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Pensions and Low Inflation

Published online by Cambridge University Press:  10 June 2011

P.M.C. Meredith ,
N.P. Horsfall ,
J.M. Harrison ,
K. Kneller ,
J.M. Knight  and
R.F. Murphy
P.M.C. Meredith
Affiliation:
The Old Vicarage, Ide Hill, Sevenoaks, Kent , TN14 6JW, U.K. Tel: +44(0)1732-750-338
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Abstract

This Working Party has considered the pensions implications of a prolonged period of low inflation. Experience in the United States of America suggests weaker correlation between equity and bond returns and greater overall volatility of returns. Without a further significant increase in the valuation of equities relative to their underlying economic activity, the cost of pensions will rise, possibly as much as doubling within the next 15 years. It follows that for defined contribution schemes and personal pensions, current contribution levels are likely to produce disappointing and generally inadequate results. Similarly, the costs of defined benefit promises will increase. Future defined benefit provision is also vulnerable to the mismatch of mainly equity assets with mainly fixed liabilities and is therefore difficult to control. Many practical issues of scheme design still reflect past inflation and need to be addressed.

Keywords

PensionsInflationInvestment ReturnsDefined BenefitsDefined ContributionsMinimum Funding RequirementSolvency
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 6 , Issue 3 , 01 October 2000 , pp. 547 - 619
Copyright
Copyright © Institute and Faculty of Actuaries 2000

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