Since premium members receive no automatic lump sum, the ARBO cost should be calculated as:
ARBO cost = [P x Fx x (1 + PI)] - (P x PI x Gx)
Where:
x is the member's age at retirement date in years and complete months
P is the unreduced pension at retirement. The pension consists of a member's Main Pension, any Added Pension bought and (where relevant) the Transfer In pension.
Fx is the relevant factor for a member aged x, taken from:
- P1ARBO60 (Table 1-712 from the consolidated factors workbook) for a member with NPA 60
- P1ARBO65FS (Table 1-713 from the consolidated factors workbook) for a member with NPA 65 (we understand that there are a small number of premium members with an NPA of 65)
Gx is the relevant factor for a member aged x, taken from P1ARBOGX.
PI is the rate of pension increase (PI rate) from the 'Deemed Date for Pension Increase' to the published increase date preceding the date of early retirement, as provided for under the Social Security Pensions Act 1975 (as amended). The PI rate is calculated as:
PI rate = (PI multiplier - 1)
where the PI multiplier applies from the Deemed Date for Pension Increase to the published increase date preceding the early retirement date.
The PI multipliers are published by HM Treasury in the tables: "Pensions increase multiplier tables" each year. The multipliers in the tables are in the form of one plus the pension increase percentage. This means the amount of pension after the increase is found by multiplying the current pension by the multiplier.
The calculations above are done before the member commutes pension for lump sum and before offsetting any divorce or scheme pays debits.
