The following list outlines where the software applies the various default growth, inflation, and index related preferences.
Note that many of these default settings may be overridden for any single item in the plan by adjusting the relevant values in the “Growth” or “Inflation” section found on the input screen for the individual item.
Inflation Rate
The Inflation Rate preference is used to inflate expenses and the purchase price of new properties acquired in the future.
Note that this default setting may be overridden for any individual property in the plan by adjusting the relevant values in Advanced Settings > Details.
Importantly, the default inflation rate is applied whenever “Present Value” option is selected on any of the software's Advanced Settings > Growth, Details or Inflation panels. The inflation rate is used to compute the future value of any monetary amount found in the Step Up/Down detailed sections throughout the plan input screens.
Investment Growth Rate
The Investment Growth Rate preference is used as the default fixed growth rate applied to investments, money purchases and drawdown pensions, in cases where the "Use Asset Allocation" option is not selected for the account.
It is also used as the default growth rate applied to the hypothetical taxable savings account created when running the annual savings need analyser.
Note that this default setting may be overridden for any individual account in the plan by adjusting the relevant values in Advanced Settings > Growth or Growth & Yield.
Savings Growth Rate
The Savings Growth Rate preference is used as the default fixed growth rate applied to cash acocunts found on the savings screen, provided that the "Use 100% Cash Asset Allocation" option is not selected for the account.
Importantly, it is also used as the initial default, unless edited at the account level, for the software's defualt cash accounts (e.g. John's Cash). These accounts act as a holding place for ready cash from future lump sum inflows and in some cases, surplus unallocated income that is not scheduled to be deposited to a specific account.
If the "Use 100% Cash Asset Allocation" option is selected, an asset allocation a 100% Cash Allocation will be used to derive a growth rate from the software's market assumptions.
Note that this default setting may be overridden for any individual account in the plan by adjusting the relevant values in Advanced Settings > Growth.
Property Growth/Depreciation Rate
The Property Growth/Depreciation Rate preference is the default rate at which property, once purchased, will increase or decrease in value. For a future purchase, the inflation rate is used to compute the future value of a property when purchased.
Note that this default setting may be overridden for any individual property or asset in the plan by adjusting the relevant values in Advanced Settings > Details.
National Average Earnings
The National Average Earnings (NAE) preference is used as the default rate of salary inflation.
(NB NAE is also used in conjunction with CPI and the minimum limit of 2.5% per annum when escalating future state pension benefits using the Triple Lock formula, whereby State pension will be escalated using the higher of the three figures).
Note that this default setting may be overridden for any individual employment income in the plan by adjusting the relevant values in Advanced Settings > Growth.
Assumed Annuity Interest Rate
The Assumed Annuity Interest Rate preference is used as the default annuity interest rate used to convert an accumulated pension fund into an annuity at retirement.
Note that this default setting may be overridden for any individual money purchase in the plan by adjusting the relevant values on the Pensions > Money Purchase screen > Withdrawals & Annuity > Annuity panel.
CPI, RPI (and LPI)
The CPI and RPI preferences can be used (if selected) to inflate items such as escalating final salary and annuity payouts, when selected as an index on the Pensions > Final Salary screen.
This preference can also be used to index the benefits and premiums on increasing lump sum protection policies - a Benefit Type option for term policies found on the Protection > Term & Endowment screen.
LPI is also available as an option in the final salary escalation selection and will be calculated as equal to RPI with a maximum of 2.5%.
The software's Real Money simulation (an option available on the Let's See charts) displays present values of the calculation results using CPI to compute the present values.