Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-16T21:40:58.796Z Has data issue: false hasContentIssue false
  • English
  • Français

Meeting defined benefit pension obligations: measurement, risk and flight paths

Published online by Cambridge University Press:  28 November 2012

J. Hatchett ,
M. Hurd  and
I. Clacher
Get access Rights & Permissions [Opens in a new window]

Abstract

The UK defined benefit pension scheme landscape has changed dramatically over the last few decades. During this period of change, conflicting views regarding the measurement of both assets and liabilities has made communication challenging. In turn, this has led to an under appreciation of risk and often suboptimal decision making. This paper seeks to draw together a variety of contrasting views to provide a coherent framework for stakeholders to meet pension scheme obligations over time.

The proposed framework encourages agreement between both scheme sponsors and trustees towards a common target through a well articulated plan or “flight path”. In addition, the proposed flight path structure provides a common basis underpinning the measurement of both pension obligations and the risks inherent in any plan to meet those obligations.

Keywords

UK defined benefit pension schemecommunicationriskframeworkscheme sponsorsscheme trusteesmeasurementobligations.
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 18 , Issue 2 , July 2013 , pp. 271 - 307
Copyright
Copyright © Institute and Faculty of Actuaries 2012 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Baxter, M., Rennie, A. (1996). Financial Calculus: An Introduction to Derivative Pricing. Cambridge University Press.CrossRefGoogle Scholar
Black, F., Scholes, M. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 3, 637–654.Google Scholar
Carne, S. (2004). Being Actuarial with the Truth: A Story of Economic Confusion over Defined Benefit Pension Schemes. Presentation to The Staple Inn Actuarial Society, 31 August 2004. Available at: http://www.sias.org.uk/siaspapers/listofpapers/view_paper?id=ActuarialTruthGoogle Scholar
Clacher, I., Hillier, D., Hurd, M. (2011). Defined Benefit Pension Plan Funding and Corporate Value. University of Leeds. Unpublished Working Paper.Google Scholar
Cowling, C. A., Frankland, R., Hails, R. T. G., Kemp, M. H. D., Loseby, R. L., Orr, J. B., Smith, A. D. (2011). Developing a Framework for the use of Discount Rates in Actuarial Work. British Actuarial Journal, 17, 153–211.Google Scholar
Cowling, C. A., Gordon, T. J., Speed, C. A. (2005). Funding Defined Benefit Pension Schemes. British Actuarial Journal, 11, 63–97.Google Scholar
Exley, J. C., Mehta, S. J. B., Smith, A. D. (1997). The Financial Theory of Defined Benefit Pension Schemes. British Actuarial Journal, 3, 835–938.Google Scholar
Harrod, R. F. (1951). Notes on Trade Cycle Theory. Economic Journal, 242, 261–275.CrossRefGoogle Scholar
Hatchett, J., Bowie, D., Forrester, N. (2010). Risk Management for DB Pension Funds. Paper presented to the Staple Inn Actuarial Society, 26 October 2010. Available at: http://www.sias.org.uk/view_meeting?id=October2010Google Scholar
Henderson, J. (2009). Independent Trustee Service vs. Hope and Others, EWHC 2810 (Ch), Chancery Division of the High Court.Google Scholar
Hull, J. C. (1996). Options, Futures and Other Derivatives. FT Prentice Hall.Google Scholar
Kahneman, D., Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 2, 263–291.Google Scholar
Kemp, M. H. D., Patel, C. (2011). Entity-wide Risk Management for Pension Funds. British Actuarial Journal, 17, 331–394.Google Scholar
Knight, F. H. (1921). Risk, Uncertainty and Profit. Cosimo Classics.Google Scholar
LeRoy, S. F., Singell, L. D. (1987). Knight on Risk and Uncertainty. Journal of Political Economy, 2, 394–406.Google Scholar
Lo, A. W., Mueller, M. T. (2010). Warning: Physics Envy May be Hazardous to Your Wealth! http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1563882Google Scholar
McNeil, A. J., Frey, R., Embrechts, P. (2005). Quantitative Risk Management: Concepts, Techniques and Tools. Princeton University Press.Google Scholar
Miller, M. (1997). Merton Miller on Derivatives. John Wiley & Sons.Google Scholar
Patel, C., Daykin, C. (2010). Actuaries and Discount rates; A Discussion. Discussion paper, The Actuarial Profession. Available at: http://www.actuaries.org.uk/research-and-resources/documents/actuaries-and-discount-rates-discussionGoogle Scholar
The Pensions Act (2004). HMSO, London.Google Scholar
Savage, L. J. (1967). Difficulties in the Theory of Personal Probability. Philosophy of Science, 4, 305–310.Google Scholar
Sutcliffe, C. (2004). Pension Scheme Asset Allocation with Taxation Arbitrage, Risk Sharing and Default Insurance. British Actuarial Journal, 5, 1111–1131.Google Scholar
Sutcliffe, C. (2005). The cult of the equity for pension funds: should it get the boot? Journal of Pension Economics and Finance, 1, 57–85.CrossRefGoogle Scholar
The Occupational Pension Schemes (Scheme Funding) Regulations (2005). http://www.legislation.gov.uk/uksi/2005/3377/schedule/4/madeGoogle Scholar
The Pensions Regulator's Codes of Practice, http://www.thepensionsregulator.gov.uk/doc-library/codes.aspxGoogle Scholar
The Purple Book (2010). The Pensions Regulator, Brighton. http://www.thepensionsregulator.gov.uk/docs/purple-book-2010.pdfGoogle Scholar