How to calculate any catch-up required

To calculate how many years it will take you to catch up your benefit points:

1. Subtract your total accrued benefit points from your total maximum benefit points. This is the number of benefit points you need to catch up. For simplicity we can call this the catch-up amount.
2. Decide what extra level of contributions you want to make – or can afford to make – each year. To catch up your benefit points you will need to contribute at more than 6%. The amount you contribute above 6% is your increased contribution rate.
3. Divide the catch-up amount by your increased contribution rate. The answer to that calculation is the extra amount you need to contribute.

Example:

You have been contributing for 15 years at 4%, giving you a total of 60 accrued benefit points (15 x 4). Your maximum benefit points total for that period of membership is 90 (that is, six benefit points per year x 15 years = 90).

So:

90 – 60 = 30. Your catch-up amount is 30 benefit points.

Now you can decide on the appropriate increased contribution rate given the time remaining before your retirement and your other financial commitments:

30 points ÷ 1% additional contribution = 30 years' future contributions

@ 7% p.a.

30 ÷ 2% = 15 years @ 8% p.a.

30 ÷ 3% = 10 years @ 9% p.a.

As you can see, if you contributed 9% for the next 10 years you would catch up your benefit points, and be entitled to six new benefit points for each of those 10 years. Your total accrued benefit points after 25 years of membership would be 150, which is the maximum benefit points available to you for that period (that is, six benefit points a year x 25 years = 150).

This method should allow you to calculate what you need to do to catch up. This calculation also allows you to balance the increased contribution rate and the duration of that increased contribution. This should help you make a decision that suits your age and personal financial circumstances. (It is important to remember that you can only contribute at a maximum of 9% a year.)