In terms of section 14B of the Pension Funds Second Amendment Act, the minimum benefit paid to a member who ceases to be a member of a fund prior to retirement shall not be less than the minimum individual reserve for defined benefit funds.
To enable this, the system provides a discount factor and a benefit type of MIR (Minimum Individual Reserve) for minimum benefits for defined benefit schemes.
This is applied to the following calculations in the system:
- benefit quotations in the benefits process
- the benefit for inclusion on benefit statements
- the benefit for inclusion on the valuation report
MIR is calculated as follows:
S * N1 * Z * F * (1/1+E)N2 where:
|
S |
= |
Accrual percentage |
|
N1 |
= |
Service from pensionable service date to date of exit |
|
Z |
= |
Salary as at date of exit (averaged on the same basis as for normal retirement) |
|
F |
= |
Annuity factor |
|
E |
= |
Discount factor (rate published by FSB for either 40% of the Earnings Yield, or Index Linked Yield minus 0.95%) |
|
N2 |
|
Period from date of exit to normal retirement date (NRD) |
Note:
The benefit package for a withdrawal benefit can be set up as GREATER OF MIR OR REF (refund) and the death benefit as e.g. GLA PLUS GREATER OF MIR OR REF.
Where there are multiple accrual percentages applicable for different periods of service, then the value for E (accrual percentage), must be calculated as the average for the period from the pensionable service date, (or member’s date of joining the fund, where there is no pensionable service date), to the member’s normal retirement date.
Example
Scale of Benefits = 2.5% for 0 – 20 years of service
1.5% for 20 – 50 years of service
Number of years service to normal retirement date = 30 years
E = ((2.5 x 20) + (1.5 x 10) / 30 = 2.17%