Past paper Apr 2018 Q7

Discussion in 'SP2' started by Kiran, Feb 15, 2022.

  1. Kiran

    Kiran Keen member

    Hi,
    Im not really sure how the prospective and the retrospective methods relate to the scenario in the question, i.e. using a deferred annuity.

    Are we assuming the retrospective is that premiums paid up to the point the transfer value is requested, despite the retirement date being in the future.

    Likewise would the prospective transfer value be the PV of the payments on the annuity that the policy wishes to have?

    Regards

    Kiran
     
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Kiran

    The same basic principles apply regardless of the type of contract.

    A retrospective valuation looks at the accumulated value of the cashflows from the past (so the past premiums less past expenses less past claims, although there won't be any claims yet for a deferred annuity if the policyholder is yet to retire). A prospective valuation looks at the present value of future cashflows (so future benefits and future expenses less future premiums, although there won't be any future premiums for a single premium contract and all the benefits will be in the future if the policyholder is yet to retire).

    Best wishes

    Mark
     

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