There is no guarantee that you will get the amount shown in any forecast and the amount you eventually receive could be more or less than the amounts shown. This could be less than the amount you have paid into your Pension Account in economic circumstances where investment values fall.
*If you are a member of the Hybrid Section of the Scheme who has saved AVCs with Legal & General, the information on this page applies equally to the money in your Legal & General AVC Account.
The 'Worth' of your Pension Account
Before we can forecast what your income might be, we need to estimate out how much money there might be in your Pension Account at your Selected Retirement Age (SRA).
We work this out by:
- Assuming that the money you’ve saved so far will increase by a certain amount every year because it is invested. We call this assumed increase the “Investment Return”.
- If you are still working for Which?, we also assume that you and Which? will be adding more monthly contributions in the future to your Pension Account. The rates of contribution we assume are those set out in the page on Accounts.
- We assume that these monthly contributions will increase each year because of salary rises that you might receive.
- We also assume that these monthly contributions will increase once they’ve been added to your Pension Account because of Investment Return.
It is important to realise that although we assume that the amount of money in your Pension Account will increase because of Investment Return, it could actually decrease and could be worth less than the contributions you have paid in.
The Effect of Inflation
Once we have a figure for the total money in your Pension Account projected forwards to your SRA, we then allow for the effect of inflation between now and your SRA.
Inflation is a measure of how prices rise over time, for example a basket of groceries in the past cost less than a similar basket costs today. So we assume that a similar basket in the future will cost more than it does today.
Inflation means that it’s difficult to say what each £1 in your Pension Account at your SRA could actually buy you in the future. So instead we tell you what an equivalent amount of money this could be today, because you can easily work out what that can buy you today.
If we didn't allow for the effect of inflation, the forecast on your benefit statement would show a bigger number for your savings and a bigger monthly income figure. Growth in prices means that your monthly income at your SRA will only get you the same as a smaller income would today.
To allow for inflation we take away the effect of price rises from the projected money in your Pension Account at your SRA, so that we can say what we think (1) the equivalent money in your Pension Account and (2) your income could be in today’s terms. We call this “discounting”.
The Detailed Assumptions
The forecast of benefits at your Selected Retirement Age has been prepared under the legislation that governs 'Statutory Money Purchase Illustrations'.
The forecast assumes that you decide to keep your Pension Account within the Scheme and use it to purchase a secured income from an insurance company of your choice.
The information provided by the forecasts is required by law and is based on assumptions set out under the legislation. In particular, some general assumptions have been made about the nature of investments and their likely performance.
The actual amount of money paid to you and/or a beneficiary under the Scheme will depend on many influences, including the performance of investments, investment management charges, your future earnings and the cost of buying a secured income when you retire.
These influences may turn out to be significantly different in real life from the assumptions made for the purpose of the forecast.
The principal current assumptions are set out below.
- Assumptions for how the money in your Pension Account will grow while invested, how your salary will increase etc. are as follows.
- It is assumed that the secured income purchased by the money in your Pension Account will increase each year it is in payment by the increase in the Retail Price Index (RPI) subject to a ceiling of 5% pa and that it will be “guaranteed” for 5 years. This means it will be paid for five years whether you live or not.
- On your death after retirement, it is assumed that a pension of one-half of your own pension would be paid to a surviving spouse or dependant. Husbands are assumed to be 3 years older than their wives.
- The forecast has assumed that your contributions and Pension Account will be invested in accordance with the Scheme’s Lifestyling strategy.
- If you are still contributing to the Scheme, it has been assumed that contributions will continue to be paid by you and your employer until your SRA at the expected rates as described in the section on Accounts. If you have stopped contributing, it has been assumed that no further contributions will ever be paid into your Pension Account.
You should not use the forecast as your only guide to making decisions about your pension arrangements. You should also carefully consider obtaining further information and/or advice in order to assess all the risks involved in a defined contribution scheme, before taking action on the basis of the information provided.
The forecasts shown have not been calculated using the basis prescribed by the Financial Conduct Authority for insurance company pension providers’ projections. Should you obtain illustrations from another pensions provider you should find out whether or not they have been prepared on a similar basis to this one.
If you wish to obtain further information regarding the forecast, please contact us.