How to calculate the value of a pension

Written by lola james | 13/05/2017

Pensions are a bit tricky to calculate, considering that you haven’t completely earned them yet. However, your employer should be able to tell you your annual pension benefit at the earliest retirement age if you were to quit on a certain day. Once you get this information, you can use a specific formula to calculate the present-day value of your pension.

You will need a financial calculator to use this formula. You can purchase one at your local electronic store fir £32-$120. If that is too pricey, visit one of the websites listed in the Resources section.

Get information from your employer.

Before you begin trying to calculate the value of your pension, you must ask your employer what your annual pension benefit would be if you retired at the earliest age possible.

Calculate the value of your pension.

Take the annual pension benefit amount given to you by your employer and input it in the financial calculator as PMT. Then put the length of time you will be receiving this annual payment as the N on the calculator. Lastly, put the annual interest rate that is associated with your pension as the I on the calculator.

Get the sum.

Once all this is entered, press the FV button. This gives you the amount the pension will be worth at retirement. Write this number down.

Calculate the present value of your future pension.

After you have come up with the worth of your pension at the time you retire, calculate what your pension is worth right now. Clear the financial calculator. Then take the sum you wrote down and put it in the financial calculator as FV, or Future Value. Then input the same interest rate you used in Step Two as I. Next put in the amount of years you have until retirement as N.

Get the present value of your future pension.

Now press the PV, Present Value, button. This will give you the present value of your future pension payments.

Things you need

  • Financial Calculator
  • Pen
  • Paper

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