Mistake in Worked Example 1 Audit Trail?

[Eleanor Cawston]

On Page 19 of Chapter 9 in the notes, one of the entries under "CHECKS" does not make sense to me:

"The check below the Fund Value at Retirement column uses an AND function to ensure hat the values of the fund increase down the column, ie with increasing age, as there is longer for the fund to be invested and grow with investment returns. For Scenario 3, this check does not hold as the investment income is high, and this outweighs the benefit of the higher starting fund value at older ages."

I think the statement in bold is a mistake: older people have less time to retirement and so less time for the value to increase due to investment returns. The following justification for why it doesn't hold for Scenario 3 contains the correct explanation, no? The difference in the initial fund values is huge compared to the difference in the investment return factor when assuming only 4% pa growth.

 

[Lucy England]

Hi Eleanor,

Thank you for pointing this out. I agree with you - the Fund Value at Retirement column should increase as ages increase because the starting fund value is larger at higher ages, not because there is a longer time for investment returns to accumulate. I also agree with you about Scenario 3.

I will get the Corrections Document updated and will also make a note to correct this in future versions of the Course Notes.

EDIT: Just discussed this with another tutor - the current wording is saying that 'with increasing age, there will have been a longer time for past contributions to be invested and grow with investment returns'. What we'll do is tweak the wording in the Notes in future versions so it's clearer and less open to different interpretations!

Thanks
Lucy