The valuation of a social security scheme includes the reconciliation of the value of the sustainability measures, financial indicators and other relevant results between the previous and current valuations. As part of the risk management of the social security scheme, the social security institution examines the main drivers of the changes in results between successive valuations.
Reconciliation of the results of the two most recent valuations is a powerful tool that can help to identify emerging risks with respect to the social security scheme. It also serves as an internal control that helps to ensure the accuracy of the results.
Guideline code
ACT_00800
Mechanism
Mechanism
- The sustainability measures, financial indicators and other results that could be reconciled may include, but are not limited to, the following:
- The difference between assets and actuarial liabilities (determined using the closed or open group methodology for fully funded schemes, or open group methodology for PAYG and partially funded schemes);
- PAYG rates;
- General average premium (GAP);
- Relevant contribution rates;
- Actuarial balance;
- Total expenditures as a percentage of Gross Domestic Product;
- Ratio of assets to expenditures.
- The reconciliation of some elements may require a projection of the previous valuation results.
- The causes of differences in the projections of two successive valuations should be explained as follows:
- Differences between assumptions and experience since the last valuation. This process may help in making decisions regarding appropriate assumptions to use;
- Changes in the assumptions between two valuations;
- Changes in the methods between two valuations;
- Major changes in the covered population;
- Changes in the social security system provisions (e.g. changes in benefit rules or financing requirements).
Structure
Principles
- The social security institution, together with the actuary, should define sustainability measures, financial indicators and other results that need to be reconciled. These indicators should be chosen to be consistent with the scheme’s funding policy. The selection of items to be reconciled should be documented and reviewed on a regular basis.
- The report on the valuation of a social security scheme should include a section dedicated to the reconciliation of the sustainability measures, financial indicators and other results between the two most recent valuations.
Title HTML
Guideline 7. Reconciliation
Type
Guideline_1
Weight
11