Question

The status of pension funding (i.e., over- vs. under-funded) depends heavily on the choice of a discount rate. When actuaries are choosing the appropriate rate, should they give greater priority to future pension recipients, management, or shareholders?

Answer 1

Pension fund is one of the most important funds or corpus. It is suggested to invest so that after retirement a steady and regular income can be made. It is directly related with the social benefit that an individual get after retirement.

The actuaries is the important person in the management of the fund as he calculates the risk and premium accordingly. He should give greater priority to recipients, management and shareholders etc. If the recipients ae in goof health condition after their retirement then there will be more funds required to distribute for the longer period of time. This will create unnecessary burden on the company itself. In this case, variable discount rate can be used to reflect those higher cash outflow. The management say can be considered in the decision as they decide the fate of the organisation. They should be informed about any expected event. The shareholders is the ultimate beneficiary in the company so their wealth should be maximisd at the appropirate level. Any decison affect the shareholders wealth so they can be taken into the consideration.

So, an actuaries should think from larger prespective such as using the discount rate, recipients, shareholders etc.