prmia meeting 16 july 2003 l.
Skip this Video
Loading SlideShow in 5 Seconds..
PRMIA Meeting 16 July 2003 PowerPoint Presentation
Download Presentation
PRMIA Meeting 16 July 2003

Loading in 2 Seconds...

play fullscreen
1 / 20

PRMIA Meeting 16 July 2003 - PowerPoint PPT Presentation

  • Uploaded on

abcd. PRMIA Meeting 16 July 2003 . Liability Benchmark Portfolio The relationship between Pension assets and liabilities Institute/Faculty Working Party.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'PRMIA Meeting 16 July 2003' - sileas

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
prmia meeting 16 july 2003


PRMIA Meeting16 July 2003

Liability Benchmark PortfolioThe relationship between Pension assets and liabilitiesInstitute/Faculty Working Party

terms of reference
To address and make recommendations to the Myners/Sandler Steering Group on the contents of a briefing document for trustees and sponsors on the relationship between pension fund assets and liabilities.Terms of reference
assets and liabilities

majority traded therefore market prices



benefit payments in the future

these are a series of cashflows

Assets and Liabilities
what liabilities to consider
Pension entitlement for a member is based on

service to date

current salary

including statutory revaluation, and increases

exclude discretionary payments

Present value of the accrued liabilities are a measure of their “fair value”

Liabilities are not traded so we need a proxy

the Liability Benchmark Portfolio (LBP)

What liabilities to consider
what is the lbp
Liability benchmark portfolio is

the portfolio of assets such that, in the absence of future contributions, benefit accrual or random fluctuations around demographic assumptions, the scheme maintains its current solvency level (the ratio of assets to liabilities) as economic conditions change.

What is the LBP?

As at 1 January 2003

PV = £175m

technical details
Pension liabilities are too long

duration is important

Liabilities’ link to inflation (cap of 5% and floor of 0%)

these are embedded options

influences the proportion of FI and IL in the LBP

Yield curves are not flat

Technical details
limitations of the lbp
needs to be dynamic – changes with economic conditions

Does not capture demographic changes

No allowance for the benefit outgoes and contributions paid

Limitations of the LBP
  • Regular re-estimation mitigates these risks
mis interpretations
Pensions are identical to corporate debt

not (usually) traded,


term of the liabilities,

issuance, and redemption,

Pensions are 100% guaranteed - No


works for any solvency level

Investment strategy

Trustees’ decision

Time horizons


Pensions are still


11 th june white paper
“Debt on the employer” is the full buy-out cost

Clarifies the nature of the pension promise

Pension Protection fund

Cost estimated at £340-375m

Premiums based in flat levy and “risk-based” premium

11th June – White Paper
A practical way of understanding the relation between pension scheme assets and liabilities


standard financial techniques

some actuaries already use similar approaches

educational tool for better informed decision making

…consistent with Myners

prmia meeting 16 july 200320


PRMIA Meeting16 July 2003

Liability Benchmark PortfolioThe relationship between Pension assets and liabilitiesInstitute/Faculty Working Party