AF7 and Calculating commuted PCLS
richardgough
Member
in CPD & Exams
Hi Everyone, Relevant pages of AF7 CII manual are attached.
Chapter 2. Example 2.2 - calculation of PCLS in the second part of the example i.e. 1/60th accrual with 16.2 commutation rate. This gives a PCLS of £62,500 plus a reduced pension of £8,642. However, assessing the capital value of this revised benefit you get (20 x £8,642) + £62,500 = £235,340. 25% of this is £58,835 so the PCLS of £62,500 is in excess of 25% maximum.
Them, in Chapter 3 a load of notes followed by example 3.5 (which is an exact copy of the PTM) shows how it should be done.
I fully get Chapter 3, and I'm happy with the answer in example 3.4 (as it does not exceed 25% of the revised capital value calc).
What I'm struggling with is Example 2.2, which to me, looks like it should have been done in line with the formula used for 3.5. The commutation rate is such that it results in an excessive PCLS figure which does not happen in example 3.4
Is this just another example of an error in the CII book or am I missing something?
Chapter 2. Example 2.2 - calculation of PCLS in the second part of the example i.e. 1/60th accrual with 16.2 commutation rate. This gives a PCLS of £62,500 plus a reduced pension of £8,642. However, assessing the capital value of this revised benefit you get (20 x £8,642) + £62,500 = £235,340. 25% of this is £58,835 so the PCLS of £62,500 is in excess of 25% maximum.
Them, in Chapter 3 a load of notes followed by example 3.5 (which is an exact copy of the PTM) shows how it should be done.
I fully get Chapter 3, and I'm happy with the answer in example 3.4 (as it does not exceed 25% of the revised capital value calc).
What I'm struggling with is Example 2.2, which to me, looks like it should have been done in line with the formula used for 3.5. The commutation rate is such that it results in an excessive PCLS figure which does not happen in example 3.4
Is this just another example of an error in the CII book or am I missing something?
Comments
I've not done AF7, but did the CISI pension transfer exam last month and I would have calculated the max PCLS according to the formula on the later page. This gives PCLS of c. £59,037.90 and a reduced pension of c. £8,855.69, which then works fine once you do the check of 20 x reduced income + PCLS.
In short, I've honestly got no idea where the calculation for PCLS in example 2.2 has come from, but I'm 99.9% certain it's wrong!
http://www.cii.co.uk/media/7774655/af7_2017-18_web_update_3_24-11-2017.pdf
Thank you very much. I can put my mind at rest that I'm not losing the plot!
Rebeccas - glad you agree with my thoughts.