(Posted by Patrick Lee on 1 August 2017 at a different location, but migrated here on 05 Feb 2018).
Why is there a range of answers, even using a given set of assumptions? Are these differences real, or artificial?
It would clearly make a difference whether a company’s pension liabilities were £475m, £500m or £525m …
The value of an organisation’s defined benefit (final salary or CARE – career average revalued) pension plan promises normally depends on many uncertainties, including:
- how long the plan members and their partners are expected to live
- what proportions of active members will leave service, or retire on ill health, before reaching normal retirement age
- what the future rates of salary growth and price inflation (and hence pension increases) will be
- assuming that a perfectly matching asset portfolio can’t be found (normally such a portfolio doesn’t exist), then what the future rates of reinvestment (for cashflow mismatches) will be.
InQA Limited 