Question 8.23 Part 8 - (iii)

[ST6_aspirant]

Hi,
The question is list the sources of surplus or deficit of a final pension salary scheme.

One of the points is marital statistics experience

What does this mean and how does it impact?

 

[Bidza]

Pension liabilities depend on the nature of pension (annuity type) benefit payable. In most cases, pension payments will continue to a spouse after the death of the main member(if the spouse outlives them). So married members would be expected to receive payments for longer as the pension continues to be paid to the spouse. For single members, the pension payments would cease when the member dies. You would expect a married member of the same age and getting the same pension to have a higher liability than a single member.

When valuing pension funds, you make an assumption on the proportion of the membership that is married(e.g. 90%). So if the actual proportion for a given cohort was ,lets say 80%(implying that there are more single members), then that would imply that we were holding a higher value than we actually should have and would result in a release of surplus.

 

[ST6_aspirant]

Understood, thanks Bidza.
Only that I would expect that such data can be captured at the time of entering the scheme, and hence we would not, in reality, need to make an assumption regarding the same.