GB2581120A

GB2581120A - Method

Info

Publication number: GB2581120A
Application number: GB1814962.5A
Authority: GB
Inventors: Van De Weyer Sylvain; Van de Weyer Courtney; Gout Cecila; Kelsey-Foreman Harry; Saddington James; Morgan Paul; Neville Mark
Original assignee: Brangaene Ltd
Current assignee: Brangaene Ltd
Priority date: 2018-09-14
Filing date: 2018-09-14
Publication date: 2020-08-12
Also published as: GB201814962D0

Abstract

A computer implemented method for modelling personal financial information comprising setting a user defined period; estimating a user's income and expenditure during the user defined period; calculating a liquid asset value upon expiry of the user defined period which is based on the user's estimated income and expenditure during the user defined period and one or more financial/behavioural/statistical assumptions. Further comprising estimating any additional or expenditure after expiry of the user defined period; determining a first liquid asset negative date based on: i) the calculated liquid asset value upon expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a first set of behavioural and/or statistical assumptions; and indicating whether the first liquid asset negative date is likely to occur prior to a specified event. A computer implemented method is also provided comprising a user operable device displaying data fields pertaining to personal financial characteristics using an algorithm and a user data input to determine a liquid asset negative date.

Description

FINANCIAL MODELLING METHOD

FIELD

The invention relates generally to the efficient modelling of personal financial data. More particularly, the invention relates to computer implemented techniques for determining financial security and further indicating required assets to support an individual's or family's lifestyle based on different scenarios.

BACKGROUND

Currently, working individuals are encouraged to pay a percentage of their income into a private pension scheme. Typically, an employee will pay a percentage of around 5% of their income into such a scheme. Some employers will match an employee's pension contribution subject to a cap. In order to be financially secure upon retirement, it is typically necessary to pay into a pension from an early age. The later that an employee starts to pay into a pension scheme, the higher the percentage of that employee's income should paid into the pension scheme to achieve financial security upon retirement.

Pensions typically have a tax free lump sum element and then a monthly payment based upon the residual balance of the pension following withdrawal of a lump sum. In 2018, 25% of a United Kingdom pension pot can be withdrawn tax free. Any further withdrawals would be taxed in accordance with income tax rules in place at the time.

The monthly payment element of pension drawings will typically either take the form of an annuity, where the pension holder receives a guaranteed monthly payment for life, or for a fixed number of years, or adjustable income where the residual balance of the pension is invested to provide a return to the pension holder.

While an annuity will pay a guaranteed monthly payment to the pension holder, such payment is typically relatively small in proportion to the residual balance of the pension. This is because upon retirement, typically between the ages of 55 and 65, a pension holder would be expected to live for a further 20 to 40 years. A life annuity therefore provides a consistent income for the remainder of the pension holder's life.

In contrast, pay outs from adjustable income investments are variable due to the volatile nature of investing in stocks and shares. It is possible that the value of the investment could go down as well as up. Adjustable income investments also provide flexibility to permit withdrawal of lump sums.

It is advantageous for individuals and families to have a diverse investment portfolio to maximise income, particularly once the main earner(s) retire. Many people turn to investing in property, stocks and shares and government backed investment schemes. Combined with a well funded pension, such investments can provide financial security.

Current models as employed by financial advisers and pension scheme providers to calculate how much a person should save during their working life are fairly basic. Typically, the person is asked how much money they would need each month to support their lifestyle. This figure is then used to calculate a pension pot value that would enable monthly payments at the desired level. Such models do not consider the individuals circumstances and financial information in any detail. Further, by relying only on basic demographical information such as age and sex, such models can only considered useful as a very rough guide as they are not personal to the person seeking advice.

The invention seeks to provide improvements for modelling personal finances.

SUMMARY

An aspect of the invention provides a computer implemented method for modelling personal financial information, the method comprising the steps of: setting a user defined period; estimating a user's income during the user defined period; estimating the user's expenditure during the user defined period; calculating a liquid asset value upon expiry of the user defined period, the liquid asset value being based on the user's estimated income and expenditure during the user defined period and one or more financial and/or behavioural and/or statistical assumptions; estimating any additional income received by the user after expiry of the user defined period; estimating user expenditure after expiry of the user defined period; determining a first liquid asset negative date based on: i) the calculated liquid asset value upon expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a first set of behavioural assumptions and/or statistical assumptions; and indicating whether the first liquid asset negative date is likely to occur prior to a specified event.

