Planit:UK Contribution Pension Plans Case Study

From Planipedia

This case study is specific to financial planning in the United Kingdom, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:Calculating and Entering Contribution Pension Plans 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 calculations, 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:

Julie Evans tells you that her work contribution pension currently has a balance of £14,000, of which £2,000 has been investment return. Its investments are made up of 30% cash, 40% global fixed income and 30% UK small cap equity. She contributes 5% of her salary to the pension scheme, and her employer an additional 5%. As a starting research analyst she makes £25,000 each year.

Solution Using Detailed Savings:

On the Assets and Liabilities Screen we will add Julie’s current contribution pool investments:

1. Click New Account above the existing assets.
2. Enter a Description and set the Ownership to 100% for Julie Evans.
3. The Account Type should be Defined Contribution Pension Schemes.
4. Click Save
5. Click on the “+” beside the new account if it is not already expanded.
6. Click on New Asset under the account
7. Use the Add Custom product.
8. Enter a description and set the Market Value to £14,000.
9. The ACB field should be £12,000 (the £14,000 account - £2,000 in investment income).
10. On the right, set the Allocation Breakdown to 30 for Cash, 40 for Global Fixed Income, and 30 for UK Small Cap Equity.
11. Click Save
12. Use the drop-down menu to go to the Cash Flow Management screen.

On the Cash Flow screen:

1. Enter Julie’s Personal Income as £25,000.
2. Her pension contributions should be included in the Pension Savings field since they have tax benefits. First you must calculate her 5% of income contributions: 5% x £25,000 = £1,250.
3. Click Calculate
4. 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 Pension Savings stream.

1. Set the Matching Amount to £1,250, since the employer is contributing an additional 5% of Julie’s salary.

2. Click Save

Go to the exercise to test your knowledge on contribution pension plans