Benefit Formula: average wage for the past five years X wage growth applicable (adjustment of past earnings) X accrual rate X years of contribution of the member
The accrual rate for the year 2016 is 1.67%.
The above formula is transparent, easy to understand for members and takes into consideration the years of contribution of the members. It is to encourage members to contribute and work longer to have a better pension. In fact throughout our pension awareness programs at various work places members have expressed the wish that their pension should be linked more to their years of contribution which has been addressed in the new formula
The number of years will gradually increase by one year every year as the SPF gets additional records every year.
So initially wages in last 5 years will be updated by wage growth and then divided by 5 to find the average earnings.
The wage growth data is available from the employment and earning statistics issued by the National Bureau of Statistics .
- Accrual Rate
The accrual rate is the rate at which a member earns a replacement rate per year of contributions. The methodology used to calculate the accrual rates for the SPF is on the basis of members’ records.
- Years of Contribution
Needless to say, different members contribute to the SPF in different period and their length of service is different. Currently, the calculation of the pension benefit at the time of retirement is not strictly linked to the years of contribution the members contribute to the SPF. The new benefit formula aims to strengthen the link between years of contributions and pensions at retirement.This would improve the fairness of the system as someone who contributed for 30 years and someone who contributed for 20 years would be treated differently with the former receiving a higher benefit in line with longer years of contributions to the SPF.Given that years of service and the accrual rate are important determinants of the pension benefit at the time of retirement and given that the SPF does not want a significant deviation from the pension levels calculated using the current methodology in the initial years of reform, the World Bank conducted analytical work to look at the what the accrual rate would be on the basis of (i) the current target replacement rate of 33 % ; (ii) the current average length of service and came up with an accrual rate of 1.75 % per year for 2015. The future accrual rates were calculated on the assumption that members will contribute for longer periods. This assumption is made on the basis of the analysis of contribution density using SPF records.
Download Normal retirement leaflet to read more about
Download application form for normal retirement pension