Actuaria Funidng

Question 1

Actuarial funding methods

Answer 1

• to determine what these regular contributions should be and how large the liability is.
• for defined benefit arrangements or any arrangement where they can be applied to any benefit arrangement where there is a defined benefit that may become payable at some point in the future.

Question 2

Valuation of liabilities for a DC

Answer 2

Accumulating the contributions paid into the fund at the appropriate rate of interest less any expenses incurred. Reserves can be set up in a do funds to smooth investment returns and allow for various other contingent or unforeseen cash flows .

Question 3

The funding methods - funded in advance by regular contributions

Answer 3

Attained age method
Entry age
Projected unit method
Current unit method

Question 4

modified contribution rate

Answer 4

Stcr + variation assisting from assets not being equal to the AL ( stcr modified to take account of the current funding position )

Question 5

Projected unit method (PUAL)

Answer 5

AL - discounted value of benefit that accrued over the last period of membership
- allowance is made for any future inflationary growth of accrued benefits up to the assumed date
-based on projected final earnings for members

Question 6

PUSTCR

Answer 6

Expressed as % of earnings

Pv of all benefits that will accrue in the control period by reference to service in that control period and projected final earnings divided by the present value of all members earnings in the control period

Question 8

CUM

Answer 8

• accrued benefits method but no allowance is made for any earnings growth
• more generous accrual of benefits and more commonly used

Question 9

CUAL

Answer 9

Present value of accrued benefits at the valuation date based on current earnings for members in service

Question 10

CUSTCR

Answer 10

Present value of all benefits that will accrue in the control period following valuation period plus present value of all benefits accrued at the valuation date multiplied by the projected percentage increase in earnings over the control period / pv of all ,embers earnings in that control period

Question 11

Variation of custcr

Answer 11

Cum allowance for revalued earnings using revaluation rate
If r = e then pum

Question 12

Attained age

Answer 12

Stable rate of contribution that will accumulate to the value required to provide benefits that are expected to accrue over that future period of time .

Question 13

Aastcr

Answer 13

Pv of a,, benefits that will accrue to current active members after valuation date on project final earnings divided by pv of total projected earnings of all current active members throughout their exo3cted future membership

Question 14

Aaal

Answer 14

Pv of total Ben - value of stcr multiplied by total projected earnings for all active members = pv of all Ben accrued at val date based on final earnings

Question 15

Relationship between AA and PUM

Answer 15

Aaal and pual will give the same result . This is because PUAL also uses projected earnings.

But Astra will be different to put stcr as the former considers full future period but puts r only considers the control period. As PUAL and aaal are the same, they will respond to changes in the interest rate assumptions the same.

Question 16

Terminal

Answer 16

Terminal _ involve the employer making a lump sum available every time an eligible employee retires
This lump sum is expected benefit - PV of expected future amounts

Question 17

Regular

Answer 17

Employer would make contributions throughout each employees working lifetime
- with aim of accumulating the expected cost of the benefit by the time the employee retires and the benefit becomes due

Question 18

Criteria to choose the funding options

Answer 18

Stability
Security
realism
Affordability
Accounting
Liquidity
Tax
Opportunity cost
Regulation
Flexibility