In this paper, we aim to demonstrate the continuing usefulness, despite many recent attacks, of the commutation function in pension fund work. To do this we take the offensive and show how the range of the function can be extended to provide factors suitable for the N-Year discontinuance valuation. In such a valuation, by contrast to the more usual aggregate method, it is assumed that the fund will be voluntarily wound up after the passage of the given period of years. The normal result of such a step will be to slacken the recommended pace of funding, at least in the immediately future years.

What may be said to be the point of so doing? By having at his fingertips N-year as well as aggregate-type functions, the actuary will add a further dimension to his possible choice of valuation basis. The dimension may be thought of as his ‘horizon’ on those future events which affect the payment of benefit under the Scheme. The use of such an horizon as an element of the basis is likely to have particular relevance in an era of high inflation and negative real returns on fund investments.

The aims of this paper are twofold:

(a) To act as a guide to the basic mathematics and methods of simulation which might be useful to actuaries.

(b) To describe how simulation techniques might be used by actuaries, to promote a discussion about whether the suggested approaches are worth pursuing and to encourage people to suggest other possible actuarial uses for simulation.

Section 2 of the paper outlines the general methodology of simulation and serves as a guide to those appendices of the paper where some technical details are given.

Section 3 of the paper considers various actuarial problems and discusses how simulation methods might be applied to them. We have not worked on all the problems described in this section ourselves. The intention is partly to suggest problems that could be tackled by simulation and to consider whether this approach is worthwhile.

Most pension schemes, today, provide benefits linked to a member's final pay, partly as a result of the recognition of the effects of growing inflation in the 1960's and early 1970's on career average and grade table schemes. Since 1970, earnings inflation has averaged around 14% per annum, and at this rate earnings double every five years. Over the same period the overall return on U.K. ordinary shares has been of the order of 15% per annum.

The growth of pension funds, partly from the effects of earnings inflation on contributions and partly from the effects of higher investment returns, has been phenomenal; to such an extent that the assets of the larger pension funds are now often comparable with the total stock market capitalisation of their sponsors.

Most professional people have some idea of the job done by the Stock Exchange, but probably only those actually involved in the management of investments know the range of services which are provided by stockbrokers. The aim of this paper is to give a brief insight into these services, and to take a look at some aspects of stock exchange activities in more detail.

The first section of the paper covers the basic service of a stockbroker, that of buying or selling stock, or executing switches. This is followed by a brief description of settlement systems, and some of the other services that stockbrokers provide are then described. The final two sections cover more general questions about the operation of the Stock Exchange.