Ch22 pg2

[Snowy]

1) What are cautious assumptions for calculating the terms for members commuting part of their pension for a lump sum?
eg in terms of mortality etc.

2) pg 14 then says:
"prudent funding basis gives generous commutation terms" - what does this mean?

3) Then it says that a prudent basis is expected to give a surplus in the long run - is this the same prudent basis above (high or low mortality?)

4) on another note: who should have higher commutation factors - men or women?

 

[Gresham Arnold]

1) A cautious approach to calculating the terms for commutation would aim to give members a relatively low cash sum for each £1 of pension given up. So we would assume a high rate of mortality.

2) A prudent funding basis would lead to a high value on a pension. So if this (high) value were paid out as a cash sum it would appear pretty generous.

3) This is the prudent funding basis.

4) Women tend to outlive men. So it tends to cost more to pay a £1 of pension for life to a female member than a male member. If this were reflected in the cash commutation terms then we would have higher commutation factors for women than men.