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FRS17/IAS19 SensitivitiesJPR TRUSTEE SERVICES LIMITED
Who is this presentation for?Directors of businesses who sponsor a defined benefit (DB) pension scheme Directors (or equivalent) of businesses or organisations who employ people who have DB pension rights from that employment Trustees of DB pension schemesAuditors of businesses with DB liabilities
The actuarial valuation: knowledge and understandingIt takes many years of training to become an ActuaryTrustees and directors are not expected to be expertsTrustees are expected to have knowledge and understandingThe 4 box method is a simple representation of an actuarial calculationUse:Deferred memberSimplifies the exampleConsider long term liabilities as this highlights key sensitivities
4 box method: our memberOur deferred member:Age45MarriedSpouse 3 years youngerAccrued pension10,000 paNormal Retirement Age65
4 box method: 3 Core assumptionsLife expectancy Male age 65: 23 years + 6 years spouses pension Inflation:Market Implied Inflation3.50%RPI3.20%CPI2.20%Discount Rate (Return)4.70%
4 box method: calculating the liability
4 box method: increase return to 5.0%
4 box method: calculating the liability
4 box method: decrease inflation by 0.2%
4 box method: calculating the liability
4 box method: decrease life expectancy by 1
4 box method: calculating the liability
4 box method: all 3
6 things to rememberBest estimateAuditorsDirectorsLife expectancyInflationDiscount rate