Through modelling of different scenarios based on differing behavioural and statistical assumptions, a user of the computer implemented method is able to identify when they, and their family, is likely to run out of liquid finance. Armed with this information, the user is better able to plan for life events, i.e. retirement, unemployment or a sabbatical, by taking practical steps to improve their future financial position. Such steps may include: paying a higher percentage of salary into a pension, increasing monthly savings, paying off mortgages and other debt earlier, reducing expenditure and delaying retirement, for example. By changing data fields relating to certain variables and assumptions, the user is able to tailor his/her financial plan to identify a model that would result in sufficient financial liquidity to take into account a specified event. At its most basic level, the model enables provision of a liquid asset negative date based on only basic user information and taking into account common behavioural assumptions and statistical assumptions. Full financial disclosure of the user is therefore not required in order to output an initial result.

In one embodiment, the method comprises the further step of determining a second liquid asset negative date based on the calculated liquid asset value upon: i) expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a second set of behavioural and/or statistical assumptions; and indicating whether the second liquid asset negative date is likely to occur prior to a specified event.

By determining first and second liquid asset negative dates based on different sets of user data and/or behavioural and statistical assumptions, the user can plan for a range of events of changes that might affect his/her financial security. In very simple terms, a user paying off a mortgage on a bank's standard variable rate can compare the effect of two, or more, different interest rates on liquid asset negative date.

In one embodiment, the method comprises the further step of determining n asset negative dates based on the calculated liquid asset value upon: i) expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a nth set of behavioural and/or statistical assumptions; and indicating whether the nth liquid asset negative date is likely to occur prior to a specified event In one embodiment, the method comprises the further step of fitting the model to the user.

Fitting the model to the user requires input of more detailed financial information of the user and in some circumstances may replace certain assumptions. By fitting the model, the output liquid asset negative date(s) would be expected to be more accurate depending on how closely the user adheres to the assumptions and personal information input into the model.

The parameters of the fitted model may be provided to the user. The parameters of the fitted model may be adjusted by the user in an interface.

Provision of the model parameters, whether before or after fitting, enables the user to confirm that his/her personal financial information is correct. Further, the user would be able to modify certain behavioural and statistical assumptions. For example, the model may assume that a 35 year old full time employee would increase pension contributions over time. As a standard, the model may assume that if the user is paying 5% of his/her salary into a pension that the percentage would increase as the user gets closer to retirement. If, for example the user had only recently started paying into a pension, the model might assume that a higher percentage of the user's salary would be paid into a pension than if the user had been paying into a pension since he/she started work. In such circumstances, the user may have other investments on which he/she seeks to rely and as such might wish to reduce the percentage pension contribution.

The model may be created following implementation of a single action by the user.

Advantageously, an initial model may be created through a single action such as pressing a virtual button on a touch screen or clicking an icon with a mouse when using a personal computer. Such an action may also be voice controlled or automated when opening a software application. The user would be required to enter basic information in order to output a liquid asset negative date based on standard behavioural and statistical assumptions before implementing the single action. This basic information is stored on a user operable device or remotely on a server, for example. By performing the single action, the user data is retrieved and input into an algorithm configured to return a liquid asset negative date.

Fitting the model may comprise replacing behavioural assumptions with user data, wherein such behavioural assumptions may include: expenditure changes over time, pension contribution percentage of income, savings percentage of income, retirement age, and management of matured pension funds.

The statistical assumptions may include: life expectancy, inflation, wage growth, unemployment rate, mortgage rate, interest rates, house price growth, tax and national insurance rates, insurance costs and average retirement expenditure.

The method may comprise the further step of outputting the liquid asset negative date on a mobile communications device or computing device.

The method may comprise the further step of monitoring user behaviour and/or behavioural assumptions and/or statistical assumptions and recalculating the liquid asset negative date taking into account any identified variations to user behaviour and/or behavioural assumptions and/or statistical assumptions and communicating the recalculated liquid asset negative date to the user.

As the user's financial circumstances will change over time, it is advantageous to monitor certain characteristics, behaviour and/or assumptions in order to identify long term effect on the user's financial circumstances. While a small increase in rent or a 0.25% increase in interest rate may not have a significant and immediate effect on the user's financial circumstances, the cumulative effect of multiple increases certainly would. By monitoring such characteristics, behaviour and/or assumptions, changes to the liquid asset negative date can be identified early and steps can be taken by the user to mitigate such an effect. For example, if the user was made redundant and subsequently took lesser paid employment, a standard 5% pension contribution may not be sufficient to provide the required liquid assets throughout retirement. In such cases, the user may need to increase his/her pension contribution and/or take alternative steps to provide other assets that will fall within the user's savings pot.

