Here’s how we model guaranteed income sources in Timeline.

When you click “Adjust by Inflation” next to the payment per year, the following actions take place in the background:

State Pension

The State Pension amount is adjusted in line with inflation or with 2.5% on an annual base, depending which percentage is higher.

Here’s an example:

Assume the State Pension amount is £9,110 and the annual inflation is the following

Year 1

5%

Year 2

2%

Year 3

-1.5%

Year 4

4%

Year 5

10%

Then the adjustment for each year will be

Year 1

Greater than 2.5%

£9,110 * (1 + 5%)

£9,565.5

Year 2

Lower than 2.5%

£9,565.5 * (1 + 2.5%)

£9,804.63

Year 3

Lower than 2.5%

£9,804.63 * (1 + 2.5%)

£10,049.7

Year 4

Greater than 2.5%

£10,049.7 * (1 + 4%)

£10,451.7

Year 5

Greater than 2.5%

£10,451.7 * (1 + 10%)

£11,496.9

Defined Benefit Pension, Lifetime Annuity and Rental Income/other income

The defined benefit pension, and the rest of guaranteed income sources, are adjusted in line with inflation and no adjustment is applied when inflation is negative.

Here’s how it works behind the scenes:

Assume the Defined Benefit amount is £20,000 and inflation is the following:

Year 1

2%

Year 2

-1.5%

Year 3

3.2%

Year 4

-0.9%

Year 5

5%

Then the adjustment for each year will be

Year 1

Greater than 0%

£20,000 * (1 + 2%)

£20,400

Year 2

Lower than 0%

£20,400 * (1 + 0%)

£20,400

Year 3

Greater than 0%

£20,400 * (1 + 3.2%)

£21,052.8

Year 4

Lower than 0%

£21,052.8 * (1 + 0%)

£21,052.8

Year 5

Greater than 0%

£21,052.8 * (1 + 5%)

£22,105.4

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