Projection Rules

• Target levels of pension contributions are determined by the settings in the strategy. Other types of investment are considered only once these contribution targets have been met.
• After essential spending, discretionary spending, and pension contributions have been taken into account, any remaining cash is first used to repay debts where early repayment is allowed. Any further surplus is reinvested according to the risk level specified in the strategy. ISA allowances are used before taxable investments.
• Where income is insufficient to cover spending, liquid assets are sold to meet the shortfall, with priority given to the least tax-efficient assets.
• Various values may change randomly from year to year, according to the probability rules in your assumptions (set at the bottom of the Plan page). Randomisation includes inflation, investment growth rates, property growth rates, and employment bonuses (if a range has been specified). Each year’s financial position reflects these randomly generated values.
• Investments are gradually rebalanced from the starting risk level toward the terminal risk level specified in the strategy. This gradual shift – sometimes called a glide path – means lower risk produces less variable but typically smaller returns, while higher risk produces more variable but typically larger returns.
• A target proportion of total spending may be specified in the strategy to guide the purchase of new lifetime annuities once any Member has retired. New annuities are purchased only if the resulting guaranteed lifetime income (including state pension, existing annuities, and Defined Benefit income) fully covers the target proportion.
• The growth rate of new annuities (Level, Fixed, or Indexed) is determined by the setting in your strategy.
• If there are two Members, new annuities are allocated between them as specified by the strategy.
• For retired Members in pension drawdown, the drawdown level is normally determined by the strategy, but may be exceeded if other sources of cash are insufficient.
• Based on gender, date of birth, region, and any optional manual adjustments, a Member’s life expectancy is determined using probabilities from mortality tables published by the Office for National Statistics.
• Any cash-flow shortfall after using all sources of income is made up by drawing down on investments, subject to withdrawal restrictions (e.g., pension rules). The order of priority is:
  1. Taxable investments.
  2. ISAs.
  3. Available tax-free cash from uncrystallised pension funds.
  4. Taxable pension drawdown above the target drawdown level in the strategy.
• When Members retire, they take any available tax-free lump sum from their pension plans according to the strategy. If phased drawdown is enabled, they take the tax-free portion pro-rata to taxable withdrawals (using the UFPLS mechanism). If phased drawdown is not enabled, they take the full tax-free lump sum immediately. Unless needed for spending, lump sums are reinvested using any available ISA allowances.
• If there is still a cash-flow shortfall, extensible and repayable debts may be drawn upon, including an assumed overdraft facility based on current net worth and gross income.
• If this still leaves a shortfall and the Plan has any tangible assets other than a main home, the shortfall is reduced or eliminated by selling such assets.
• If this is still insufficient, equity release may be used via a reverse mortgage on the main home, if possible.
• If all the above steps fail to raise sufficient cash, the Plan is deemed insolvent. Projection continues until the death of the last Member, but with discretionary spending set to zero. Any remaining shortfall is covered by borrowing at a punitive interest rate (5% above the unsecured rate in your assumptions). This reflects the disruptive nature of being forced to sell assets in real life and discourages strategies that lead to insolvency. In some scenarios, net worth may become negative (ruin), which the program treats as the least desirable outcome of all.