The Actuarial Conditions for the Valuation of Pension Liability to Become Zero Under Minimum Funding Standard Architecture

Abstract

Pension  valuation  exercises  for  a  defined  benefit  scheme  requires  an  appraisal  of  both  the  schemes  assets  and  its  liabilities  in  different  circumstances.  The  valuations  are  required  to  comply  with  regulatory standards, most notably the minimum funding standard. The objectives of this study are: (i) to compute  the  estimate  of  minimum  funding  standard  of  pension  liability  (ii)  to  establish  the  actuarial  condition under which minimum funding standard liability will be zero. This study used minimum funding standard  models  for  the  computations  of  accruing  liabilities  for  the  current  and  past  service  liability  of  employees. Data in respects of different categories of employees were collected over 36 employees from a going  concern  located  in  Jos  South  local  government  of  Plateau  State  in  Nigeria.  The  data  includes  the  employee’s annual salary and their respective demographic data which includes sex, date of birth, date of employment.  This  was  used  to  determine  the  number  of  years  of  pensionable  service  completed  and  the  future years of services to be completed before retirement at the age of 65 years. The study also used life annuity  table  to  compute  the  service  liability  of  each  member  of  the  scheme.  From  the  model  used,  the  result  shows  that  the  total  service  liability  of  the  plan  will  be  vanishingly  zero  when  the  newly  defined  annuity  component  approaches  zero  hence  this  represents  the  condition  for  liability  of  the  plan  to  the  members to be zero.