Real Rates of Return and Pension Funding: Comment

Abstract

I remember that, when we studied actuarial subjects, we did similar exercises to analyse the implications of economic assumptions, when the pension scheme was based on a full funded system of finance. Other exercises dealt with the larger impact of the demographic assumptions when a pay-as-you-go system was involved. (We used the term " demographic assumptions " to define the " actuarial assumptions " discussed in the paper). In particular, I remember that we studied special indexes which the Italian literature (according to Prof. Coppini's terminology) called " indexes for the degree of damage due to salary variation However, our exercises were more sophisticated : for instance, we always made a strict distinction between the rate of growth of salaries (e.g., due to an individual career) and their monetary increase (due to inflation). Of course, we had to read a lot of publications dealing with those problems. I cannot produce the relevant references because there are so many ; however, these subjects are discussed in every congress of actuaries. Moreover, in our actuarial training, we were taught that the economic assumptions are not independent of the demographic ones, and that there are some limits of validity for a system of finance. Afterwards, practice taught us how to make the assumptions needed in a pension scheme ; personally, I prefer to use simulations and to employ a set of rates for each assumption.