Assumptions

[Snowy]

1) How is the discount rate affected if a scheme has insured assets?

2) Why is the gap in assumptions critical for DC schemes too?

 

[Gresham Arnold]

1) I assume you mean insured benefits?

Hard to say definitively how insurance will affect the discount rate, but the high-level principles are that if a scheme has insured some of its benefits/liabilities it will want to either:

i) exclude both the insured benefits and the insurance policy from the liabilities and assets respectively

ii) include the insurance policy as an asset and ensure that the benefts that are insured have the same value (in the liabilities) as the asset.

2) Assumptions may be used to, for example:

- determine the structure of the contribution rates that will be paid to the scheme

- project the benefits the member receives.

The gap in the assumptions will affect the figures that result from these calculations.