Planit:Calculating and Entering Contribution Pension Plans Case Study
From Planipedia
This case study is specific to financial planning in Canada, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:UK Contribution Pension Plans Case Study or Planit:Entering Other Revenues Case Study.
The Pension Plan is one of the most critical numbers that you input into your calculations and projections for your clients. With many variations and factors going into their calculation, it is important to be able to quickly add the pension plan amount without hassle. With contribution pensions you can show how the contribution pool for your client will grow over time with their own savings and the employers'.
Example Problem One:
Sally Barber, tells you that her work contribution pension has a balance of $30,000 in a LIRA account, of which $11,000 has been investment return. The investments are Canadian Equity mutual funds. She contributes 5% of her salary to the pension scheme, and her employer an additional 5%.
Solution Using Detailed Savings:
Go directly to Assets and Liabilities where you will add Sally’s current contribution pool investments:
1. Click New Account above the existing assets.
2. Enter a Description and set the Ownership to 100% for Sally Barber.
3. The Account Type should remain at Registered Investments, but the Regulatory Type should be changed to LIRA.
4. Click Save
5. Click on the “+” sign beside the new account to expand its contents.
6. Click on New Asset under the account
7. Set the Product Type to Mutual Funds, and the Asset Class to Canadian Equities.
Note: You could also choose to enter it is a generic custom product and simply indicate that they are mutual funds by refining your Description.
8. After clicking Search, select any returned product. (Remember: you would not do this with a real client; selecting a random product is only done to familiarize you with product search methods).
9. Enter a description and set the Market Value to $30,000.
10. The ACB field should be $19,000 (the $30,000 balance -$11,000 in investment returns)
11. Click Save
12. Use the drop-down menu to go to the Cash Flow Management screen.
On the Cash Flow Management screen, we have already added the main components of income and savings, but will add her extra pension contributions.
1. At the summary level, her pension contributions will be combined with existing savings into the Registered Savings field, based on whether they have tax benefits.
First you must calculate her contributions (5% of income). Now add this to the existing Registered savings of $3,000. Enter this new total as the amount of Registered Savings.
2. Click Calculate
3. Use the drop-down menu to continue to the Savings screen
In the Savings screen you will add the employer contributions to the work pension. Click Edit beside the Registered Savings stream.
- Set the Matching Amount to $2,500, since the employer is contributing an additional 5% of Sally’s salary.
- Click Save
Go to the exercise to test your knowledge on Calculating and Entering Contribution Pension Plans
