Annualised accrued value calculations for Pensions Dashboards
This guidance helps pension fund trustees and managers prepare an annualised version of the accrued pot value for members with certain money purchase benefits.
1. Background
Pensions Dashboards
1. Pensions dashboards are an electronic communications service that will revolutionise the way in which people interact with their pensions by allowing them to see their pensions information, including the State Pension, in one place online. Dashboards will help individuals to be reunited with lost or forgotten pensions and support better planning for retirement.
2. Purpose of this information
Relevant legislation
The Pensions Dashboard Regulations 2022
The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013
About this information
2. As part of the value requirements set out for trustees and managers of occupational schemes in Regulation 26 and Schedule 3 of the Pensions Dashboard Regulations 2022, an annualised version of the accrued pot value must be provided to members with money purchase benefits other than collective money purchase benefits.
3. This document provides information to assist trustees and managers in preparing these values.
4. The annualised accrued value is defined in Schedule 3, Part 1, paragraph 1(2)(b)(i) of the regulations as:
an annualised accrued value, prepared using the methodology set out in the relevant guidance, less the elements regarding future contributions and growth, and calculated as if the individual has reached their retirement date on the illustration date.
5. “Relevant Guidance” has the meaning given by regulation 2(1) of The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013:
‘Relevant Guidance’ means the document entitled ‘AS TM1: Statutory Money Purchase Illustrations’ that is adopted or prepared, and from time to time revised, by the Financial Reporting Council Limited.
6. AS TM1 can be found on the Financial Reporting Council website.
Legal status of this information
7. Schedule 3, Part 1,1(2)(b)(i) of the Dashboard Regulations sets out the requirement in relation to the annualised accrued value. The information in this document seeks to support trustees and managers in meeting this requirement, but it remains the responsibility of the trustees and managers to satisfy themselves that they are compliant.
Who is responsible for this information?
8. This information has been written with support from members of the pensions industry and the Financial Reporting Council (FRC) but is published by the Department for Work and Pensions. The continued management and upkeep of this information will be the responsibility of the Department for Work and Pensions (DWP), with changes subject to internal approval processes.
9. While the Pensions Dashboards Regulations 2022 require that the calculation of the annualised accrued value is made using elements of the methodology set out by the FRC in AS TM1, the FRC is not responsible for providing any guidance or detail relating to the annualised accrued value, or for any of the content of this document.
10. This information will be reviewed in the event of any future changes to AS TM1.
3. Approach to calculation
11. The requirement set out in the Dashboard Regulations is for:
an annualised accrued value, prepared using the methodology set out in the relevant guidance, less the elements regarding future contributions and growth, and calculated as if the individual has reached their retirement date on the illustration date.
12. Trustees and managers may consider the following information in making the calculation:
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divide the ‘accrued pot value’ (as defined in paragraph 6 of Part 1 of Schedule 3 of the Dashboard Regulations) by the same annuity rate used to calculate the ‘statutory illustration’ in step B.2.1. of AS TM1 (this is defined in section B.7 and calculated in section C.3 of AS TM1)
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In doing so:
- the rounding of the value should be as set out in paragraphs B.2.2 and B.2.3 of AS TM1
- apply the same form of annuity as set out in paragraphs C.3.1 - C.3.3 of AS TM1
- use the interest rate defined in paragraphs C.3.4 to C.3.7 of AS TM1
- include the expenses allowance as per section C.3.8 of AS TM1
- use a mortality assumption based on age at retirement date and year of birth, allowing for projection of mortality improvements up to the member’s retirement date, as per AS TM1 paragraphs C.3.9 – C.3.11
- for instance, if a member is 45 at the illustration date, and their age at retirement date would be 65 then the annuity would reflect projected improvements in mortality up to age 65
- where there are guaranteed annuity terms (as per AS TM1 section C.3.12), take account of these if this results in a higher annualised accrued value
- take account of general considerations (as outlined in AS TM1 section B8) as appropriate
- do not apply any future investment growth for the period up to retirement
- do not apply any future charges for the period up to retirement