Actuarial Matters

Ensuring that the Fund can continue to pay benefits over the long-term is of primary importance to the Board, clients and wider stakeholders.  Like most other defined benefit pension plans, the Fund’s solvency is monitored through two key studies:

  • A biennial actuarial valuation
  • An asset-liability management (ALM) study, which is usually carried out every four years

These studies and other actuarial matters in the Fund are supported by the Committee of Actuaries, comprising an international group of independent volunteer actuaries, with actuarial services provided by the Consulting Actuary, as set out in the Fund’s Regulations.

Actuarial Valuation

The Fund’s actuarial valuation is undertaken using various economic and demographic assumptions to model the future and associated uncertainties.  This values current and future liabilities, for comparison against current and projected assets.

The actuarial valuation considers the Fund from different perspectives, including:

  • An open group valuation: Assumes the Fund would be run into perpetuity with a continuous influx of new participants. The key metric from this valuation is the required contribution rate, which is the theoretical contribution rate that maintains a balance between liabilities and assets over the long term.  This is the primary measure for the overall health of the Fund in remaining open to existing and new participants.
  • A closed group valuation: Assumes that the Fund is closed immediately. In common with many national pension fund regulations, this is a valuation that is required under the Fund’s own Regulations. The key metric from this valuation is the funded ratio and provides a view of the Fund’s ability to meet its obligations if it were to be closed to all participants.

With liabilities extending over an average of 40 years into the future, it is also important to note that the actuarial valuation takes a long-term view of the Fund’s assets.  Short term market fluctuations in assets are smoothed.  This minimises the risk of the long-term assessment being distorted by short-term capital market movements (both up and down) that should not impact the Fund’s ability to meet its obligations.

Recent actuarial valuation results

Open group valuation: The 2021 actuarial valuation resulted in a required contribution rate of 21.4% of pensionable remuneration, which compared against the current actual contribution rate of 23.7%, equated to an actuarial surplus of 2.3% of pensionable remuneration.  The following diagram shows recent historical results.

Closed group valuation: The 2021 valuation resulted in a closed book valuation of US$70,873.8 million in accrued benefit liabilities, as compared with an actuarial value of assets of US$82,911.7 million. This equates to a funded ratio of 117.0%, with the historical funded ratios summarised below.

Asset-Liability Management

The Fund procures the quadrennial ALM study from an external consultancy. The main objectives of the study are to:

  • Forecast the likelihood that the current contribution rate will remain sufficient
  • Forecast the likelihood that future funded ratios and solvency metrics will remain within an acceptable range
  • Evaluate current and alternative asset allocations
  • Assess whether the assumed rate of investment return (as used in the actuarial valuation) is expected to be achieved in the long-term

The results are utilised by the Office of Investment Management (OIM) in setting the Fund’s investment strategy, and by the Board in understanding the effects of potential plan design changes and future demographic trends. 

The last ALM study was undertaken and published in 2019.  At the time, the key conclusions were that:

  • The real rate of investment return continues to be the most significant factor in maintaining solvency
  • The current contribution rate (23.7%) continues to be appropriate
  • There are no expected liquidity problems for the Fund over the next the 30 years.

The next ALM study is due to be completed in 2023.

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