Welcome to the hotseat. We've prepared a guide if you'd like to read more about how it works.

Past service Liability and Salary increases

0 votes
27 views
asked May 14 in BUS 4027W - Actuarial Risk Management by anonymous

If salary increases are expected to be higher than previously assumed, why would the past service liability be higher?

1 Answer

+1 vote
answered May 14 by Alessandro (360 points)

The past service liability is the past service (thus the number of years that the life has already worked for the company), multiplied by the average pensionable salary at retirement age. 

Thus an increase in the expected salary increases would lead to an increase in the expected average pensionable salary at retirement age, which would lead to an increase in the past service liability. 

...