Another aspect of the invention provides computer implemented method comprising: under control of a user operable device, displaying data fields pertaining to personal financial characteristics of a user; prompting the user to input data into the data fields; storing the data input in data fields locally on the user operable device and/or remotely on a connected storage device; prompting the user to perform a single action; upon the user performing the single action, retrieving the data input from the user operable device and/or remote storage device and executing an algorithm using the data input to determine a liquid asset negative date.

FIGURES

The invention will now be described by way of reference to the following figure: Figure 1 illustrates method steps according to an embodiment of the invention. DESCRIPTION With reference to figure 1, the present invention is a financial modelling method for determining a date upon which a person, or family, is expected to exhaust its liquid financial assets. Such information is calculated using a set of behavioural and statistical assumptions combined with personal financial data.

In a first step (Si), a user is prompted to set a period in which his/her income and expenditure is to be calculated. If the period is to be until retirement, the person's expected retirement age can be determined by way of reference to state retirement age data. For example, in the United Kingdom, state retirement age data is obtainable from the Department of Work and Pensions. State retirement age is calculated using the person's date of birth to identify the expected retirement age when that person reaches retirement age. By 2020, the state retirement age in the United Kingdom for both males and females is expected to rise to 66 and further to 68 by 2048.

In a second step (S2), the person's income is extrapolated during the user defined period. Current salary is used as a base input and then extrapolated taking into account statistical factors such as inflation and wage growth. This step provides an expected total income until the person reaches the age of retirement.

In a third step (S3), current household outgoings are calculated by deducting the current household costs (mortgage and/or rental payments, pension payments, current savings) from the current household income.

In a fourth step (S4), a liquid asset value is calculated as of the end of the user defined perid based on the user's income and expenditure during the user defined period and one or more financial and/or statistical assumptions. Steps taken to calculate the liquid asset value include: (i) calculating a date for full payment of any principal residential mortgage held by the person is calculated using either information provided by the person or historical payment information. To calculate this date, assumptions are made regarding re-mortgaging such that similar mortgage rates are expected to by payable following expiry of each introductory mortgage term; (h) a date for full payment of any buy to let mortgages held by the person is calculated using either information provided by the person or historical payment information. This calculation may include an assumption of sale date based on behavioural or statistical assumptions and an assumption that the person would retain any excess capital for investment purpose; (iii) a monthly savings amount is calculated as a percentage of estimated future income less estimated future expenditure. This savings amount is added to a savings pot which may have a pre-existing value.

In a fifth step (55), additional income following the user defined period is calculated. If the user is still expecting to be working following expiry of the user defined period, the additional income may include the user's current salary extrapolated to take into account certain financial and/or statistical assumptions. The user's expected state pension income is calculated (if appropriate) using an instantaneous state pension income as a base input and increasing in line with expected inflation until the person reaches the age of retirement. This figure is added to the liquid asset value and an income is assigned. Similarly, any private pension that is paid into by the user is calculated in the same manner.

In a sixth step (56), the user's expenditure following expenditure of the user defined period is calculated up to a defined event. If the user defined period is up until the date of retirement and the specified event is death, the user' life expectancy is determined by way of reference to state data. Life expectancy is affected by factors such as where a person lives, whether that person drinks or smokes, gender and occupation. Future expenditure is estimated using an assumed inflation rate with changes depending on other factors such as changes in income, and further changes made at specific moments such as at retirement or children leaving home.

In a seventh step (S7), a first liquid asset negative date is calculated based on the user's calculated liquid asset value plus any additional income following expiry of the user defined period and less future expenditure. Second, third, fourth... .nth liquid asset negative dates are calculated by changing certain behavioural and statistical assumptions to provide a plurality of dates covering a range of different scenarios.

In an eighth step (S8), each liquid asset negative date is compared to the date of a specified event to identify under which circumstances he/she would have sufficient financial liquidity to support himself/herself and any family throughout the duration of such an event. If the liquid asset negative date is prior to occurrence of the event (or, in the case of a prolonged event, prior to its completion) he/she will be prompted to adjust certain behavioural assumptions to extend the period in which he/she would be expected to maintain sufficient financial liquidity. If the liquid asset negative date is significantly after the specified event he/she may be prompted to adjust certain behavioural assumptions to identify excess financial liquidity that he/she may wish to re-direct.

The method steps described above may also take into account details of a partner in order to consider other family income and expenditure.

The output of the above method steps is shown on a display of a mobile device, i.e. a mobile phone or tablet, or personal computer. To run the method based on standard behavioural and statistical assumptions, the person will be asked his/her date of birth and current salary. This information is stored on the device and/or remotely. The method can then be run by pressing a single digital button to provide a liquid asset negative date. Pressing the digital button results in the user data being retrieved into an algorithm together with one or more financial, behavioural and/or statistical assumptions in order to output the liquid asset negative date.

