Investment of Mutual Funds in Pakistan

Investment of Mutual Funds in Pakistan Chapter 1 Introduction 1.1 Introduction 1.2 Purpose of the Study 1.3 Research Objective 1.4 Research Methodology 1.5 Data Sources 1.INTRODUCTION 1.1 Introduction Mutual funds can play a significant role in the growth of an economy of any country. Mutual funds are a preferred investment destination for any individual/ organization as the fund houses offer not only the expertise in managing funds but also a host of other services. Not too many years ago, mutual funds were simply broad-based investment instruments created to simplify the details involved in investing in separate securities. Mutual funds also provided a greater measure of safety through broad diversification and the kind of top notch professional management that is generally out of reach for the small shareholder. Today, however, mutual funds are well specialized and present almost limitless diversity. The types of mutual fund portfolios available run the range from conservative to aggressive, from stocks to bonds, from domestic to international portfolios, from taxable to tax-free, and from virtually no-risk money market funds to high-risk options funds (Jacobs, 2001). If we come across at mutual fund market of a developed country, we can see that their investment in the mutual fund industry is higher as compared to their bank deposit base, which shows the potential of growth of mutual funds industry in Pakistan. This comparison with other countrys Asset Management Companies (mutual funds) indicates that Pakistans Asset Management companies are not playing the role that it should play. This gives rise to many questions in ones mind. For instance Why are the Pakistans Asset Management Companies not doing well and Why Pakistans Asset Management Companies are not that much competent? The reason is that mutual funds industry in Pakistan is still in its immature stage and investment options are limited to only equity, government security funds, fixed income and money market Funds. With the maturity in the industry and by the passage of time, the investors may have the options to diversify investments into commodities, real estate and other avenues. Today, the greatest challenge faced by the Asset Management Companies is the lack of awareness about the Mutual Fund products by general public. Lack of awareness by the individuals for mutual funds is a dilemma. The reason is that people dont think out of the box. They dont go for any other avenue to keep or save money except banks and on the other hand banks invest in different avenues such as mutual funds, TFCs, stocks, Government bonds, treasury bills etc. So the question arise that why do the individuals always invest their money in banks; why do they dont want to invest other than a bank like in mutual funds. Investing in mutual funds can give them better returns as compared to the banks. The reason is that the individuals are unaware of the better returns, benefits and security they can get by investing in mutual funds. So far, mutual funds have failed in bringing awareness to the individuals. Due to unawareness individuals hesitate in investing in mutual funds. Individuals should be given awareness about the functions that mutual funds perform. Mutual funds process can be better understood in a form of a cycle which i s presented below: In 2008 before recession the Asset Management Companies were doing well, they were building individuals confidence for investing in mutual funds by making individuals aware of Mutual Funds and its benefits along with the higher profitability margins it offers. But recession and the regulators for Asset Management Companies took them to the initial stage again where people were not much confident about investing in mutual funds because giving ones hard earned money into someone elses hands requires utmost faith and a sense of trust. 1.2 Purpose of the Study To highlight those points which are creating negative impact on investor this creates ambiguity when the investor wants to invest in mutual funds. To identify the causes due to which the current market of mutual funds is not growing. To illustrate the basic distinctiveness in operating styles, management and research resources between ASSET MANAGEMENT COMPANIES other Investment Companies. To highlight peoples preference of the Asset Management Company while investing in mutual funds. 1.3 Research Objectives The paper in detail contains the theoretical framework supporting the research objectives. The secondary data is useful in explaining the research objectives and the primary data is also importance as it gives the picture to explain the dilemma in the mutual funds industry. 1.4 Research Methodology The secondary and primary source of data was used in this research, visits of different websites specially the website of MUFAP helped in a great manner to streamline of research work, however few individuals whom we met and ask difference sort of questions for the research gave us valuable information about the past and present situation. The different sources of by which we gathered the data are listed below, 1.5 Data Sources The desired data is collected from the following sources: Karachi Stock Exchange Asset management companies Annual Reports Asset Management Banks Security Exchange Commission of Pakistan State Bank of Pakistan Chapter 2 LITERATURE REVIEW 2.1 Introduction 2.2 Mutual Funds Industry 2.3 Why mutual Funds? 2.LITERATURE REVIEW 2.1 Introduction Chapter 2 focuses on the theoretical approach of mutual funds industries. In the literature review a comprehensive discussion will be performed on the working of mutual fund industries, the types and categories of mutual fund industries and the dilemma that mutual fund industries are facing. The chapter also studies that how investing in mutual funds is better or more beneficial than investing in any other avenue, the factors that differentiate mutual fund industries with other financial Intermediaries and the mutual funds cycle. 2.2 Mutual Funds Industry The mutual funds industry is a secure and better way of investing money. The conventional style of saving money is by keeping them in banks. However, the diminishing bank rates are even lower than that of the rate of inflation and so it may not be a very good choice. The next option could be putting the money in the market but this requires a great deal of knowledge. Investing money through mutual funds is trouble-free and good for small ventures. A mutual fund is a financial institution that allows a group of investors to pool their money together with a predetermined investment objective. The mutual funds have specialized fund managers who are responsible for investing the pooled money into specific kind of securities (usually equity or fixed income securities). The manager uses the money to buy bonds, stocks or other securities according to specific investment objectives that have been established for the fund. In return for putting money into the fund, one can receive either units or shares that represents proportionate share of the pool of fund assets. In return for administering the fund and managing its investment portfolio, the fund manager charges fees