Before we get into the nitty gritty of how we’ve worked out the numbers, here’s some words and phrases we use that might need a bit of an explanation.
This is the combined current value of all the Zurich pension plans linked to this account.
The figure is the latest value available and it could be 24 hours out of date.
Monthly income you might get
This is the monthly amount you might get if you bought a single life annuity at your selected retirement age (an annuity gives you a taxable regular income for life). If you have more than one plan linked to this account, we take your selected retirement age and the value of future payments from your latest plan.
Growth (since your plan(s) started)
This shows how your Zurich pension savings have grown or decreased in value. It’s calculated by deducting payments, and tax relief going in to your plan from your ‘latest value’.
*Sorry, but this figure will NOT be correct if your plan number previously began with '88' or '87' and has been changed to start with 'ZU'. We're removing this figure from your Dashboard on December 2016 and replacing it with wider information about your plan - plus you'll be able to make changes to your plan.
In the meantime, you can get an accurate growth figure on your October 2016 statement (under 'Your investment(s) at a glance').
How we’ve worked out the numbers
We’ve done some number crunching behind the scenes to come up with these figures and we’ve made some assumptions. If you take your retirement savings differently when you retire or if the actual figures differ to our assumptions, the income you receive in retirement will be different.
Here’s how we’ve worked it out.
1. Monthly income you might get
To calculate this, we:
- estimate the value of your Zurich pension plans added to this account at your selected retirement age. If you have more than one plan linked to this account, we take your selected retirement age from the most recent plan. (We haven’t included the state pension or any other income you might get in retirement)
- have removed the effect of inflation – so £1 will buy the same amount as £1 today. We’ve assumed inflation will be a steady 2.5%
- have made some assumptions, such as how much your pension savings might grow, and what charges apply to calculate this estimated value
- take this estimated value, and calculate the lifelong taxable income a single life annuity may provide you with.
The annuity gives you a monthly income for life.
- We’ve taken inflation into account so the income shown is the same in today’s terms.
- The annuity income shown is pre-tax but, depending on your overall income in retirement, you may have to pay tax.
- The amount of annuity income you get depends on a variety of factors including annuity rates at the time you buy and the options you choose.
N.B The ‘monthly income you might get’ may show a different amount to the one on your yearly statement. This is because your yearly statement uses our regulators’ assumptions, which don’t always match the ones we use.
2. Growth (since your plan(s) started)
This shows how your Zurich pension savings have grown or decreased in value. It’s calculated by deducting payments, and tax relief going in to your plan from your ‘latest value’. So, if the latest value is £10,000 and £7,000 has gone into your plan, the growth figure would be £3,000.
The growth figure:
- could be positive or negative
- is shown after charges are deducted
- does not take into account any withdrawals you might have made.
Want the nitty gritty? What we’ve assumed.
Growth rates (for monthly income you might get)
We’ve calculated this assuming the projected growth rate varies with length of time to retirement.
Investments are assumed to grow:
- Up to 4 years from retirement at 5.00% a year
- 2-4 years from retirement at 4.50% a year
- 0-2 years from retirement at 4.00% a year
We’ve assumed the fund has a charge of 0.75%.
What’s paid in
- The percentage of your salary paid into your most recent pension will remain fixed and continue until your selected retirement age.
- We only take into account payments made into your most recent pension plan.
- We don't take into account any Additional Voluntary Contributions (AVCs) made into your pension plan. To see the effects of AVCs you make on the income you might get back, include these in the payments you make on 'Picture this'.
- We’ve assumed your salary will increase by 4.00% a year.
- If your employer payments are linked to your age or length of service, then any future increases or decreases will not be reflected.
We’ve assumed the following:
- You are a healthy non-smoker
- No tax-free cash is taken when you buy an annuity
- An interest rate of 2.3% a year
- A single life annuity is purchased and will not increase with inflation
- The single life annuity has a five year guarantee period. This means the annuity will pay out over this guaranteed period if you die. However, if you die after the guarantee period ends, the annuity will stop paying.
- Income is calculated before tax is deducted. In most cases, you will have to pay tax on your income at your marginal rate.
Payments you make into your pension plan – we have assumed you receive tax relief on your payments at the basic rate of income tax of 20%. This is taken into account in the estimated value of your pension savings.
We’ve estimated the income you might receive at retirement by using the value of your pension savings to buy an annuity. This income is taxable at your normal rate of income tax, but this is not taken into account as it depends on your personal circumstances.
More information on tax is available in the ‘A guide to pension tax’, which is available on your scheme website.
We've based this on our understanding of current UK law and HM Revenue and Customs practice as at May 2016. Bear in mind, any changes to these rules, or to your personal circumstances, could affect the benefits from your retirement savings.
If you want more information just contact us.