In an optional ninth step (S9), the person is able to adjust certain financial, behavioural and statistical assumptions to fit the model to his/her own personal circumstances. The new liquid asset negative date generated is more accurate than that generated using the standard behavioural and statistical assumptions. To aid with financial planning, certain behavioural and statistical assumptions can be varied to simulate the occurrence of certain events. Lifetime events where finances can be significantly affected include: birth of a child, a child leaving home, separation from a partner, death of a partner, marrying a new partner, funding children's education, cars, homes etc, paying off debt, buying a house, winning the lottery or other competition, for example. The model therefore not only produces a liquid asset negative date based on current financial circumstances but can assist contingency planning by building in planned, or unexpected events that are personal to the user and/or his/her family.

In an optional tenth step (310), a user's financial and personal circumstances are continually monitored and the occurrence of a trigger event causes recalculation of the liquid asset negative date. This recalculated date is then automatically sent to the user through a notification in a software application or by email. Certain financial circumstances, behaviours or assumptions can be flagged and monitored to detect any substantial changes. Factors such as a change in salary, increased Bank of England base interest rate, increased pension contribution or new financial liability, for example, can all have a substantial effect on the user's liquid asset negative date. By identifying such a change, the user can be notified of steps that they could take to nullify the impact of any change in circumstances, behaviour or assumption.

It will be appreciated that the foregoing description is given by way of example only and is not intended to limit the scope of the claims.

Claims

CLAIMS1. A computer implemented method for modelling personal financial information, the method comprising the steps of: setting a user defined period; estimating a user's income during the user defined period; estimating the user's expenditure during the user defined period; calculating a liquid asset value upon expiry of the user defined period, the liquid asset value being based on the user's estimated income and expenditure during the user defined period and one or more financial and/or behavioural and/or statistical assumptions; estimating any additional income received by the user after expiry of the user defined period; estimating user expenditure after expiry of the user defined period; determining a first liquid asset negative date based on: i) the calculated liquid asset value upon expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a first set of behavioural assumptions and/or statistical assumptions,; and indicating whether the first liquid asset negative date is likely to occur prior to a specified event.
2. A computer implemented method according to claim 1, further comprising the steps of: determining a second liquid asset negative date based on the calculated liquid asset value upon: i) expiry of the user defined period, ii) user expenditure after expiry of the user defined period and iii) subsequent income received by the user, each as affected by a second set of behavioural and/or statistical assumptions; and indicating whether the second liquid asset negative date is likely to occur prior to a specified event.
3. A computer implemented method according to claim 1 or claim 2, further comprising the step of fitting the model to the user.
4. A computer implemented method according to claim any of claims 1 to 3, further comprising the step of providing to the user the parameters of the fitted model to the user and/or sending the parameters of the fitted model to a remote device for storage and/or analysis.
5. A computer implemented method according to any preceding claim, wherein the model is created following implementation of a single action by the user.
6. A computer implemented method according to claim 4, wherein the parameters of the fitted model may be adjusted by the user in an interface displayed on a display screen of a computer or other device.
7. A computer implemented method according to claim 3, wherein fitting the model comprises replacing behavioural assumptions with user data, wherein such behavioural assumptions include: expenditure changes over time, pension contribution percentage of income, savings percentage of income, retirement age, and management of matured pension funds.
8. A computer implemented method according to any preceding claim, wherein statistical assumptions include: life expectancy, inflation, wage growth, unemployment rate, mortgage rate, interest rates, house price growth, tax and national insurance rates, insurance costs and average retirement expenditure.
9. A computer implemented method according to any preceding claim, further comprising the step of determining a third liquid asset negative date based on the savings pot value at retirement age as affected by variation of one or more statistical and/or behavioural assumptions.
10. A computer implemented method according to any preceding claim, further comprising the step of outputting the liquid asset negative date on a mobile communications device or computing device.
11. A computer implemented method according to any preceding claim, further comprising the step of monitoring user behaviour and/or behavioural assumptions and/or statistical assumptions and recalculating the liquid asset negative date taking into account any identified variations to user behaviour and/or behavioural assumptions and/or statistical assumptions and communicating the recalculated liquid asset negative date to the user.
12. A computer implemented method comprising: under control of a user operable device, displaying data fields pertaining to personal financial characteristics of a user; prompting the user to input data into the data fields; storing the data input in data fields locally on the user operable device and/or remotely on a connected storage device; prompting the user to perform a single action; upon the user performing the single action, retrieving the data input from the user operable device and/or remote storage device and executing an algorithm using the data input to determine a liquid asset negative date.