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Q&A Bank 3.3

S

Sid Dagore

Member
Hi!

I wonder if someone could please explain to me how on earth the 2nd draft could possibly be considered better than the first?!?!?

The question seemingly clearly asked for the factors involved in a pensioners choice of either an index-linked or level annuity. What sense does it make to say that one of the factors is inflation?

I can't imagine that an average layperson would have any idea of inflation is likely to be in the next several years - this just seems unreasonable. Wouldn't a much better solution have dealt with the pensioner's perception of his own life expectancy, and figured inflation into that?

Thanks,
Sid.
 
This is the most backward and perverse exam of them all. Don't be surprised by the stupidity and pointlessness of answers.

Afterall, how many of you have ever had to write to a policyholder, draft a letter for a policyholder, or write a friend giving them financial advice?
 
It's all uncertain

I suppose you could say that we haven't a clue which pension to choose because we don't know future inflation and we don't know how long we're going to live! All we can say is that the index-linked pension and the level pension will have the same PV, ie will pay out the same, if the company's assumption of inflation is correct and we live the "expected number of years".

I think the second memo makes it very clear that both of these factors are uncertain and points out that we'll win with an index-linked pension if inflation is higher than expected and we live longer than expected. I expect we're just supposed to spell out these points to the marketing manager.
 
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