based on the value of the funds assets. In simple words, a mutual fund is a pool of money that is managed on behalf of investors by a professional money manager. It includes a group of well qualified people who can guide and invest the money of the unit holders appropriately. When one invests in a mutual fund, he / she is buying shares (or portions) of the mutual fund and becomes a shareholder of the fund. Since mutual fund is a pool of money, different investors invest in it at a time and the total amount collected by all the investors by the mutual fund manager is then invested in different avenues. Be it a money market, stock market, financial institutions, government securities, banks or / and other avenues. The fund manager may invest in more one than avenue at a time which depends on the category defined. Before investing the gathered amount by the investors, the mutual fund manager has to consider and calculate all the important facts and figures that could create more and more profit for the investors who have invested in the mutual fund. After the fund manager has invested, he/ she gets returns which are then distributed to the investors according to their shares in the mutual fund. It is therefore essential to look out for the best mutual fund to obtain maximum returns. The flow chart below describes broadly the working of a mutual fund: Mutual fund provides numerous advantages to its users. One of a great benefit of mutual funds compared to stocks is their major characteristic of diversification. This means that mutual funds invest in many different stocks and in this way balance the risk you may encounter. Additionally, the fund managers may decide to invest in companies from different sizes and industries. This is done in order to balance the downturns in a particular investment with the upturn in another. The basic duty of the management of any firm and the company is to maximize the business and the wealth of the shareholders as well as the sustainability of the owners of the company. The management of the mutual funds is charging the management fee for this purpose. The growth of the mutual funds which we have examined here is based on the determinants which are affecting the growth of the mutual funds and is dependent on the negative and the positive impacts of these determinants. We worked through two models for investigation of this relationship of growth. The two models are comprised of fixed effect model and the cross section model. Most of the results are drawn by these models provided same results except for some factors. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (one doesnt have to figure out which stocks or bonds to buy). 2.3 Why mutual Funds? Mutual funds are used as a gauge to operate economy effectively and efficiently, they help central banks in implementing their monetary policies, organizations to go through financing attained through mutual funds and banks to mobilize the investment or the cash. Mutual funds have become essential for the growth of an economy as it is a source of money mobilization in the country. Mutual funds mobilizes money in a country in such a manner that it deals with almost every available investment options. Mutual funds help in regulating money through investments in stock market i-e via purchasing shares they are rolling the money to the companies. By investing in debts (long term financing), Term Finance Certificates / Sukuk they are mobilizing cash and enhancing the company. Moreover a growing company can raise its countrys economy with the help of mutual funds. Along with the investments in money markets, mutual funds invest in banks and government bonds also. Another rationale to invest in mutual funds is that its conservative nature offers a hedge against loss and allows the investor to climb into other vehicles that may be more risky. That way a retired investor can try to make some money in mutual funds without putting at risk their future. Also by being part of a mutual fund portfolio, the senior citizens have a chance to view how the various stocks that make up the mutual funds are performing and can select to invest in mutual funds that starts out performing the others to produce profits. For the senior citizens and retired investors, mutual funds can offer a hedge against inflation and it can direct the retired investors to the best stock picks and most importantly, it can protect the retired investors from losing their savings. Chapter 3 mutual funds 3.1 What is Mutual Funds? 3.2 Types of Mutual Funds 3.3 Categories of Mutual Funds 3.4 How Mutual Fund Works 3.5 Partners in a Mutual Fund 3. MUTUAL FUNDS 3.1 What is Mutual Fund? A mutual fund is basically a collective investment that pools money from many investors to buy bonds, stocks, short-term money market instruments or other securities and is managed professionally. Mutual funds serve as a connecting bridge of a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual funds have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When an individual invests in a mutual fund, he or she is likely to buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compared to other investments. They are very cost efficient and convenient; individuals can easily invest in. Thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk maximizing returns. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification. Mutual funds have a large amount of funds so it is easy for the investors to invest in different stocks or bonds. 3.2 Types of Mutual Funds Open Ended Closed Ended Open-end Mutual Fund Open ended mutual funds possess following characteristics: Open ended fund is a fund which issues or redeems its shares at net asset value (NAV). It does not have a fixed fund size. Investors can get back their investment at any time by selling the units back to the fund. These are no fixed number of units. Open end funds are type of mutual fund that does not have restrictions on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares no matter how many investors there are. Open-end funds also buy back shares when investors wish to sell. It should be noted that when a funds manager(s) determine that a funds total assets have become too large to effectively execute its stated objective, the fund will be closed to new investors and in extreme cases, be closed to new investment by existing fund investors. In simple terms, open end funds mean that the fund does not have a set number of shares. Instead, the fund will issue new shares to an investor based upon the current net asset value and redeem the shares when the investor decides to sell. Open-end funds always reflect the net asset value of the funds underlying investments because shares are created and destroyed as necessary. Close-end Mutual Fund Following are the characteristics of close ended mutual funds: Close end fund is a fund whose shares are traded at prices other than the NAV It has a fixed fund size. Investors can sell their shares to any buyer through an exchange where the share is listed other then the issuing company. These are fixed number of units / shares. A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange. Unlike regular stocks, closed-end fund stock represents an interest in a specialized portfolio of securities that is actively managed by an investment advisor and which typically concentrates on a specific industry, geographic market, or sector. The stock prices of a closed-end fund fluctuate according to market forces (supply and demand) as well as the changing values of the securities in the funds holdings. 