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What to do with the l^*

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asked Oct 14, 2018 in BUS 3024S - Contingencies by Faith (610 points)


When working out the emerging cost for  early retirement..I am not sure what to do with the l* 

This question relates to test 2 2014

Please Help :)image image

1 Answer

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answered Oct 15, 2018 by MarioGiuricich (1,350 points)

The l* is used for calculating the EPV of the benefits for pensions that are already in payment (i.e. after early retirement or withdrawal in the case of the question, which is from the UCT November 2013 exam).

Look at the context of the question. You are asked to analyse the expected emerging costs in years of age 63, 64 and 65. Hence, you should (for example) in the year of age 64 include the emerging costs from those who retired early in the year of age 63. Given that this cost is only incurred on the basis of survival after early retirement, you need to multiply by the l*.

This should now (hopefully) help you to make sense of the answers given in the memo.