Please explain how does it make sense for the difference between annual Capital management charge and annual accumulation management charge to be used to calculate the actuarial funding factor? I know there are solutions on this discussion forum in this regard but I unfortunately don't understand them.
I am aware of the syllabus changes but I just wanted to know about Actuarial funding for my own interest. Thanks anyway.
We want charges to emerge over time to pay our on-going expenses (if they don't we'd have to hold a non-unit reserve to cover them). AF takes advanced credit for future charges - so they are recognised now rather than later on (to pay for our initial expense). We might consider the charge on accumulation units to be our "normal" charge to pay renewal expenses. We only take advanced credit for the additional capital unit charge so that this normal charge is left behind to emerge over time (to pay for those on-going expenses).
