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Eascr

A

Ali10

Member
Hi

Please can someone clarify if I am understanding the EASCR correctly...so the rate is calculated for a typical member using an assumed entry age for the scheme, and in order to remain stable the actual entry age experience of the scheme must be inline with this assumption.


There is a question in x4 where a scheme has used an EA on 30 but new recruits are actually a lot older. Does this mean that unless the rate is reviewed the scheme will become underfunded?

Thanks
 
Entry Age Method

Hi Ali

First paragraph exactly as you say.

EAM "averages" the contribution rate over all years from the assumed entry age to NRA.

So we know if i>e then the cost of accrual increases with age. This is because there are fewer years to achieve an investment return (net of salary increases). So each year, accural is more expensive than the last.

So let's say NRA = 65, assumed EA = 30 but actual entry age = 40

The average we'll calculate for the EAM as the contribution rate includes earlier years (age 30-40) as well as the later years (40-65).

Age 30-40 are the cheaper years, so ultimately the SCR based on an EA of 30 is lower than that of 40. If we only paid the SCR based on an EA of 30, we'd get a deficit. Makes sense from common sense, and also from the formulae. Consider the EAAL. In short the formula is:

EAAL = PV(total benefits on final salaries) - EASCR * PV(salaries)

So paying a low EASCR, leads to a high EAAL vs our assets, and so leads to a deficit, which we could then correct with a higher MCR.

Hope this helps.


Best wishes

Stuart Underwood

Ali10 said:
Hi

Please can someone clarify if I am understanding the EASCR correctly...so the rate is calculated for a typical member using an assumed entry age for the scheme, and in order to remain stable the actual entry age experience of the scheme must be inline with this assumption.


There is a question in x4 where a scheme has used an EA on 30 but new recruits are actually a lot older. Does this mean that unless the rate is reviewed the scheme will become underfunded?

Thanks
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