D
Deleted member 12487
Member
My question is regarding the loss on benefits paid due to actual pension increases being higher than expected.
1) The solution calculates the difference in the expected benefits paid under the old pincs (2.5%) vs the expected benefits under the actual pincs (2.5%), but I would have thought the calc should be expected bens under expected pincs minus actual benefits under actual pincs i.e. 20*3*1.05^1.5*1.025*1.5 - 65*(1.025/1.055)^1.5*1.05^1.5.
Is this because the difference in expected bens vs actual bens is so small (ie 3*20*1.055^1.5 ~ 65.01745 vs 65) that it doesn't matter which formula we use? Surely even though they're similar, it's best to use actual cashflows in the first instance?
2) In the final surplus reconciliation calc, the contributions line is separate to the salary increases line, but the pensions in payment line includes both pinc differences for benefits paid and for the liability for pensioners yet to be paid - why is this? Is this just an arbitrary choice as to whether to split experience from benefits paid + pincs (i.e. not split in this solution) and conts + salary increases (i.e. split in this solution)?
1) The solution calculates the difference in the expected benefits paid under the old pincs (2.5%) vs the expected benefits under the actual pincs (2.5%), but I would have thought the calc should be expected bens under expected pincs minus actual benefits under actual pincs i.e. 20*3*1.05^1.5*1.025*1.5 - 65*(1.025/1.055)^1.5*1.05^1.5.
Is this because the difference in expected bens vs actual bens is so small (ie 3*20*1.055^1.5 ~ 65.01745 vs 65) that it doesn't matter which formula we use? Surely even though they're similar, it's best to use actual cashflows in the first instance?
2) In the final surplus reconciliation calc, the contributions line is separate to the salary increases line, but the pensions in payment line includes both pinc differences for benefits paid and for the liability for pensioners yet to be paid - why is this? Is this just an arbitrary choice as to whether to split experience from benefits paid + pincs (i.e. not split in this solution) and conts + salary increases (i.e. split in this solution)?