Understanding the pension projections in your APeCs statement
Your Additional Pension Contributions (APeCs) are classed as Defined Contribution (DC) savings. All UK pension schemes that offer DC savings have to provide their members with pension projections using standard assumptions about how their investments will perform, how they’ll take their savings and the type of annuity they’ll buy.
Each year, your APeCs statement gives you projections of the total value of your APeCs at retirement and the income you could get from them as an annuity (pension for life). As the actual value of your APeCs at retirement will depend on many uncertain factors, standard assumptions are used to calculate these projections which are therefore not guaranteed. In October 2023, the Financial Reporting Council made changes to the standard assumptions used to calculate these projections. This means the projections in your APeCs statement may look quite different to last year.
Please note that the assumptions used under the new rules do not reflect the Trustee’s view of expected future returns, or how members will use their APeCs to provide an income in retirement.
The projected value of your pension at retirement
Your statement provides a projection of what the value of your APeCs could be at your Normal Retirement Age. The value of your APeCs will depend on investment returns. As future returns are unknown, certain assumptions are used to forecast what your savings might be worth at retirement.
What’s changed?
| Previously | Now | |
|---|---|---|
| Assumptions were based on the expectation of investment returns of each fund your savings were invested in. |  |
Investment return assumptions are based on the historical performance of each fund your savings are invested in. |
| What this means in practice | ||
| Your projected APeCs account value at your Normal Retirement Age could be significantly lower or higher this year depending on how your savings are invested, so your actual investment returns may be less or more than the assumed returns. | ||
Your projected income in retirement
The value of your APeCs projected to retirement is then used to calculate another projection of the annual income amount you could receive in retirement if you bought an annuity (a regular income for life) from your APeCs at your Normal Retirement Age. You will have a range of options about how to use your APeCs savings and it is not a requirement to purchase an annuity. If you did decide to purchase an annuity, there are many types of annuity to choose from. The projection is based on a specific type of annuity as outlined below. Remember, your projected income value is for illustration purposes only and is not guaranteed.
What’s changed?
| Previously | Now | |
|---|---|---|
| Your projected income was based on an inflation-linked annuity, which grew each year with inflation. | |
Your projected income in retirement is calculated as a non-inflation linked annuity, which pays the same amount each year. |
| Your projected income was based on a joint-life annuity, which provides an income to a partner/dependant when you die. | |
Your projected income assumes you will buy a single-life annuity, which stops when you die. |
| What this means in practice | ||
| Your projected income may look significantly higher this year. This is because level annuities cost less than inflation-linked annuities, and single-life annuities cost less than joint-life annuities. Your projected income will also be affected by the change to investment return assumptions (referred to above). | ||
You do not have to use your APeCs to buy an annuity. You can choose how you use your APeCs alongside your Fund benefits to pay for your retirement and look after your loved ones.
Your questions answered
Do these changes affect how much my APeCs will actually be worth when I retire?
No, the value of your APeCs doesn’t depend on the assumptions used to create projections and illustrations.
The changes to assumptions affect the projections we show you in your statements, which are based on several assumptions. The actual value of your APeCs (and annuity you could get if you choose to buy one) when you come to retire will depend on several factors, including actual investment performance.
I don’t plan to buy an annuity – why are you showing me a projected income in retirement?
We’re required by legislation to include a projection of the income you could receive in retirement if you bought an annuity with your APeCs. This is known as a Statutory Money Purchase Illustration (SMPI).
This doesn’t mean that you must buy an annuity with your APeCs when you retire. This is just one of the ways that you could take your APeCs at retirement. Your choice will depend on your personal circumstances and retirement plans, and you could choose to mix and match options. You can find out more about your options in the APeCs Guide.
Why have the assumptions used to calculate my projections changed?
These changes have been introduced by the Financial Reporting Council – the industry body that sets the approach the Fund must use. The changes aim to make it easier for people with more than one DC pension across different providers to compare them with each other.
Will things change again in future?
The projection assumptions will change annually when they are updated in accordance with the requirements set out by the Financial Reporting Council.
The Financial Reporting Council could make further changes to how pension projections are calculated in future, or they could make wider changes to what we’re required to tell you in your APeCs statement. If this happens, we’ll let you know – and we’ll continue to provide you with information and resources to help you make the right decisions.
Where can I see up-to-date figures for my pension?
Your APeCs statement figures are as at 31 December each year. You can check the current value of your APeCs in the My APeCs Account Value page in your pension record or by using the Track My Pension app, available for free from the App Store or Google Play Store. Once you’ve downloaded the app, get a PIN in your pension record to start using it.
Who can I contact to help me understand how these changes affect me personally?
A financial adviser can help you with this. MoneyHelper has a directory of regulated advisers, or, from age 50, you can get guidance from Pension Wise or the Fund’s chosen partner, LV= Financial Advice Services (LVFAS).
Where can I find out more?
Read more about how we calculate your pension projections in the Notes and Assumptions section of your APeCs statement.
If you have any questions about your APeCs, please get in touch.