working out pension annuity factors
- From: "sylvian stone" <sylvian_stone@xxxxxxxxxxx>
- Date: 30 Aug 2005 04:20:40 -0700
Hi,
This is more of an actuarial question, as I need to figure out the
workings of the formula specified by the Financial Services Authority
to convert a pension fund into an annuity.
The formula is:
(1+E)*[än(12) + Dx+n /Dx * äx+n(12)]
where:
E = allowance for expenses of setting up the annuity (4%)
Dx = the mortality rate, based on age, so this can be worked out from
mortality tables PMA92 + PFA92.
I assume n = age of individual when annuity is purchased.
I also know that än(12) is the acturial notation for an annuity of 1
unit per year payable 12 times a year until death for somebody aged
'n'.
Also, it states that the mortality functions must be calculated at the
rate of interest:
J =(1 +I)/(1 +R)-1;
where i = interest rate & R = rate of escalation.
Say I have a lump sum of £100,000 to annuitise, how do I calculate the
part 'än(12)' and apply the formula.
I am not an actuary, and am finding this a tad confusing.
Any pointers appreciated.
Thanks
SS.
.
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