The effect of inflation on pension schemes and their funding

Document description

The paper deals with the problem caused by inflation in pension scheme funding. It considers the question of whether or not it makes sense to fund in advance in the inflationary conditions prevalent in the UK and USA in the post war period. It goes on to consider how various methods of financing pension schemes cope with inflation. It identifies one of the main problems of advance funding as the way in which it has been used to deal with post retirement pension increases. The authors suggest a new approach. The authors go on to suggest a consistent method of valuing final salary pension schemes. This method enables the actuary to use valuation assumptions which do not demand choosing an absolute level of salary increases or rate of inflation.