LIFE INSURANCE AND

RETIREMENT VALUATION
MODULE 9: VALUATION OF RETIREMENT SCHEMES
 Module 9: Q & A

Exercise 9.1: List examples of benefits that have a significant cost impact or a neutral
cost impact or a low cost impact if valuations assumptions are not met.

Three examples of a significant cost impact:

Pension payments if the number is higher than expected.

Defined benefit lump sum payments if asset returns are lower than expected.

Death benefits if the DB scheme self-funds (i.e. pays death benefit from assets rather
than purchasing insurance.

Three neutral impacts:

Transfer value to another provider if payment is the cash value of benefits foregone.

Commutation of lump sum to pension if on a fair basis.

Insured death benefits

Low cost impacts:

Practically anything where experience did not deviate too much from assumptions.

Benefits with a low expected take-up e.g. children’s benefits payable post retirement.

Any alternative benefit that is close in value to the principle benefit.

Exercise 9.2: What does it mean that the methods do not directly affect the cost of
funding?

The direct cost of funding is dictated by the actual experience, not by the pace at
which assets are set aside to pay for benefits.

Exercise 9.3

What is meant by a ‘mature scheme with stable demographics’?

New entrants balance exits such that the age/sex/salary distribution is stable.