Defined Benefit Pension Calculator — PBO & Funded Status
Project a defined-benefit pension obligation (PBO), funded status, service cost, and interest cost with salary growth, discounting, and survival weighting under IAS 19.
Defined Benefit Pension Calculator
A clear path from inputs to results.
Project the present value of a defined-benefit pension promise and the plan's funded status using a projected-unit-credit-style method. It grows salary at an assumed rate, applies an accrual rate, weights the future benefit by survival probability, and discounts it back, following the IAS 19 / IAS 26 framing for employee-benefit obligations.
How to use
- Enter the member's current salary and the assumed annual salary growth rate; salary is projected forward to retirement as S_0(1+g)^t.
- Set the discount rate used to bring the future benefit back to today's value — under IAS 19 this is a high-quality corporate bond yield.
- Set the accrual rate (the fraction of final salary earned per year of service) that defines the size of the promised benefit.
- Enter the current age and retirement age; the difference is the projection horizon in years.
- Set the mortality intensity, which drives the survival probability exp(−mortality × t) applied to the benefit.
- Enter the plan assets to read the funded status (assets minus obligation), alongside the service cost and interest cost, with 2D paths and a 3D discount-versus-growth sensitivity surface.
The formula
Reference: IAS 19 Employee Benefits and IAS 26 Accounting and Reporting by Retirement Benefit Plans; projected unit credit method (actuarial present value of accrued benefits).
Worked example
Age 40 member, retirement at 65, 1.5% accrual (default inputs)
- Current salary $60,000; salary growth 4%; discount rate 5.5%; accrual rate 1.5%; current age 40; retirement age 65; mortality intensity 0.8%; plan assets $800,000.
- 1
The horizon is 65 − 40 = 25 years. Salary grows to $60,000 × 1.04^25 = $159,950.18 by retirement. The accrued benefit is accrual × projected salary × service, which the model proxies as 1.5% × $159,950.18 × (25 + 1) = $62,380.57. Survival to retirement is exp(−0.008 × 25) = 0.8187, so the expected benefit is $62,380.57 × 0.8187 = $51,073. Discounting that back 25 years at 5.5% (dividing by 1.055^25 = 3.8137) gives a projected benefit obligation of $13,393.03. Funded status is assets minus obligation: $800,000 − $13,393.03 = $786,606.97. The service cost is the next year's accrual discounted one year, 1.5% × ($60,000 × 1.04) ÷ 1.055 = $887.20, and the interest cost is the discount unwind, 5.5% × $13,393.03 = $736.62.
Projected benefit obligation $13,393.03; funded status +$786,606.97 (plan assets well above the obligation); service cost $887.20; interest cost $736.62.
Interpreting the result
The PBO is today's value of the promised benefit; comparing it with plan assets gives the funded status, positive here because $800,000 of assets dwarfs the $13,393 obligation this stylized single-member promise produces. Service cost is the new obligation earned by one more year of work, and interest cost is the growth in the obligation as the discounting unwinds by one year. Both the discount rate and salary growth move the PBO sharply, which is what the sensitivity surface illustrates.
Assumptions & limitations
- The model values a single lump-sum benefit paid at retirement, not an ongoing post-retirement annuity, so it understates the true obligation of a plan that pays a pension for life.
- Service is proxied as (years to retirement + 1) rather than the member's actual accrued service to date, so the accrued-benefit figure is a simplified stand-in for a full projected-unit-credit attribution.
- Mortality is captured by a single constant intensity (survival = exp(−μt)); it does not use age-specific mortality tables, and no pre-retirement withdrawal, disability, or early-retirement decrements are modeled.
- Salary growth, the discount rate, the accrual rate, and mortality are all treated as constant over the whole horizon.
- This is an illustrative projection, not a statutory actuarial valuation; real IAS 19 reporting requires annuity factors, demographic tables, and asset-return assumptions that this tool simplifies.
Frequently asked questions
What is the projected benefit obligation (PBO)?
It is the present value today of the pension benefit the member is projected to have earned, measured using their expected final salary. The engine grows salary to retirement, applies the accrual rate and service, weights the result by survival probability, and discounts it back at the chosen rate — $13,393.03 for the default inputs.
How are service cost and interest cost different?
Service cost is the present value of the additional benefit earned from one more year of service — $887.20 here. Interest cost is the increase in the existing obligation simply because it is now one year closer to payment, computed as the discount rate times the PBO — $736.62 here. Together they are the two main drivers of the annual pension expense.
Why is survival probability applied to the benefit?
A defined-benefit promise is only paid if the member survives to collect it, so the expected value weights the benefit by the probability of surviving to retirement, exp(−0.008 × 25) = 0.8187 at the defaults. This lowers the expected benefit from $62,380.57 to about $51,073 before discounting.
Why does the discount rate matter so much?
The benefit is paid far in the future, so its present value is highly sensitive to the discount rate. At the default 5.5% over 25 years the discount factor is 1 ÷ 1.055^25 ≈ 0.26. A lower discount rate would raise the PBO substantially and worsen the funded status, which is why IAS 19 ties the rate to high-quality corporate bond yields and the 3D surface charts this sensitivity.
What does a positive funded status mean?
Funded status is plan assets minus the obligation. A positive figure, like the +$786,606.97 shown, means the assets set aside exceed the measured obligation, so the plan is overfunded on this basis. A negative figure would signal an unfunded liability the sponsor must eventually cover.
Can I use this as an official actuarial valuation?
No. It is a teaching and planning tool. It uses a single mortality intensity rather than full mortality tables, values a lump sum instead of a lifetime annuity, and proxies service rather than tracking actual accrued years. A statutory IAS 19 valuation requires an actuary and considerably more detail.
Methodology last reviewed 2026-10-06. Results are informational and not financial or engineering advice — see our disclaimer.