What is present value?

Present Value is the current worth of a stream of income to be received in the future. In basic terms, the present value, as it applies to pensions, describes the amount of money which would have to be invested or set aside by the pension plan today, so that sufficient funds would be available to pay out the pension amount throughout the employee’s years of retirement. In order to determine present value, the appraiser will employ an appropriate discount rate and estimate the length of time the payments will be received by the pensionholder.