Hostname: page-component-586b7cd67f-dsjbd Total loading time: 0 Render date: 2024-11-26T09:31:07.741Z Has data issue: false hasContentIssue false
  • English
  • Français

Pension Funding and Expensing in the Minimum Funding Requirement Environment

Published online by Cambridge University Press:  10 June 2011

P.M. Greenwood  and
T.W. Keogh
P.M. Greenwood
Affiliation:
William M Mercer Ltd, Westgate House, 52 Westgate, Chichester, West Sussex, PO19 3HF, U.K. Tel: +44 (0)1243 522538; Fax: +44 (0)1243 532142; E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The statutory Minimum Funding Requirement (MFR) introduces fundamental change to the funding of pension schemes in the United Kingdom. While only a minority of schemes will actually be affected materially in terms of actual contributions or benefits, taken over a period of years, the influence of MFR will be much more widely felt. This is because the MFR is an absolute standard to be met, whereas long-term funding targets for ongoing schemes are, at least up to a point, optional and adjustable. The paper discusses the difference between MFR and long-term funding and suggests a variation on traditional actuarial methods to control explicitly the risk of MFR failure, based on a combination of traditional methods and the theories underlying asset/liability modelling. The paper also discusses the implications for pension expensing and communication of funding levels.

Keywords

RiskFundingPension SchemesMinimum Funding RequirementConflicts
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 3 , Issue 3 , 01 August 1997 , pp. 497 - 582
Copyright
Copyright © Institute and Faculty of Actuaries 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Accounting Standards Board (1995). Pension costs in the employer's financial statements — discussion paper. Accounting Standards Board.Google Scholar
Collins, A.P. (1992). Funding and solvency levels for pension schemes. Staple Inn Actuarial Society.Google Scholar
Day, J.G. & Mckelvey, K.M. (1964). The treatment of assets in the valuation of a pension fund. J.I.A. 90, 104–147.Google Scholar
Dufresne, D. (1986). The dynamics of pension scheme funding. Ph.D. Thesis, The City University, London.Google Scholar
Dyson, A.C.L. & Exley, C.J. (1995). Pension fund asset valuation and investment. B.A.J. 1, 471–558.Google Scholar
Gllley, D.F. & Funnell, D. (1958). Valuation of pension fund assets. J.S.S. 15, 43.Google Scholar
Government Actuary's Department (1994). Occupational pension schemes 1991, ninth survey by the Government Actuary. HMSO.Google Scholar
Heywood, G. & Lander, M. (1961). Pension fund valuations in modern conditions. J.I.A. 87, 314–370.Google Scholar
Lee, E.M. (1986). An introduction to pension schemes. Institute and Faculty of Actuaries.Google Scholar
Lee, P. (1991). Just how risky are equities over the long term? Staple Inn Actuarial Society.Google Scholar
Lewin, C.G.et al. (1995). Capital projects. B.A.J. 1, 155–250.Google Scholar
McLeish, D.J.D. & Stewart, C.M. (1987). Objectives and methods of funding defined benefit pension schemes. J.I.A. 114, 155–225.Google Scholar
Puckridge, C.E. (1948). The rate of interest which should be employed in the valuation of a pension fund and the values which should be placed on existing investments. J.I.A. 74, 1–30.Google Scholar
Smith, A.D. (1996). How actuaries can use financial economics. B.A.J. 2, 1057–1193.Google Scholar
Thornton, P.N. & Wilson, A.F (1992). A realistic approach to pension funding. J.I.A. 119, 229–312.Google Scholar
Wllkie, A.D. (1986). A stochastic investment model for actuarial use. T.F.A. 39, 341–403.Google Scholar