ERM for Pension Funds [36]

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Bullet points include: Question: What proportion of asset returns accrue to beneficiaries? Initial funding level increased by 1% but otherwise example unchanged (e.g. trustees’ target funding level remains 100%) Answer: Depends on riskiness of sponsor covenant, but often not much Consistent with insight that assets within pension fund can be thought of as akin to ‘collateral’ backing a bond-like liability (issued by sponsor to beneficiaries) N.B. Importance of assumed recovery rates, correlations, discretionary benefits etc. Change in benefit value if initial funding level is 101% Market implied spread on sponsor obligations Active Deferred Pensioner  / spouse

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