How to work out your pension “detriment”

A lot of members have been asking how to work out how much worse off they’d be if the company pension proposal went ahead. This short note aims to help you work this out in two different ways, so you can get a feel for how the proposal might affect you if it went ahead unchanged.
UNITE – The Union
The information contained in this document is provided to you for the purpose of the pensions consultation process being undertaken by Fujitsu Services and for no other purpose whatsoever. It does not and is not intended to constitute advice of any nature, whether legal, financial or otherwise. The information is provided in good faith but neither Fujitsu, the IPMC nor UNITE accept any liability for any errors or for the accuracy of the content of this document.
There are many ways to measure the detriment.
The approach used here is to estimate how much extra money you would need on an ongoing basis in order to aim at getting a pension at 65 at the level you would have expected under the ICL DB Pension Plan. Or in other words, how big a pay rise you’d need to be no worse off if the company proposal went ahead.
The methods of calculation here do not take account of the contributions or benefits from the State Second Pension (S2P).
The Pensions Forum Statement of 7th August 2009 explained the Forum Illustrator in more detail, while the Pensions Forum Statement on 4th August 2009 explained some of the concerns with the company’s Personal Pension Illustration.
Method 1: Forum Illustrator
The employee reps on the Pensions Forum have produced an illustrator spreadsheet:
On the “Estimate” tab, enter your age and the your length of pensionable service in the two data-entry boxes. The blue text below shows you the estimated %age detriment. For example, the average member (age 48, 18 years of pensionable service) produces a detriment of 27%.
NOTE: “Pensionable Service” in this context means how many 1/60ths you have accrued. If you have had a different accrual rate at any time during your time in the company, this may not be the same as your length of service.
Like any estimate, this is based on assumptions, which are clearly displayed. One assumption which makes a big difference is real salary growth. The default assumption is 1%, the same as is used in the valuation of the ICL DB plan. If you click on the “Details” tab, you can change this (cell G31). You could try putting in a range of other values, such as 0%, 0.5% and 1.5%, then going back to the “Estimate” tab to see what difference it has made. For our “average member”, the effect of changing the real salary growth assumption is as follows:

Real salary growth assumption           Detriment
0%                                       18%
0.5%                                    23%
1%                                       27%
1.5%                                    31%

You can also change other assumptions if you wish.
Method 2: Company Personal Pension Illustration
In August the company sent ICL DB plan members a four-page Personal Pension Illustration by post. The Pensions Forum had serious reservations about some of the figures, but the document is still worth studying. The company has put an anomymised version and some explanations on CafeVIK here:
You can work out an estimate of your detriment based on the company figures as follows:

  • Take the “Your estimated Plan pension at age 65” figure from page 2, under the red heading “If the proposal is not implemented and the ICL Group Pension Plan is unchanged”. Call this “DB1”.
  • Take the “Your estimated Plan pension at age 65” figure from page 2, under the red heading “If the proposal is implemented and you cease to earn benefits in the ICL Group Pension Plan”. Call this “DB2”
  • Take the “3. If you choose to contribute 5% of your Reference Salary and Fujitsu contributes 10%” figure in the second column (Your estimated pension in today’s prices at NRA of age 65) from page 3, under the “Your Estimated Pension” heading. Call this “DC”.
  • Take the “4. If you pay an ASC of 1% via Salary Swap” figure from the second column (Your estimated pension in today’s prices at NRA of age 65) from page 3, under the “Your Estimated Pension” heading. Call this “ASC”.
  • Do the sum: Detriment = (DB1-DB2-DC) / ASC
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