3.3 Categories of Mutual Funds Following are the broad categories of funds that are further sub categorized and tailored according to the requirements of the investors Stock Fund / Equity Fund / Capital Market Fund Hybrid Funds / Multi Asset Fund / Balanced Fund Fixed Income Fund / Money Market Fund Islamic Fund A. Stock Funds Investment Objective The primary objective of this fund is to invest in stocks through different stock exchanges while controlling risk. The aim of the fund is to provide individuals and institutional investors with a well diversified portfolio of equity stocks covering all major sectors. The objective is to maximize income and capital gains by prudently employing its investment management expertise. Investment Policy The fund follows a growth strategy by investing in ‘large cap companies. This entails looking for companies with a track record of growing sales and earnings and the potential for more of the same. In drawing the investment plan Research plays a vital role, as it identifies the stocks which have potential for capital gains, development of particular industry and its impact on the particular stock, timings of investments and divestments depending upon industry trend and expected results. Asset Allocation The portfolio generally has the following asset allocation but it can change from time to time or as the investment strategy molds it. B. Hybrid Fund Investment Objective The main objective of this fund is to participate in a diversified portfolio of securities representing investments in capital and money markets. The main investment objective is to maximize capital appreciation and income. Investment Policy Consistent with the investment objective the fund primarily invests in large capital equity securities, along with debt securities and other money market instruments such as Government Bonds, TFCs, Islamic Bonds, Reverse-Repo etc. Asset Allocation The portfolio generally has the following asset allocation but it can change from time to time or as the investment strategy molds it. C. Fixed Income Funds Investment Objective These funds seek to provide its unit holders with attractive income from a well diversified portfolio of low risk assets while maintaining liquidity. Investment Policy In line with the investment objective the fund invests in a diversified portfolio of Government Securities, Investment Grade Term Finance Certificates, Rated Corporate Debt, Certificates of Investment and other long and short term money market instruments. Asset Allocation The weightages of the investment mix of the portfolio are managed in a manner that reduces the risk of loss in market value of the investments as the result of any major upward movement in lending rates. During periods where the Management Company is of the view that there is economic uncertainty, the weightages of the portfolio are increased in the short-term debt securities, debt securities with short remaining life, money market instruments and short maturity repurchase arrangements including spread transactions. The funds typically comprise of 60 % fixed income instruments. D. Islamic Fund Investment Objective These fund aims at achieving high level rate of capital gains and current income in line with Shariah principals along with providing liquidity to the investors. Investment Policy These funds primarily invest in Shariah compliant investment instruments whereby 60% investments are made in listed securities. Specifically; Shares, TFCs, Participation term certificates, Musharika, Murabaha, and other asset backed securities. The funds also keep cash in riba free deposit schemes with Islamic banks and other financial institution with the objective to maintain sufficient liquidity. Equity investment broadly meets the following criteria and any additional requirements as advised by the Shariah advisors: (These criteria change subject to change in investment policies and shariah advisors) The basic business of the investee company should be halal. The total debt of the investee company should not exceed 45% of its total assets. Long term assets of the investee company as a percentage of current assets may not exceed 10% Mutual funds with different investment objectives provide a variety of investment risk and return opportunities to the investors. Therefore, it is important for fund investors to thoroughly understand and identify the investing style employed by the funds that they choose to use to build their portfolios. Mutual funds can also be categorized as the following: The three included categories in the mutual funds are lower risk and return, moderate risk and return and high risk and return. Further sub categories include money market funds, income funds, balanced funds,equity funds and aggressive allocation stock funds. 3.4 How Mutual Fund Works The below mentioned diagram is clearly shown the process that how a mutual fund works. A. Net Asset Value The Net Asset Value is a term used to describe the value of an entitys assets less the value of its liabilities. The term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the book value of a firm. For mutual funds, net asset value is the total value of the funds portfolio less liabilities. The NAV is usually calculated on a daily basis. B. Sale Redemption Sale With reference to mutual fund industry sale is said to be executed when a unit or number of units are sold to an investor by a mutual fund on a specific price. Sale Price It is the price at which an open-end mutual fund sells its shares or units to the investor. In most cases, the sale price is the net asset value per share but they might have a sales load incorporated which is explained in the next two paragraphs. Redemption With reference to mutual fund industry redemption is said to be executed when a unit or number of units bought back from an investor on their instructions and the investor is paid back his money at the rates of the prevailing unit price by a mutual fund. Redemption Price It is the price at which an open-end mutual fund buys backs its shares or units from the owners. In most cases, the redemption price is the net asset value per share but they might have a back end load incorporated which is explained in the next two paragraphs. Management Fees The management fee for the fund is usually the advisory fee charged for the management of a funds investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This helps when comparing management fee components across multiple funds. Contractual advisory fees may be structured as flat-rate fees, i.e., a single fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees which include breakpoints, so that as the value of a funds assets increases, the advisory fee paid decreases. 3.5 Partners in a Mutual Fund Investment Management / Asset Management Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds). The term asset management is often used to refer to the investment management of collective investments. