Reserving

Question 1

Outline the steps that would be taken i performing a statutory gala=uation in a multi-employer DC fund

Answer 1

1. Check for prior reports
   - check for recommendations
   - sig events
   - opening balance sheet position
2. Check for any changes in regulation/ egislation
3. Chec for significant events pertaining to this particular fund
4. Gather member data
5. Check - member recons, comparison of member accumulated credit over time and consistency between contributions recorded in different sources
6. Gather accounting data
7. Gather asset data
8. Set assumptions
9. Calculate the actuarial liability for each fund
10. Perform an analysis of surplus
11. Set appropriate contingency reserves
12. Review results and report
13. Considering the most appropriate wa to present this complex information
14. Have the report checked or peer reviewed as appropriate.

Question 2

Identify and briefly describe three stages of demographic transition

Answer 2

1. Decline in mortality
   - particularly infant mortality
   - population start to grow and average age my drop
2. Decline in fertility
   - the decline in child mortality, gives parents more confidence that their children will survive to adulthood and fertility rates will star to decline
   - population continues to grow but at a decreased rate
3. Mortality and fertility in balance
   - balance again but at a much lower rate than befor
   The natural rate of population growth will again be zero
   - the retired population will increase dramatically but the working population will start to decline

Question 3

Risks passed from DB to DC from employer to employee

Answer 3

1. Investment risk - DC fund run the risk that investment returns are lower than expected reducing their benefits at retirement
   2.Longevity risk - members run the risk that their benefits will be insufficient to meet the pension payments for life ollowing retirement ( DB on employer as they pay pension benefits to members for life
2. Inflation risk - if inflation linked pension increases were offered by the DB fund
3. Provider risk- if annuities are not offered within the fund and employees need to find an annuity provider at retirement - employees must make choices they didn’t make before - contribution level , investment choice
4. Employees may be affected by future deficits ( arsing from admin issues/ data errors ) which cause a discrepancy between members accumulated balances and accumulated aggregated asset values

Question 4

Risks that employer may face after conversion

Answer 4

1.Significant costs and governance required to implement the transition from DB to DC , including actuarial fees/ legal fees/admin feeds/system set up
2. Regulatory risks associated with DC funds and new regulations that need to be complied with … including compliance with regulations associated with transition process
3. Poor management of the DC fund
4. Investment returns are cruicial to providing future benefits to member
5. Company will have less influence over the retirement fund as a DC fund operates more like a stand alone entity
6. Life stage and investment choice strategies
Admin risks
Unitsation risks
Timing delays
Admin errors
Tax implications