AFCS - value of GIP

Discussion in 'Charities and Welfare' started by vampangua, May 29, 2010.

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  1. I saw comments on another thread about how payments under AFCS compare (unfavourably) to civvie payouts, but I haven't seen how the value if the GIP is reflected in those comparisons.

    If an afflicted civvie was to buy an annuity to provide an income on a par with a GIP, how big a pot would be needed? I couln't find a tool for doing it that way round on the Internet, so I tried to work it out myself:

    Taking as a baseline a GIP of £25,000, I first grossed this up to allow for the tax a non-AFCS recipient would have to pay, taking it roughly to £30,000 (but should more be allowed to hedge against changes to tax regime?)

    Then I guessed a remaining life expectancy of 45 years. That would make the total payout £1,350,000.

    Then I allowed for the value of index-linking - again could't find a predictor for that, so did straight compound interest at 2% pa. That brings the total to £3,291,103.

    Now that might not be the actual cost of buying the annuity - a firm, if it took the business at all, might drop the cost if it thought it could invest the pot. And secure a return consistently at or above RPI. Is that likely? The buyer of said annuity would also have to factor in the risk that a private company could go bust or be forced to reduce payouts - and face the lengthy stress of sorting it out (a la Pru).

    Does anyone know a better way of assessing the value of a GIP? Is there any appetite to give a cash sum instead?
  2. What does GIP mean?

    Most pensions which increase annually are RPI based.

    As to another 45 years life expectancy, clearly you're not part of my peer group where eeh expectancy of reaching age 65 is 28% according to the army pensions lot.
  3. GIP is Guaranteed Income Payment: it's a multiple of pay by an age adjustment factor, further adjusted depending on tariff of injuries.

    I used a compound interest formula as RPI cannot be predicted: I chose something historically (though not currently) low, but open to suggestions for a better way.

    And again, life expectancy was taken as a typical figure - I'm sure there will be many who expect more or less. Again open to suggestions for what number of years (or range) would be more generally acceptable.

    Edited to add: Mikal - I've done another illustrative calculation: based on 33 years ( injury at 25, life expectancy 58, and the headline poteould need to be just under £2,200,000.