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Why is the Final Average Earnings the same for the actuarial liability at time 0 and at time 1?

+1 vote
asked Nov 15, 2017 in BUS 3024S - Contingencies by Yongama

Example 10.10 (a) (page 360 of the textbook)

Why is the final average earnings (Sfin) the same when calculating the actuarial liability at time 0 and at time 1 if the salary is assumed to increase by 4% p.a? 

1 Answer

0 votes
answered Nov 15, 2017 by Dean_Bunce (1,160 points)

The final salary is the salary earned in the last year of working. It is used to value the benefits regardless of the time of the valuation. i.e. the benefit is defined in terms of the final salary and provided the final salary is not expected to change or be calculated in a different way it will be the same on both valuation dates.