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Assumptions - Coggle Diagram
Assumptions
Demographic parameters
Ill-health early retirement rates
Withdrawal
Retirement rates (normal, early and late)
New entrants
Mortality improvements
Promotional scale
Mortality base table
Family statistics (existence and age of spouse and children)
Take up rate (and terms) for taking cash and other options
Economic parameters
Earnings inflation
Deferred revaluation
Price inflation
Pension increases (guaranteed and discretionary)
Discount rate
State benefit inflation
Investment return
Expenses and expense inflation
Using data to set assumptions
Government forecasts
Central bank targets
Current market statistics
Historical market statistics (e.g. past values of an index)
Industry tables/ projections
Results of models
Historical national and scheme statistics
Information from the scheme sponsor
Limitations of past data
Changes in the way in which the data was recorded
Potential errors in the data
Random fluctuations
Changes in the balance of any homogeneous groups underlying the data
Changes of the experience with time
Heterogeneity with the group to which the assumptions are to relate.
Abnormal fluctuations
Factors when determining assumptions
Purpose/ objectives
Overall level of prudence desiired
Scheme characteristics
Sponsor covenant and nature of the business
Investment policy
Membership profile and numbers
Benefit structure
Consistency
Compliance with legislation and guidance
3 stage process for determining mortality assumption
Update the base table to the date of valuation
Project the adjusted base tables into the future with application of improvement factors
Select an appropriate base table (perhaps with a scaling factor)
Significance of assumptions