Pension Calculator Calculate Eligible Amount Of Retirement Pension

Pension Calculator

Employers contribute pension funds to fund the employees’ retirement, and this pension calculator shall be useful to calculate the eligible amount for which the employee is eligible.

Pension Calculator

AS x F x N

AS is the average salary per company rules
F is the factor in terms of percentage which is again decided by the company
N is the number of years worked in that company

About Pension Calculator

The formula and steps for calculating Pension as per below:

Wherein,

AS is the average salary as per company rulesF is the factor in terms of percentage, which the company again decidesN is the number of years worked in that company

Pensions are the type of retirement plan funded by the company and are paid to the employees either in lump sum or installments until death if sold to the insurance company. The pension amount varies from company to company. A pension calculator will be used to compute the eligible amount the employee will receive, depending on the years he has served the company.

The percentage amount or the factor also varies from company to company, which will determine the amount calculation. Pension is usually paid in two ways: one is a lump sum, and another one is in the form of an annuity if the employee desires it.

How to Calculate using the Pension Calculator?

One needs to follow the below steps in order to calculate the amount of pension.

Step #1: Determine the average salary of the employee. The salary number that will be used to calculate will be the salary the employee would be eligible to receive just before retirement.

Step #2: The Average salary will be mostly the highest-paid years and generally its average of 3 years or more depending upon the company’s policy.

Step #3: Add the salary for those years and divide the same by the number of years the salary has been considered.

Step #4: Now, one needs to determine the factor or percentage the company shall pay as a pension.

Step #5: Now Multiply the value arrived in step 3 by the factor determined in step 4.

Step #6: In this step, determine the number of years that is served by the employee for the company in which he shall be eligible to receive.

Step #7: Take the product of values arrived in step 5 by the number of years that were determined in step 6 to get the amount of pension.

Step #8: Divide the value arrived in step 7 by 12 to get a monthly pre-tax pension amount.

Examples

Example #1

Mr. A, aged 58 years, has been working in a multinational companyMultinational CompanyA multinational company (MNC) is defined as a business entity that operates in its country of origin and also has a branch abroad. The headquarter usually remains in one country, controlling and coordinating all the international branches. read more for around 25 years and will be retiring at 60. The company has the policy of contributing towards pension fundsPension FundsA pension fund refers to any plan or scheme set up by an employer which generates regular income for employees after their retirement. This pooled contribution from the pension plan is invested conservatively in government securities, blue-chip stocks, and investment-grade bonds to ensure that it generates sufficient returns.read more for employees who have worked a minimum of 10 years in the company and have been determined to pay 0.05 percent of the average of 3 years’ highest-paid salary during his entire tenure. Below are the details of Mr. A’s top 5 years’ salary and bonus that he received during his tenure (per annum basis):

Based on the given information and policy of the company, you are required to calculate the amount that Mr. A is eligible to receive the pension amount.

Solution:

We are given the factor as 0.05 percent, and the number of years he served would be 25 plus two years remaining in his employment, which equals 27 years.

However, we now need to determine the average salary of Mr. A, and for that, we need to take the highest of below three and take the average of the same.

Hence, we shall take an average of year 2, year 3 and year 5

= (125,000 + 121,000 + 121,000) / 3= $122,333,33

Now, we can use the below formula to calculate the pension amount.

= 122,333.33 x 0.05% x 27 years= $1,651.50

Therefore, the monthly pension amount would be

= $1,651.50 / 12= $137.63.

Example #2

Company MNC has a policy for funding their employees’ pension for those who have served the company for at least five years, and the factor that it uses to determine the pension is 2%. It is based on the estimated average salary drawn just before retirement. Mr. Crane has been serving the company for around eight years and is currently drawing an average salary of $10,000 per annum.

The actual person determines that the average salary for the department in which Mr. Cane is working would be around $32,000 per annum and estimates that the person will work for an average of 20 years. Based on the given information, you must calculate the pension amount for which Mr. Cane could be eligible.

We are given the factor as 2 percent, and the number of years he served would be 20 years.

The average salary determined by the actuary person is $32,000.

= 32,000 x 2.00% x 20 years= 12,800
= 12,800/12= 1,066.67

Conclusion

A pension calculator, as discussed above, can be used to calculate the amount of pension the eligible employee would receive during the time of retirement. Any decision made related to a pension cannot be before retirement. Hence those need to be considered carefully. Also, the amounts can be transferred to IRA accounts without any tax considerations.