Some Experiments with the Emerging Costs of a Hypothetical Pension Fund

1.1. In text-books concerned with the study of pension funds the space devoted to the calculation of emerging costs is usually small and this is probably in keeping with the number of occasions when such estimates are necessary. If, however, it is accepted that the purpose is to produce the best estimate of the emerging costs, the calculations become interesting and consideration of the appropriate bases provides a useful background to the selection of a suitable basis for valuing the capital liabilities of the fund. 1.2. This paper develops some ideas generated while preparing detailed estimates of the emerging costs of several immature pension schemes with high rates of turnover of staff. A computer model is described which at the moment is in the early stage of development. Having outlined the pattern of costs derived from the model, the paper considers the effects of simplifying the original assumptions and in particular compares the results of using a traditional valuation basis.