Under GN 465, a 'high degree of probability' that a superannuation fund will be able to pay its defined benefit pensions should be interpreted as a probability of at least 70%. GN 465 states that a complete analysis for computing the probability involves a projection of certain factors including inflation, investment returns, expenses, and mortality. Regarding the variability that arises from one of these factors, mortality, Leung (2002) derives an approximation formula to calculate the variance of the present value of a pension, in which mortality risk is allowed for. This paper is an extension of Leung (2002), in which we have derived some formulae to accommodate both investment risk and mortality risk. Two examples are provided to demonstrate the use of the formulae. The proofs of the formulae are set out in the appendix.
|Number of pages||18|
|Journal||Australian Actuarial Journal|
|Publication status||Published - Jan 2007|