Actuarial Funding Principles

Defined benefit pension schemes require the advice of an actuary on funding issues and there are statutory requirements to obtain actuarial reports and certificates from time to time. In particular the contribution rate which will be just sufficient to provide the defined benefits cannot be known in advance. The rate can only be estimated on the basis of actuarial assumptions.

Events inevitably unfold differently from the actuary's assumptions. Having made past estimates and advised the employer and trustees of the amount of contributions which should be adequate to provide the benefits the actuary then needs to re-examine the funding position periodically. He tests the experience of previous years against his earlier assumptions reviews...