1. MTH5124 Actuarial Mathematics I 12 December 2017
Pension Deficits
MTH5124 Actuarial Mathematics I
12 December 2017

2. https://www. theguardian
The Guardian, 25/8/2017

3. WHAT IS A PENSION DEFICIT?
“A 'scheme deficit' occurs when a salary-related pension scheme does not have enough assets to pay for all its future possible liabilities.
Either:
the employer will have to make additional payments to make up the deficit; or
the trustees will have to find some other way of reducing the deficit such as cutting benefits, increasing member contributions, or even closing the scheme for future accrual.”

4. BT Market Capitalisation (11/12/17) £27bn
Size of Pension Fund (per article) £50bn
Telegraph On-line, 27th May 2017

6. PENSION COSTS HAVE BEEN INCREASING FOR A LONG TIME
Why?
What factors have contributed to this?
The economy/social improvements
The Government
Accountants
Employers & Unions
Actuaries…(surely not)

7. THE ECONOMY & SOCIAL IMPROVEMENTS
Ultra low interest rates
Low inflation
Supply of index-linked bonds/long bonds
Lower equity returns
Improving longevity
Social attitudes; eg same sex partners

8. GOVERNMENT LEGISLATION
To improve security for employees pensions, the Government has introduced:
Preservation (1973)
Revaluation for early leavers (1985)
Minimum funding requirement (1995)
+extra tax for pension funds (Brown, 1997)

9. ACCOUNTANTS Pension accounting standards since 1998
Deficits disclosed and on balance sheets
Is accounting basis too conservative?

10. EMPLOYERS & UNIONS Reluctance to address issues
Optimistic view of the future – taking too much risk
Senior managers are usually the biggest beneficiaries

11. ACTUARIES Over optimistic assumptions
Not addressing risk issues early enough
Slow to recognise trends – eg improving longevity
Senior managers are usually the biggest beneficiaries

12. https://www. ftadviser
FT Advisor, 19/11/2017