Brief guide to actuarial valuation

Publication date: 08/03/2019 14:59:14

What is an actuary?

In a nutshell, an actuary is a business professional who analyses the financial effects of risk. Actuaries use mathematics, statistics, and financial theory to study the uncertainty of future events. 

What is an actuarial valuation?

This is an investigation by an actuary, in our case Mercer, to evaluate whether the fund's assets are sufficient in meeting the fund's liabilities.

The valuation examines scheme membership by type, assesses the fund’s financial position, and sets out the assumptions for future inflation and investment returns. By assessing the funding level of each participating employer, the actuary and the fund agree the employer contribution rates for each employing body for the next three years.

Why do we do a valuation?

It is a statutory requirement that must be undertaken every three years. It is also a way of monitoring and reviewing assets against pension benefits earned to date and whether there is surplus or deficit. The main aim of the valuation is to assess whether the fund has enough assets to pay benefits when they are due. Following the valuation a report is put together. You may wish to view previous valuation reports on the Actuarial valuation page on our website.

As mentioned above, the data you provide the fund is crucial in the calculation performed by the actuary. If this is inaccurate it could affect the results of the valuation. Also, if you are aware of any large (or significant for your organisation) staff restructures or pay awards, please let us know so this can be factored in to the valuation by the actuary.

What is the timetable for the valuation and when will the valuation results be available?

The fund is starting to undertake preliminary meetings with the actuary now. All data received by you is thoroughly checked and is submitted to the actuary in June. Initial results will be available at the employer meeting in November 2019. It is essential that the finance representative for your organisation attends this meeting.