Factors

Question 1

When setting assumptions, it is important to:

Answer 1

➢ Consider use to which assumptions will be put ( purpose of investigation )
➢ Take care of the assumptions that will have the most financial significance
➢ Achieve consistency between various assumptions
➢ Consider legislative or regulatory constraints
➢ Consider needs of the customer or their objectives ( risk appetite influenced)

Question 2

Assumptions needed for pension: Demographic factors

Answer 2

Relate to the size and distribution of
population
o Specific to the individual’s particular
circumstances
o Relate to the timing or number of cashflows
Examples ( pension scheme )
o Mortality rates
o Rates of retirement in good health ( early,
normal, late )
o Rates of ill-health retirement
o Rates of withdrawal
o New entrants rates
o Rates of mortality before and after retirement
and salary scale
and spouses details

Question 3

Assumptions needed for pension: Economic factors

Answer 3

o Relate to the level of income or outgo
o Generic ( not specific to individual)
Examples ( pension scheme )
o Investment returns– bond yields, equity
returns
o Discounting rate ( valuing liabilities )
o General Earnings inflation
o Price inflation
o Pension increases
o Expenses
- Inflation of expenses