Hi, The question is list the sources of surplus or deficit of a final pension salary scheme. Now, one of the points is pension increases. I did not quite understand this. How will pension increase impact a final salary pension scheme. Is it supposed to impact it? How? And how are the two pensions related?
A final salary scheme can have members who are receiving pensions. The liability for these pensioners depends on the pensions they currently receive and any increases we expect them to receive in the future. if the increases they actually receive are lower than the ones allowed for in the valuation assumptions, this will lead to them having a lower liability value(and therefore a release of surplus).
Indeed. Think about non guaranteed rates of interest rather than say known increases of x%. So if increases or lower of inflation and y% then there is an uncertainty element around inflation. Or the granting of discretionary increase.
Thanks Bidza, I understand now. Hi bystander, I didnt quite understand what you said here: "So if increases or lower of inflation and y%"
