Full vs half year of exposure in experience analysis

[actuary]

The solution to question 3(ii) in the mock exam states that, when conducting an experience analysis on early leaver experience for a pension scheme, early leavers are given a full year’s exposure in the year they leave (if the exact date is not known).

Why is a full year's exposure given instead of half a year? In practice, I would expect leavers to leave uniformly throughout the year, so assuming half a year of exposure appears to be a more accurate approach.

 

[Aman Sehra]

Hi,

The solution to question 3(ii) in the mock exam states that, when conducting an experience analysis on early leaver experience for a pension scheme, early leavers are given a full year’s exposure in the year they leave (if the exact date is not known).

Why is a full year's exposure given instead of half a year? In practice, I would expect leavers to leave uniformly throughout the year, so assuming half a year of exposure appears to be a more accurate approach.

In this case, the solutions mention the basic calculation being dividing the number of early leavers by the exposed to risk. The exposed to risk would include all individuals, including those who may potentially be leaving, so there would be a full year's exposure in the 'exposed to risk' for these individuals too.

As a rather basic comparison, think about a box of chocolates, where there are 100 chocolates. If I eat 10 of them, then we can say that 10% are 'early leavers'. The calculation wouldn't be 10/90 - this would give us 11.1%.

Note that the solutions go on to talk about a more accurate way to calculate exposure too, so important to recognise this clearly implies that the earlier method may not have a high degree of accuracy.

I trust that helps?

Thanks
Aman
ActEd Tutor