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management. Investment management services include financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Coming under the remit of financial services many of the worlds largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Investors An investor is any party that makes an investment. The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. The term is also applied to parties who purchase real estate, currency, commodity derivatives, personal property, or other assets. The term implies that a party purchases and holds assets in hope of achieving capital gain, not as a profession or for short-term income. Trustee Trustee is a legal firm or group of people who hold the property or investments on behalf of the mutual fund. A trust can be set up either to benefit particular persons, or for any charitable purposes. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiary Registrar A registrar is an official keeper of records. In case of a mutual fund they are the ones who keep the record of the â€Å"Sale† and â€Å"Redemption† of units, total units issued or outstanding with the information regarding the Unit Holder, dividend distribution etc. Distributor It is a firm or an individual who is licensed by the Asset Management Company to sell units on behalf of the fund. Custodian / Depository It refers to an institution which safeguards and manages flow of the financial assets of a Mutual Fund. In finance, a custodian bank, or simply custodian, refers to a financial institution responsible for safeguarding a firms or individuals financial assets. The role of a custodian is as follows: to hold in safekeeping assets such as equities and bonds, arrange settlement of any purchases and sales of such securities, collect information on and income from such assets (dividends in the case of equities and interest in the case of bonds), provide information on the underlying companies and their annual general meetings, manage cash transactions, perform foreign exchange transactions where required and provide regular reporting on all their activities to their clients. Custodian banks are often referred to as global custodians if they hold assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks in each market to hold accounts for their underlying clients. Assets held in such a manner are typically owned by pension funds. Chapter 4 Research Findings 4.1 Choice of Investment in Mutual Fund 4.2 Comparison of Pakistan with Asia. 4.3 Delimma of Investing in Mutual Funds 4.1 Choices for Investing in Mutual Funds For the following four categories; Stock Fund / Equity Fund / Capital Market Fund Hybrid Funds / Multi Asset Fund / Balanced Fund Fixed Income Fund / Money Market Fund Islamic Fund Listed are the available choices for Investing in Mutual Funds as of March 31st 2011. AKD Investment Management Ltd AKD Income Fund AKD Index Tracker Fund AKD Opportunity Fund AKD Alfalah GHP Inv. Management. Ltd. Alfalah GHP Income Multiplier Fund Alfalah GHP Value Fund Alfalah GHP Islamic Fund Alfalah GHP Stock Fund Alfalah GHP Capital Protected Fund Alfalah GHP Cash Fund Alfalah GHP Capital Protected Fund II Al Falah GHP AMZ Asset Management AMZ Plus Income Fund AMZ Plus Stock Fund AMZ Askari Investment Management Ltd. Askari Income Fund Askari Asset Allocation Fund Askari Islamic Income Fund Askari Islamic Asset Allocation Fund Askari Soverign Cash Fund Askari Atlas Asset Management Ltd. Atlas Income Fund Atlas Islamic Income Fund Atlas Islamic Fund Atlas Stock Market Fund Atlas Money Market Fund Atlas Crosby Asset Management Crosby Dragon Fund Crosby Pheonix Fund Crosby Dawood Capital Management Dawood Money Market Fund Dawood Islamic Fund Dawood Faysal Asset Management Faysal Balanced Growth Fund Faysal Income Growth Fund Faysal Asset Allocation Fund Faysal Savings Growth Fund Faysal Money Market Fund Faysal Islamic Savings Growth Fund Faysal Habib Asset Management First Habib Income Fund First Habib Cash Fund First Habib Stock Fund Habib HBL Asset Management HBL Income Fund HBL Multi Asset Fund

Psychological Skills Training Essay -- Sports PST Training Athletics E

Psychological Skills Training What exactly is Psychological Skills Training and for a coach or instructor, what advantage is gained by its implementation? In other words, why bother? Psychological Skills Training (PST) is typically more comprehensive than a few short sessions with a few simple interventions that a coach or instructor might suggest. PST usually integrates cognitive and relaxation techniques in a more encompassing approach to mental training and as a complement to physical training. Individualism is a hallmark of most PST programs. (Gill, 2000) The Importance of Mental Skills Why are mental skills so important to performance and why are they often neglected by coaches and athletes? Yogi Berra has been quoted as saying, "sport is 90% mental and 50% physical." You can question his mathematical savvy, but if you're an athlete, coach or fan, you can't question his wisdom. (Hacker, 2000) Many athletes understand that while developing oneself to their physical potential is a critical element in performance potential, it is often a deficit in our psychological game rather than errors in our physical performance that keep us from performing at optimum levels in practice, games or matches. Spud McKenzie, the Budweiser poster puppy, suggested that it is important to say when, but also emphasized the critical element of knowing â€Å"when to say when†. It is often the successful athlete has recognized what needed to be done and the unsuccessful athlete was unable to do so. As a consequence, it is not the physical talents or abilities that separate athletes an d teams, or successful versus less successful performance, rather, the psychological dimension that most frequently explains a given sport outcome or individual performance. For this reason games are played. Prior to each contest, judgment could be made with regard to which team or individual is the â€Å"more highly skilled†. If games were decided on who is the most physically gifted and/or talented individuals or teams, it would prove to be an exercise in futility to compete. As a result, whether you are an athlete or a coach, mastering the mental game of sport will allow you to achieve a level of success as a competitor than you could otherwise not achieve by focusing exclusively on the physical side of sport. PST - The Initial Learning Phase The four commonly used PST techniques are: arou... ...file becomes increasingly significant in terms of achieving desired performance levels. The margins for success and failure as a world-class athlete can be miniscule. Skiers go wide on the third gate of a downhill race to find they have not only lost the gold medal, but any medal. Members of the PGA, after playing 72 holes, find themselves losing the tournament by one stroke, as a result of the missed three-foot putt on the second day of competition. Works Cited Gill, D. L., (2000), Psychological Dynamics of Sport and Exercise, Champaign, IL, 2nd Ed., p197, Human Kinetics. Hacker, C., (February 2000), Introduction to Psychological Skills, Eteamz, http://www.eteamz.com/baseball/instruction/psych/index.cfm?m=1,2,3,4,5 Rushall, B. S., (1995). Mental Skills Training for Sports, Sports Science Associates, Spring Valley, CA., 8.1- 8.3, White, S. A., Psychological Skills: Differences between Volleyball Players on the Youth National Team and Those Involved in the 14’s High-Performance Camp, Unpublished Thesis, Illinois State University, Normal, IL. Weinberg, R.S. & Gould, D. {1995} Foundations of sport and exercise psychology. Champaign, IL: Human Kinetics. Ch.15

