Valuation of Group Pension Schemes

Synopsis In the first part of the paper the general nature of the problem is dealt with in relation to the movements which take place in group pension schemes and the information which is readily available from the normal office records. The choice of valuation date is discussed and some of the differences which exist between private funds and office schemes and which lead to essentially different treatment are noted. The valuation of schemes providing future service pension by the single and annual premium methods is discussed separately, each being developed from a consideration of the simplest form of contract to the more elaborate forms, and approached from the standpoint of the net premium and gross premium methods of valuation. Under each heading theoretical formulas are given and these are considered from the practical standpoint of designing accurate valuation methods and of devising, without appreciable loss of accuracy, approximate methods which reduce considerably the arithmetical work. Throughout, the effort is made to reduce the data to be recorded to a minimum and to use, wherever possible, the data which an office will require for its costing purposes. The paper includes a section on past service pension in which is given a theoretical review of the various methods commonly used to provide pensions. In the appendices it is demonstrated how Trachtenberg's formula may be adapted for valuation of a single premium scheme by the net premium approach and an example is given of the working of the suggested short method in the valuation of an actual scheme together with a valuation “in extenso” for comparison of the results obtained.