Further Thoughts on Long-term Rates of Interest in the Valuation of a Pension Fund.

Daykin (1976) suggested a method of evaluating the rate of return achieved over a past period which did not depend directly on the market value at the end of the period in question. This was intended to avoid the volatility in the results of an assessment based on market values and sought to give a more reliable indication of the underlying rate of return which had been achieved. If the general problem in relation to equities is considered, an investment of 1 at the beginning of year M will roll up with reinvestment of dividends to give an accumulated investment, XN , at the end of year N, in terms of ‘units’ in an index P, of: (1)

The Effects of Solvency Margins on U.K. Life Companies.

The requirement for a United Kingdom life office to hold solvency margins in addition to its normal actuarial reserves took full effect on 15 March 1984. At the time of writing, solvency margins for U.K. life offices have therefore had an effective life of under two years. Before the introduction of the regulations, many comments were made within the life insurance industry about the effects which the introduction of the life solvency margins would have on the financial position of U.K. life offices. This therefore seems an appropriate time to reflect on the theoretical financial consequences of solvency margins from the point of view of a U.K. life company, and comment on the practical effects which have been observed to date.

Pension Schemes and Early Retirement.

An actuary has two major responsibilities in respect of a fully functional pension scheme: (i) To perform (and report on) periodic actuarial investigations; these have the dual purpose of confirming the security of the members' accumulated benefits and of determining, with the agreement of the employers, an appropriate scheme of funding; (ii) To provide tables for application to early leaver benefits for the determination of alternative options. Much has been written on the first of these functions and I expand on this only to a limited extent in §2. This paper addresses itself more to the practical implications of the second of them and, in particular, to the early retirement option.

Pension Fund Performance Measurement—the Way Ahead?.

In the last ten years Staple Inn has played host to two major discussions on performance measurement. In November 1976, Holbrook's definitive paper to the Institute set out in some detail the theoretical basis of performance measurement while in January 1980 Hager's paper to the Student's Society gave a detailed view of performance measurement in practice. Between them the two papers provide a fairly comprehensive description of what was, even in 1980, a relatively novel science for many U.K. pension funds. At the time of writing the majority of large- and medium-sized directly invested pension funds have their investment performance measured. Yet even after fifteen years of performance measurement in the U.K. some of the fundamentals of performance measurement are questioned and even disputed by a sizeable proportion of actuaries—for example in his March 1985 paper to the Faculty of Actuaries Marshall states, “This must call in question the validity of its (the Time Weighted Rate of Return) use for comparative purposes”.

The Effect of Demographic Factors and Indexation on the Long term Financing of the State Earnings-Related Pension Scheme.

In September 1974 Barbara Castle published her proposals for a new earnings-related State pension scheme in her White Paper “Better Pensions”. This followed a succession of attempts by previous Secretaries of State for Social Services to change State pension arrangements radically. Unlike the ill-fated Crossman and Joseph schemes, however, the Castle scheme succeeded both in reaching the statute book and in coming into operation. A Bill was introduced in February 1975 and on 7 August 1975 the Social Security Pensions Act 1975 received the Royal Assent. The State earnings-related pension scheme (SERPS) came into operation on 6 April 1978. It provided State pensions related to earnings, but also offered to employers with good occupational pension schemes the possibility of ‘contracting-out’ and providing equivalent or better earnings-related benefits through their own scheme.