Teen Suicides Essay

Every second of the day a person dies and every second of the day a child is born. But did you know that half of the deaths are from suicide. From that half of the suicidal deaths are from teen suicide. Did you know that suicide is the leading cause of death? Or that its one of the top 3 reasons why teenagers are found dead? Every year teens are killed because they suicide. Every day they give up on life and embrace death instead. Just learning this from the news I became interested. Suicide has always interested me because of what I heard and my own personal experience. So when I started to research about this topic I got so many results. Each topic brought up other many sub topics. Each subtopic was like reading an article from an encyclopedia. So after reading I thought of focusing my research on how many teens suicide, why they suicide, what are the signs of suicidal risk, and can you help someone if they are thinking of suicides. How many teenagers suicide every day? Every 40 seconds of everyday around the world a teenager kills themselves by suicide. â€Å"After a year has passed over 1 million teenagers have killed themselves by suicide.† (http://www.thementalhealthblog.com/2013/10/teenage-depression-and-suicide-statistics/) This is important because after a year has passed more than 1 million kids have killed themselves. This shows that for teenagers they rather welcome death than find a reason to live. For every teenager the ratio for boys to girls are different. â€Å"For every one girl that goes through the suicide there are 4 more boys that have already gone through. The ratio for every boy that attempts to suicide there three girls are also attempting suicide too.†(http://www.thementalhealthblog.com/2013/10/teenage-depression-and-suicide-statistics/) This is importantly significant because it shows that out of the million kids that suicides boys go through it more while the girls try  to attempt it more than the boys. â€Å"Every day there are at least 1 out of twelve teenagers that attempt suicide.† (http://www.thementalhealthblog.com/2013/10/teenage-depression-and-suicide-statistics/) This is significant because if every teenager around the world was to line up then every twelfth kid of the line would attempt a suicide. It shows that every one out of 12 kids is trying to end their life. I discovered that in an article, â€Å"Suicide is the third leading cause for deaths of teens.† (http://www.thementalhealthblog.com/2013/10/teenage-depression-and-suicide-statistics/) This is really significant because for teenagers, suicide is easier. It also shows that many teenagers die from aids, cancer and stroke. Another thing I discovered in an article was, â€Å"Nearly 60% of all suicide in the United States is committed with a gun.† (http://kidshealth.org/parent/emotions/behavior/suicide.html) This is important because for 60 percent of the suicide death in the United States of Ameri ca was from guns. This also shows how easy for teenagers to have access to firearm. With more people aware of how many teenagers are dying and the leading reason is cause of firearms we could stop all of it. The fact that every 40 seconds a teenager commits suicide was shocking because it shows me that the world is not a perfect place. For teenagers to give up their life for me is like someone beginning to smoke. In my mind they are both the same and they are all horrible for the people close to the person. It’s shocking to know that every year around the world more than a million people die. To find that most of the suicide is from male teenagers it was frightening. This shows that male teenagers are more aggressive than female. Since they are more aggressive they would find more ways to kill themselves. If all my friends were to suicide I would be sad because they would be part of the million of kids to give up. I found that one 1 of twelve teenagers attempt to suicide was more interesting than ever. This to me is interesting because I had personal experience in this because when I was little my sister tried to kill herself. Being little I thought she was messing around but when we got a little bit older she almost did it again  but I was able to persuade her to not. Since that girls are more likely attempt to suicide that made my sister part of the statistic. Another reason this is interesting because if kids suicide every 40 seconds it add ups. I think that this is sad because my friends could be thinking of suicide but I wouldn’t know. Like one of my teachers said everyone has two lives. I didn’t understand it but now I know. Everyone has their school life where they choose to be and then they have their life at home. So if my friends were thinking of wanting to die I wouldn’t know. Another reason this is interesting is because most suicide death is from firearms. To me for people to own firearms I think it is stupid. In my mind if a parent was to own a firearm they should lock it up. If they the weapon out anyone could just walk in and shoot themselves. I hope that teenagers could find a way to life and deaths would go down. What are some reasons teens commit suicide? Teenagers commit suicide everyday over simple reasons. For the teenagers them self those reasons are what drive them to act out their final moments. Teenagers â€Å"going through major life changes,† might be reason. (http://kidshealth.org/parent/emotions/behavior/suicide.html) If teens were in a middle of a divorce between their parents they try to escape. This is significant because if kids were going through major life changes they would feel so many emotions. When this happens the teenagers let their emotions rule. â€Å"For teenagers, sometimes their overwhelming hopelessness is enough to cause them to take their own lives.† (http://www.teenhelp.com/teen-suicide/why-teens-commit-suicide.html ) This is important because if teens fill hopeless then it easier for them to find ways to escape. They would escape with death because they are stuck in impossible situations for them to deal with. Teenagers also suicides because they try to, â€Å"escape from overwhelming fe eling like rejection, guilt, and sadness.†(http://www.teenhelp.com/teen-suicide/why-teens-commit-suicide.html ) This is important because some teenagers can’t deal with too much feeling. So they think that attempting suicide might be the only way for them to escape. I also discovered in an online article about what causes this  feelings. â€Å"Problems are very real to the teens that are facing them. Teenagers face the pressures of trying fit in socially, to perform academically, and to act responsibly (2).