Page 100 - Group Insurance and Retirement Benefit IC 83 E- Book

Age Salary Pension Rate of Rate of

GO GO future future annual
annual accrual

accrual (% of salary)

25 5 0 0 2 0 0 5.o I.O
3 0 6 0 0 2 4 0 6.1 1.0

35 750 3 0 0 8.1 1.1
4 0 9 0 0 360 1 0 . 5 1.2

45 1100 440 14.5 1.3
50 1400 560 22.5

55 1700 680 34.5

60 2000 8 0 0 58.5

The pattern emerging, when superimposed on the pattern of future cost of an Annual

Premium graded scheme, will inevitably produce an eventual rise in cost in terms of
pensionable salaries.

How soon this will become apparent to an embarrassing degree will depend on the age

distribution of the members (the effect is most marked in respect of the older employees
with long service) and the extent to which the trend is masked by an initial past service

liability, the cost of which will steadily diminish if calculated on the Annual Premium

basis. Except for small groups, for which projections are particularly unreliable, Annual
Premium costing is not a satisfactory method of costing final salary schemes. The

inflation of recent years has served to underline this conclusion.

The Basic Principle

The inflexibility of the two future service costing methods so far considered is due to

each member's present position being considered and his benefits purchased individually.
For this reason they are unable to take account of future trends which will affect the

membership as a whole. What is required to overcome this difficulty is a costing method
in which the calculation of the premium to be paid by the employer in respect of the