FRS17/IAS19 Sensitivities

1. FRS17/IAS19 Sensitivities JPR TRUSTEE SERVICES LIMITED

2. Who is this presentation for? • Directors of businesses who sponsor a defined benefit (DB) pension scheme • Directors (or equivalent) of businesses or organisations who employ people who have DB pension rights from that employment • Trustees of DB pension schemes • Auditors of businesses with DB liabilities

3. The actuarial valuation: knowledge and understanding • It takes many years of training to become an Actuary • Trustees and directors are not expected to be experts • Trustees are expected to have ‘knowledge and understanding’ • The ‘4 box method’ is a simple representation of an actuarial calculation • Use: • Deferred member • Simplifies the example • Consider long term liabilities as this highlights key sensitivities

4. 4 box method: our member • Our deferred member: • Age 45 • Married Spouse 3 years younger • Accrued pension £10,000 pa • Normal Retirement Age 65

5. 4 box method: 3 Core assumptions • Life expectancy Male age 65: 23 years + 6 years spouses pension • Inflation: • Market Implied Inflation 3.50% • RPI 3.20% • CPI 2.20% • Discount Rate (Return) 4.70%

6. 4 box method: calculating the liability

7. 4 box method: increase return to 5.0%

8. 4 box method: calculating the liability

9. 4 box method: decrease inflation by 0.2%

10. 4 box method: calculating the liability

11. 4 box method: decrease life expectancy by 1

12. 4 box method: calculating the liability

13. 4 box method: all 3

14. 6 things to remember • Best estimate • Auditors • Directors • Life expectancy • Inflation • Discount rate

15. jonathan@jprts.com www.jprts.com