Although financing policy varies by social security institution, many systems will have reserve funds that require effective management, whether these have a short or longer term time horizon. As populations age and the external investment environment becomes more complex, the importance of a well-managed reserve fund increases. Increasing focus on investment governance is likely to continue and professionals involved in the investment process need to ensure that their input is carried out appropriately.

The social security institution applies automatic adjustment mechanisms in accordance with the laws and regulations governing the scheme. The social security institution analyses how the application of these adjustment mechanisms affects benefit adequacy and/or the financial sustainability of the scheme.

Automatic adjustment mechanisms link certain decisions on benefits and financing to internal or external parameters or indicators. This guideline should be read together with Guideline 43.

Where it is the responsibility of the actuary, he or she uses appropriate methodology and assumptions to determine the conversion factors of lump sums to income. Unless these factors are set so as to meet specific policy objectives, they are determined as cost-neutral. If the factors are not cost-neutral, the actuary discloses this fully and determines and reports on the implications on adequacy and sustainability of the scheme.

The social security institution or other governing institution plays a role in the monitoring and surveillance of defined contribution schemes, as appropriate.

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.

In determining the rate of return to be credited to provident fund accounts of beneficiaries the actuary considers relevant factors, the impact of decisions on the sustainability of the scheme and the adequacy of benefits. The actuary uses his or her judgement in developing appropriate assumptions and methodology and in making recommendations.

Actuarial factors are determined in accordance with generally accepted actuarial principles. There is no unjustified or unfair discrimination in the calculation of factors.

This guideline refers to the calculation of factors used to determine benefit entitlements in defined benefit schemes. These factors include but are not limited to early and late retirement factors, conversion rates of lump sum to periodical payments and vice versa as well as the determination of total and partial disability benefits and other social security benefits.

The social security institution calculates benefit entitlements according to the provisions of the laws and regulations governing the scheme. All actuarial calculations necessary to calculate benefit entitlements are carried out in accordance with generally accepted actuarial principles, and an appropriate peer review process is established.

The actuary is likely to play a major role in issues relating to the day-to-day management and operations of the social security scheme. These roles will include the calculation of benefit entitlements for individuals and the factors to apply in certain situations. The methodology and assumptions used as well as appropriate peer review processes are crucial. The deliberations of the actuary will have a significant impact on the adequacy of benefits and the sustainability of systems.

The social security institution addresses and ensures implementation in a timely manner of the recommendations made by the operational audit and the independent expert review.