First, we work out the final salary incomes that are due.

Then we look at what debts need to be paid.

We then calculate expenses, including any increases that may apply, across all expenses used in the calculations.

Then we can process the incomes, including any increases and tax that may be payable to get a net income.

Overall this then provides us with the expenses and net secured income, which gives a surplus or deficit for the year which needs to be met by taking withdrawals from assets.

Therefore our next step is to process the assets via the specified order of withdrawals (found in Preferences) to make good any shortfall or to save into an appropriate asset if there’s a surplus.

This withdrawal and any contributions or savings are assumed to take place halfway through the year to give a reasonable assumption around a regular cash flow during the year.

Suppose an asset is going to be fully exhausted by the withdrawals. In that case, we further assume that the withdrawal is taken at the start of the year, partly because it will be more weighted towards the beginning of the year, plus it also avoids having any interest which would be payable leftover part through the year. So contributions go first, then any withdrawals (although it’s unusual to have both from the same asset at the same time!).

The assets are then rolled up using the appropriate growth rates to create the values at the end of the year, then used as the starting point for the following year’s cash flow. When using the stochastic forecast, each asset class within each fund within each product uses the assumption for that year for each of the 1,000 scenarios. There is a considerable volume of calculations to do this, but it’s the only way to build the picture of the risk and reward for the cash flows for your clients. Luckily we’ve been steadily improving the speed at which these calculations can be done for over two decades, so you don’t have to wait long for the results.

At the end of the process, we calculate any annuity payments that would be due for the following year to be included in the income in the next year. Any increases to annuity income are also taken into account here too.

And then the process starts all over again for the following year.