Valuation of Actuarial Liability Using Markov
Abstract
In retirement planning, normal retirement benefits are the main benefit and also usually contain additional benefits that are paid when the participants experience disability before retirement or death before or after retirement. The possibility of that situation makes more and more the need to calculate the Pension Fund. Therefore, a calculation model is required that can describe all of those possibilities. A Retirement planning is a life-term insurance contract with the normal costs as premiums and the actuarial liabilities as reserves in the pension fund. This article will develop a calculation of prospective actuarial liability using a calculation of life insurance reserves through Markov chain. The calculation of actuarial liability is only for individuals with same age and situation. The rates and transition probabilities are also required. The amount of benefits in retirement planning usually depend on the time of an event so the equation model for these benefits are also required. Moreover, the pension fund can calculate the actuarial liability of participants with a disability pension condition. In this study, the actuarial liability is calculated using two conditions, namely, a defined cost and defined benefit. In the calculation of actuarial liability with the defined costs, pension fund requires initial funding. Furthermore, the rate of increasing in actuarial liability with the defined benefits will be greater than the defined costs. Thus, the results of this calculation can contribute to the Pension Funding determining the company policies.
Keywords: pension fund, actuarial liability, Markov chains, disability pension, defined costs, defined benefit
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