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Maseno University School of Mathematics and Actuarial Science Department of Applied Statistics and Actuarial Science

QUESTION 1 [10 MARKS]

(a)Dene what a pension is and hence distinguish between a dened benet pension scheme(DB)and a dened contribution scheme(DC). [3 Marks] (b)Consider a person aged exactly 25 whose annual salary rate is currently Kshs.100, 000. Estimate his annual salary rate at exact age 53. [2 Marks] (c)Contributions to a pension scheme by employees are made at a rate of 5% of salary whe aged under 35, 6% when aged between ages 35 and 45, and 7.5% when aged over 45 and over. Calculate the present value of the future contributions payable by a member aged exactly 30 who in the past year has received a total salary of KJhs.1,217,800. [5 Marks]

QUESTION 2 [10 MARKS]

(a)Dene an option and a guarantee in respect of a pension scheme. [3 Marks] (b)The value of a pension P payable on ill-health retirement to an individual currently aged x could be expressed as
64

P
y =x

iy y+ 1 2 x lx

ai y+ 1 2

P = Dx

64x ia Cx +t t=0

=P

ia Mx Dx

ia ia (i) Dene Cx [2 Marks] +t and Mx as used above. (ii) Calculate the present value of an annuity of Kshs.1, 000, 000 p.a payable on retirement at any age up to 65, due to; (a)ill-health retirement. [2 Marks] (b) normal retirement [3 Marks] Assume the member is currently aged 50

QUESTION 3 [10 Marks]

(a)Given AAAL = Where P-past pension service at valuation date F-future service i.e R-x AASCR = Show that AAAL =
(Rx)S A e R x ( 1+ aR 1+i ) R x e R x aR (P + F ) S ( 1+ 1+i )

AASCR S a

Rx

Sa

P S 1 + e Rx ( ) aR A 1+i [2 Marks]

(b)Using the following assumptions i = 10%p.a, e = 9%p.a, A = 60, R = 65, aR = 12 Calculate SCR and AL under the Attained Age method for the following members individually, assuming salary is payable in arrear. (i)20 year old, no past service, salary Kshs.30, 000 [2 Marks] (ii)30 year old,10years past service, salary Kshs.20, 000 [3 Marks] (iii)60year old,30years past service, salary Kshs.40, 000 [3 Marks]
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