† (http://www.teenhelp.com/teen-suicide/why-teens-commit-suicide.html ) This is important because every teenager feels the pressure. When they face the responsibility alone they feel neglected and alone. If they keep feeling like this they think that suicide is their only way out of feeling the pressure. Depression is another leading cause for teen’s suicide. Just like I am, every day teens are found with signs of depression. Depression can sometimes lead to suicide. â€Å"Depression may lead teens to focus on their failures and disappointments.† (http://www.teenhelp.com/teen-suicide/why-teens-commit-suicide.html ) This is important because it’s a known fact that depression is the leading factor or reason why kids kill them self. If people have depression they feel the worthless so they kill themselves to end the sadness. The reason for many teenagers to end their life because of depression or hopelessness is interesting. It’s interesting because it not just depression that takes over the teenage mind but the feeling of hopelessness. I’m shocked because every teenager has been given for a lot of responsibility.  If kids were to deal with this alone it would make them scared. Once they would feel scared then the other feeling would come and over whelm the teenager. I had been overwhelmed by the responsibility and it wasn’t fun. I understood the pain and unworthiness but my parents helped me out. I couldn’t bare the fact if my parents weren’t there to help me. Another thing I that I was shocked was the research I found about the question. The number one factor for teens to suicide was depression. In my mind I can understand, why. Since I have depression it’s sometime hard to feel happy. For me it’s like having a heavy weight on your shoulder. Another reason this is interesting is because of feeling. When I read that some teenagers kill themselves because they think it’s an escape. If I let my feelings run my actions I would be destroyed because I would be miserable. I can’t imagine someone anyone living like that. If anyone close to me said that they wanted to escape I talk to them. Another reason this is interesting is because major life changes affect decisions of the child. I remember when I was seven I moved to a new house. I was so sad because I was leaving my friends and teachers that I like. When  I got in our new house I didn’t like it. I hated everyone and was very stubborn. Then I gave everyo ne a chance and took over my life. I had to learn the hard way about letting my emotions rule my life but I promised not to go back to that place. In my mind I think everyone has a mind to run their life. But for instance some people can’t handle that pressure. I hope that if people can find their will to live they won’t overdose on drugs or killing themselves. I just hope teenagers can find a way to life. What are the signs of teens about to attempt suicide? One teenager every 40 seconds shows signs of them about to either follow through or attempt to suicide. Even though the signs might not be big they are big to the teenager. For some teenagers it is a cry for help. Some teenagers â€Å"have dramatic personality changes† (http://www.medicinenet.com/script/main/art.asp?articlekey=55145) It might not be a lot but if a teenager was happy one day and then for the rest of the week that teenager is sad, depressed or angry. This is significant because even though the teenager might go through weird changes it’s their way of saying â€Å"help me or please notice me.† Another thing I discovered was teenager about to attempt suicide â€Å"have and obsession with death, poems, essays and drawings that refer to death itself. (http://www.familyfirstaid.org/suicide.html) This is significant because let’s say your teenager never talks about death. If they had suicidal thoughts then they would be fascinated by death becaus e in their mind death is their escape. If teenagers with suicidal thoughts let their emotions rule their decisions so they’re not thinking rational, â€Å"depression with irrational bizarre behavior.† (http://kidshealth.org/parent/emotions/behavior/suicide.html) This is significant because when teens have overwhelming feeling it run the part of mind that thinks logical. So in the way they lose that logical sense and in a way lose themselves. Teenagers also say things to see if their parents are listening. â€Å"I’m thinking of committing suicide or I wish I could just die.† (http://www.teensuicide.us/articles2.html) Sometimes they whisper it or say I just kidding. But in the end it’s never a joke. It’s important  because if a parent doesn’t respond the way a teenager expects them to respond then they feel hopeless. I did some research on my own and saw that teenagers drop hints. They would usually say â€Å"I won’t trouble you anymore.† (http://www.teensuici de.us/articles2.html) This is important because these are calls for help and in their way these signs are a way to let their feelings out. This question made me very interested because all of the signs are a call for help. In my mind it’s like when a smoker drops hints about what he has does but they are very vague. They are both similar and both a call for help. I’m interested because I know people that are interested in death but they don’t resemble me as someone that is suicidal. This question makes me interested because it is the basic reason why teenagers need our help. If I was in a position where I was need of help and I was scared then I would have drop simple hints. To the people I given the hints to it wouldn’t make sense. It would seem to them that I have gone crazy but it’s my way of saying to them that I need help. If I didn’t get the reaction that I wanted it would make me feel more hopeless and alone. Many teens around the world face this problem, the problem of feeling hopeless and alone. In a way the teenager’s signs can be saved if anyone could notice and listen. I think it is intriguing for parents that don’t listen to their children. Around the world there are 20 kids who are dropping signs about that they are going to kill themselves. One- third of those kids are noticed but the rest the unlucky ones fill as if they are alone and in the end slowly give up. I couldn’t believe the fact that there are teens who feel alone. In my mind I feel as if people don’t care about their children it’s just like murder straight up murder. I hope that people could just open up their mind and see that suicide is very important. Can someone help a teenager that has suicide thoughts? Yes, if parents open their eyes to the signs that their kids are showing to them then they can save the teenager. Articles and doctor say that you should â€Å"get help immediately. This is significant because if yo can have the kid talk to someone about their problems then its suppose to help them. The teenager would understand that they are not alone or neglected.  Refer to a psychologist  (http://kidshealth.org/parent/emotions/behavior/suicide.html).  Another thing the article stated, â€Å"Understanding depression in teens is very important since it can look different.† (http://kidshealth.org/parent/emotions/behavior/suicide.html) This is important because there are at least 4 known types of depression. Even though each one is similar they have certain symptoms that distinguish each other from each one. For teen depression they are different because unlike the other depression teens from some people. Once you understand signs then you could help the teenager.  "Watch, listen and ask questions.† (http://kidshealth.org/parent/emotions/behavior/suicide.html) This is significant because if someone was to watch and listen to their child then they would see that their teenager needs help. Teenagers also want support from their parents. If parents were to, â€Å"keep the lines of communication open and express concern, support,† then they would understand their child (http://kidshealth.org/parent/emotions/behavior/suicide.html). This is significant because if the teenage confides with the parent then they would feel happy. For them the teenage would feel that the parent is actually taking their concerns very seriously. Suicide is a hard thing for teens to deal with. In the end they don’t know what to do but find their own escape. Reading the article I was astonished by all the things a parent can do but never actually does. I think that these ways of helping a teenager is interesting because it shows some ways of helping suicidal teenager. I wish that everyone could have caring parents. When I was down my dark path and near depression they were there. They helped me by listening to my problems and help me problem solve. I think it’s interesting bec ause around the world there are a lot of teenager that need help. Not all of them get the help they seek so they end their life. For me it’s sad that there is so many kids dying. I just hope one day we can know the signs and make this world a better place. Conclusion I am very interested in the understanding everything there is about suicide. I’m intrigued by the fact that over 1 million kids have died because of  simple reason that could have been fixed. In my mind all these facts were really interesting specially knowing that there are 5 types of depression. As a result of this research I know how to deal with this situation. I would know to how to help people that are going through this. I would know the signs of what a suicidal teenage is showing. I would also be able to spread it to others. Every day a teenager is faced with a choice. They can either live the life they were given or give up and embrace death. Everyday some teenager you know could be in trouble. Would you help or you let that kid become part of the one million kids that die that year. This current event is about how Israel might take humanity back to the dark ages. The dark ages occurred right after the collapse of the Roman Empire. The Israeli army bulldozed recently entered a village next a town called Aqraba. They did this so they can demolish a home that had belonged to a Palestinian family. They did this other numerous times. Their hallucinations over false evidence is making us go back to another dark ages. Since they are curtailing the rights of the Bedouins then they want a war. A war that is devastating with Iran and Islam. For Israel to be peace they would make the Middle East a nuclear peace zone. Maybe the U.s would do the same. This is important because the dark ages were chaotic. The world if ever went back to the world go crazy. Another reason this is important because with the Israel wanting to defend itself it would do it without it missiles. Also if the east was to have no nuclear then it might be a time of peace. It would be a small step but the step would create a big history for the world. The world wouldn’t have to worry about nuclear weapons if we got rid of it. We also might be able to stop terrorist. In a way if we can go back to a peaceful time then it would be great for everyone. In way I would be good for us. Then we could create a better world. A world where it will be safe everyone.

Mortality Assumption On Funding Of Pension Schemes Finance Essay - Free Essay Example

Sample details Pages: 21 Words: 6260 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Benjamin Franklin wrote, In this world nothing can be said to be certain, except death and taxes, but while death might be a certainty, its timing is far from certain. It is generally accepted that there exists a relationship between an individuals socio -economic status and their mortality, but that this relationship is difficult to measure. The problem of how to fund a defined benefit pension scheme arises from the problem of how to find cost of pension schemes. Don’t waste time! Our writers will create an original "Mortality Assumption On Funding Of Pension Schemes Finance Essay" essay for you Create order This study examines the relationship between mortality for individuals in a pension scheme and its impact on pension funding methods. We consider a very general setting where there exists basic funding methods and we try to find explicit solution how to coup up with future improvements and decreasing mortality. Introduction: In this project we have tried to examine effect of change in mortality assumption on funding of pension schemes. The aims of project are: To assess the appropriateness of current mortality assumptions i.e. use of up to date mortality tables or using projected mortality with future improvements. To make broad comparison between different funding methods using different mortality rates. To consider whether recommendation should be made about appropriate mortality assumption and funding method. To consider whether a single statistic could be used as a measure of the strength of the mortality assumptions used in funding methods. The population of many countries might undergo dramatic changes in the coming years due to continuous increase in life expectancy. The fact that people seems to live longer and the low mortality rates contribute to an increasing share of elderly people in total population in future. These project is written with the intension that it will be r ead by actuaries as well as by non actuaries. To merely give list of the actuarial methods and assumptions used in valuation of pension liability will be just misleading. This project considers the impact on different actuarial funding methods for using different mortality tables for pensioners. Chapter 1 discuss about basic type of pension benefits, which are defined contribution and defined benefits. But, for our study we only discuss about defined benefits and calculation of past service benefits and future service benefits using actuarial assumptions i.e. demographic and financial assumptions. It also gives basic idea of basic three actuarial funding methods i.e. entry age method, attained age method and projected unit method. In Chapter 2 we will be discussing on basis for selecting mortality assumptions and selection of mortality tables which are available and effect of future improvements on life expectancies and how population structure has changed from past and what will be expected population structure inclusive of increase in retirees and pensioners. In Chapter 3 after discussion of available mortality tables in chapter 2 we now see the impact of using old and new mortality tables on one pension scheme and assumed data set for the same scheme and analyze which is most suitable funding method for the same pension scheme. We will also look at the financial impact of changing mortality table. Finally in Chapter 4 we will conclude for using up to date mortality tables and funding methods which can be used. We also suggest the available alternatives to compensate for decreasing mortality and future improvements. And finally we provide some direction for further research for using mortality investigation. Chapter 1: Types of Occupational Pension Schemes There are two common types of Occupational Pension Schemes Defined Contribution Schemes Defined contribution schemes are much simpler and can be summarized as follows. Here the level of contributions may be defined in absolute term or percentage of salary or earning of employee. Defined Benefit Schemes Defined benefit is benefit payable on retirement and it is specified monthly or yearly benefits which are defined in advance on employeesÂÂ  earnings or salaryÂÂ  history, tenure of service andÂÂ  age, rather than depending onÂÂ  investmentÂÂ  returns. 