SORP. The projections will now be more conservative and the estimated retirement fund and pensions shown will therefore be lower than has been shown to date.
These changes impact on all projections included on annual benefit statements and leaving service option statements effective from 1st January 2025.
The changes primarily impact the assumed future growth rates for investments returns, salary increases and the cost of buying a guaranteed pension.
The maximum future rates of annual investment return to be used in projections for different asset types are;
Equites (Shares) increases from 5.75% to 6.65%
Property increases from 5.75% to 6.65%
Fixed Interest (Bonds) increases from 2.5% to 3.4%
Cash increases from 0.25% to 2.65%
The annual rate to be assumed for future increases in salary remains unchanged at 3.0%.
The maximum interest used for calculating the expected cost of pensions at future retirement dates that are more than five years in the future is increasing from 2.0% to 2.9%. For projections within five years of retirement, the cost of pension must be consistent with the current market cost of buying a pension.
When calculating the present day values of projections the rate used to do this remained unchanged at 3.0%.
Will these changes have an impact on projections?
Yes, as you would expect if the assumptions that must be used for future investment growth is increasing and the estimated cost of buying a guaranteed pension is reducing, then the projected final funds, salary at retirement and estimated pension will all be higher.
The further away a member is from retirement, the greater the difference will be.