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Traditional Pension Fund Valuation in a Stochastic Asset and Liability Environment

Published online by Cambridge University Press:  10 June 2011

I.D. Wright
I.D. Wright
Affiliation:
Department of Actuarial Science and Statistics, The City University, Northampton Square, London EC1V 0HB, U.K. Tel: +44 (0)20 7477 8479; E-mail: [email protected]
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Abstract

Using the stochastic investment model proposed by Wilkie (1995) this paper simulates the progress of a specimen final salary pension scheme over a period of 25 years. Salary experience over the projection period is also assumed to be stochastic. The specimen scheme is assumed to be stable during the projection period with respect to age, pensionable salary in real terms and past pensionable service.

Regular deterministic valuations of the scheme are conducted during the projection period to determine the current level of funding of the scheme on both a discontinuance and an ongoing basis, and also to determine the future contribution rate required to meet the funding objective. The required contribution rate is calculated in accordance with the Inland Revenue surplus regulations and the Minimum Funding Requirement (MFR) introduced in the Pensions Act 1995.

The effect on the level of funding (and, hence, on the size of the required contribution rate) of using different investment strategies and of varying the pace of funding, by adopting both a traditional prudent valuation basis and a more realistic valuation basis, are also explored.

Keywords

Pension SchemeSolvencyValuation BasesInvestment StrategyWilkie Model
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 4 , Issue 4 , 01 October 1998 , pp. 865 - 901
Copyright
Copyright © Institute and Faculty of Actuaries 1998

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References

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