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1. Accrued Benefits Funding Methods are a major category of funding methods in which the Actuarial Liability for active members is based on pensionable service accrued up to the valuation date or to the end of the Control Period, as appropriate. The treatment of benefits not directly linked to pensionable service is not specified but left to actuarial judgement, subject to the need for consistency between successive valuations. The Standard Contribution Rate is derived from the definition of the Actuarial Liability appropriate to the particular Accrued Benefits Funding Method being used. It is the rate sufficient, after taking into account the Actuarial Liability at the beginning of the Control Period and the benefits expected to be paid during the Control Period, to provide for the Actuarial Liability at the end of the Control Period.

2. Differences between the various Accrued Benefits Funding Methods arise from the treatment of decrements in membership and increases in pensionable pay when calculating the Actuarial Liabilities for active members. This affects the value placed not only on the Actuarial Liability but also on the Standard Contribution Rate.

3. When projecting pay during the Control Period, or thereafter when required by the particular funding method, allowance is made for general increases in pay levels and also for career progression, where appropriate. Once the link with pensionable pay is deemed to be broken by the particular funding method, the amount of benefit could be assumed to continue to increase by other means, for example, at the statutory revaluation rate for preserved pensions.

4. Contributions and payments of benefits during the Control Period and numbers of members, amounts of pension and pensionable pay at the end of that period are projected using a common method for all Accrued Benefits Funding Methods. Normally allowance is made for all types of decrements, for example death in service, early withdrawal, early and normal retirement etc. Whether or not allowance is made for new entrants during the control period is not specified but left to actuarial judgement and should be stated in the actuarial assumptions.

5. Standard Contribution Rates are calculated for Accrued Benefits Funding Methods by a common methodology, expressed in the following formulae:

n = Control Period

ALO = Actuarial Liability calculated as at the valuation date.

ALn = Actuarial Liability calculated as at the end of the Control Period in respect of active members, pensioners and deferred pensioners where numbers of members, pay and pensions are projected to that date according to the actuarial assumptions.

B(o,n) = Expected payments of benefits during the Control Period, projected according to the actuarial assumptions.

S(o,n) = Expected pensionable pay during the Control Period, projected according to the actuarial assumptions. SCR(o,n) = Standard Contribution Rate payable during the Control Period.

Therefore, SCR(o,n) = [PV(ALn ) - ALo + PV (B(o,n))]/PV (S(o,n))

where PV(***) stands for the present value of ***, as at the valuation date. If future entrants are taken into account, both the numerator and denominator

of the formula would make allowance for them.

See Projected Unit Method, Current Unit Method, Partly Projected Unit Method and Defined Accrued Benefit Method.

Entries from The Actuarial Profession's Glossaries has been produced by the Profession and is reproduced with the Profession's permission. The Actuarial Profession does not accept liability for the complete accuracy of the original material, given that it was prepared for educational purposes only.