Pension transfer calculator
We have created a calculation tool for members of final-salary pension schemes considering taking a Cash Equivalent Transfer Value and then funding their retirement spending by drawdown from a personal pension. This is commonly referred to as a Pension Transfer or a Defined Benefit to Defined Contribution transfer. The calculator can be found here:
The pension transfer calculator is a stylised version of Fowler Drew’s proprietary drawdown model. This 'stochastic' (probabilistic) model is the 'quantitative' (rules-based and algorithmic) process used both to plan and manage drawdown plans. Drawdown plans (mostly to meet retirement spending) make up the majority of the £250 million of goal-based assets Fowler Drew manages.
Only the full model is used when we advise on a transfer but the calculator allows anyone to estimate quickly the possible improvement in spending power when transferring. This is a good way to grasp the principles involved without having to read a lot of text and may also help you work out whether there is a case for seeking out, at considerable cost, professional advice.
If you do not have either a projected pension number or a Cash Equivalent Transfer Value, it will output a scalable example using typical terms.
If you have one but not the other, it will use a realistic assumption of the latter.
If you have both it will provide an answer close to the full model but only on the basis of a linear real income profile (whereas the flexibility to manage the profile may be one of the motives for transferring) and it will not value non-return factors (such as tax free cash or spouse income).
The key outputs are the chance of falling short of the projected Defined Benefit income and the chance at different levels of confidence of being able to increase spending. Because higher potential outcomes come at the price of living with the fluctuations of the market value of your personal pension pot, we also output a measure of potential annual 'paper' loss, i.e. the amount by which the valuation may fall in any 12-month period (even if you do not panic and lock in the loss). These are specific to some 'stored' risk tolerance levels, for illustration.
None of what you input as numbers in the calculator is visible to us. A calculator is purely generic guidance and cannot constitute regulated advice. If you wish to discuss your personal situation, here's how the transfer advice process works. The scope of the service is explained here.
For more information, call me, David Anderson, on 020 7736 2434.