The rate of return to be credited to notional accounts is determined in accordance with the laws and regulations governing the scheme. The actuary ensures the correct application of the rate and performs related calculations to assess the adequacy and financial implications of returns credited.
Guideline code
ACT_01800
Mechanism
Mechanism
- The index used for the determination of the rate of return to credit to notional accounts should be consistently applied from one year to the next.
- The index to be used, where such choice is not prescribed by the relevant legislation and/or scheme provisions, and the calculation methodology of the index, should be clearly defined in order to avoid any misinterpretation or manipulation and to allow peer review. The actuary should highlight where there may be a possibility of bias in the index.
- Where the choice of index is not prescribed by relevant legislation and/or scheme provisions, the social security institution should use or recommend the use of an index that can be easily calculated and verified based on available and credible data.
- The actuary should determine and verify the rate to be used to credit individual notional accounts and ensure that the calculation of the absolute increase in account value is carried out correctly. The process should be peer reviewed.
- For beneficiaries who do not participate during a whole calendar year in the scheme, the actuary should determine correctly the partial credit to award.
- The implications of the current year rate of return credited on the financial position of the system, as well as the adequacy of current and future benefits, should be assessed. The actuary should assess the impacts using appropriate bases and undertake sensitivity analyses.
Structure
Principles
- The rate of return to be credited to notional accounts (“indexation” or “valorization” of the accounts) is likely to be set out in relevant legal instruments or scheme rules. The actuary should ensure that the returns are calculated correctly and are appropriately applied to beneficiary accounts. There should be an appropriate peer review process which is documented and monitored.
- The indexation approach adopted has an impact on benefit adequacy and the financing of the scheme. The actuary therefore needs to assess periodically these impacts and provide relevant recommendations and reports to stakeholders. These may include the impact of using different indexation approaches, the use of different indices as an indexation or valorization basis, and impacts of the assumed evolution of current indices, as well as impacts of other factors (e.g. salary increases).
Title HTML
Guideline 16. Determination of rate of return to be credited to notional accounts and resulting financial implications
Type
Guideline_1
Weight
21