| dc.description.abstract | Defined benefit pension schemes are pension schemes in which pension benefits payable
at retirement are determined using a pre-defined formula contained in the schemes’ trust
deed and rules. The pension benefit formula is usually a multiple of a pension accrual
factor, years of service and final salary as defined by the scheme rules.
The responsibility of the liability of these schemes solely lies with the sponsor who is
required to set aside funds usually by way of regular contributions into a designated fund
to meet the anticipated future benefit payments. It is therefore critical that the sponsor
adopts an appropriate actuarial funding method that will result to the remittance of
sufficient contributions in a manner not detrimental to normal business operations.
Four main actuarial methods of funding pension schemes have been developed to
calculate an appropriate pattern of contributions to meet the expected future benefit
payments. These methods are:
1. The Attained Age Method (AAM)
2. The Entry Age Method (EAM)
3. The Projected Unit Method (PUM)
4. The Current Unit Method (CUM)
The only difference in these funding methods is the timing of contributions but the
overall long term cost of the scheme is the same.
The choice of any of the methods to form basis of funding a scheme takes into account
the following major factors: stability, security, flexibility and realism.
This project examines and analyses the four funding methods, applies them to a model
pension scheme and evaluates the results thus obtained to the extent to which they satisfy
the factors of stability, security, flexibility and realism. | en_US |
