What is Actuarial Valuation?
An actuarial valuation is defined as a form of evaluation of the assets of a pension fund vis-à-vis the liabilities. The assessment is realized by taking recourse to demographic, economic and investments assumptions. Along with the help of which the model determines the funding estimates of a pension plan.
These assumptions are derived from a combination of statistical researches and expert judgments. Because, the inferences are frequently gathered from long-term databases. The uncommon sudden upheavals occurring over a short period of time or unforeseen patterns. This can sometimes lead to discrepancies as against the presupposed predictions.
The Model of Actuarial Valuation:
A typical model for actuarial valuations comprises of a multitude of variables. With regards to assets, factors like employer contribution rates, investment maturity rates for Level 1 & 2 type assets like stocks and bonds and non-liquid Level 3 type assets form the crux.
The computation of payment liabilities is anything but simple and straightforward. Here, assumptions based on: employee contribution rates, discount rates, salary growth rates, mortality rates, inflation rates, services retirement ages for both the able-bodied and disabled, interest rates on member accounts and many more are considered in the actuarial valuations calculation.
Presuming that every long-term assumption is logical and equitable, a practical estimation of the funding or funded ratio can be obtained. The funding ratio measures the level of equality between assets and liabilities. A funding ratio with a value over 1 or 100% indicates a scenario where the pension assets are suitable and adequate. Basically to indemnify the liabilities.
CGC is a top-tier service provider of actuarial valuations in India. We offer a broad spectrum of services that include actuarial valuation of leave, pension and gratuity plans. We have also come up with a range of different modern and novel actuarial solutions to cater to several Indian companies.