1.2 Funding of Defined Benefit Schemes These benefits can be either Unfunded (Pay-As-You-Go) or Funded. In anÂÂ  unfundedÂÂ  defined benefit pension, no assets are set aside and the benefits are paid for by the employer or scheme as and when they are paid. In aÂÂ  fundedÂÂ  scheme, contributions from the employer, and sometimes also from scheme members, are invested in a fund towards meeting the benefits. Typically, the contributions to be paid are regularly reviewed in a valuation of the schemes assets and liabilities, carried out by anÂÂ  actuaryÂÂ  to ensure that the pension fund will meet future payment obligations considering set of assumptions. 1.3 Valuation and Liability 1.3.1 Liability The promise to pay certain defined benefit depends on future timing and durations which are not fixed or certain, but dependent on beneficiary. Also the amount of benefit is uncertain (e.g. if it depends on final salary or average salary which is unknown). There will be actuarial involvement from the time of benefit promised till they are actually paid i.e. when benefits are to be paid (demographic assumption) the level of benefit to be paid (financial or economic assumptions) Our objective is to calculate amount of money we need as at present to fulfill promised benefits of past pension liability and to calculate amount of money required to contribute toward fund for the benefits to be paid in future considering certain actuarial assumptions. These actuarial assumptions are discussed later in the chapter. 1.3.2 Purpose of Valuation There are several assumptions and methods of valuation which actuaries can use to value pension liability for funding purpose discussed later in the chapter. The need to calculate and make provision for these benefits in advance requires actuarial involvement, to find out the present value of future payments i.e. projecting the amount which is to be held now in order to meet the uncertain commitments in future; this is done by assuming some future mortality and expected future cash flows. 1.3.3 Actuarial Calculations and Decrements There are several factors which affect the actuarial valuation, we will discuss in particular the probabilities of following factors which are called decrements and will try to make service table. We consider an active member under DB scheme. There are four cases which can affect the pace of funding. Age (i.e. normal) Retirement Early retirement because of ill health Death in service Withdrawal (leaving the employer or scheme) These can be explained in multiple decrement model, in form of multiple state model shown Appendix II Fig: 1.1. 1.3.4 Actuarial Assumptions The Actuarial assumptions are divided in two main parts: Demographic assumptions: These assumptions are required to project when the benefit will be payable. Mortality: Mortality assumptions are required both before and after retirement. Generally, the assumption of lighter mortality implies that more pensions will be paid and will be paid for longer, this increases pace of funding. Withdrawal Rates: Schemes expects to profit from members leaving service. This situation might occur where the benefit to the person who leaves were subject to price inflation while normal retirement benefits were subject to (higher) salary inflation. The inclusion of withdrawal rates normally reduces the pace of funding. Ill Health Retirement: Where enhanced benefits are payable on Ill Health Early Retirement, an assumption will be required to assess the amount of Ill Health Early Retirement benefit to be paid. Higher assumed Ill Health Early Retirement rates will normally increase s pace of funding, although the impact is offset through the assumption of heavier mortality. Proportions married: Where Spouses benefits are provided, an assumption is normally made regarding the proportion of members who will be married at retirement, leaving, or death. Higher proportions imply faster funding but the impact of this assumption is not significant. Financial / Economic assumptions: These assumptions are required to project amount of the benefit will be payable. Investment Return/Interest Rate: This is the level of return expected to be achieved on fund before members retire. As the rate of investment is used to discount future benefits, a higher rate will lead to lower value being placed on future benefits, hence slower pace of funding through lower contribution rates Price Inflation: Benefits are often linked to price inflation (both pre and post retirement), so projected benefits will depend on level of inflation assumed for the future. Future price inflation can be obtained from the difference between yields from index linked bonds and government bonds. Salary Inflation: This assumption will determine projected benefits, where they are linked to final salary either on retirement or on exit from scheme or on death. The assumption is likely to be based on the used for price inflation, with an addition of 1% or 2% to reflect historical experience. 1.3.5 The Service Table Based on above model, we can construct and use the service table. We define a radix, as expected number of actives at age and we also define to be the expected number of who will retire at NRA, retire with ill health, die and withdraw, respectively before. Probability of that active member at age x should suffer any one of the decrement before age are: 1.3.6 The Salary Scale It is the increases in pay an employee gets when they spend a certain length of time at a particular level over a period of time due to inflation and promotion. We define salary scale inclusive of salary inflation and promotion for a person aged after years: 1.3.7 Valuations for Past Service Benefits (PSB) and Future Service Benefits (FSB) Let pension scheme provides a pension of 1/100 of future final pensionable salary, guaranteed for 5 years and if person died his widow will get 50% pension, a person joins scheme at age, with past service of and his current salary is Sal and it is assumed 90% married proportion. Let be EPV of an age retirement pension of 1 p.a. commencing at age. Future pensionable salary at age Probability of retirement at age We now define some functions: where we define: Similarly we can define functions for ill health retirement (), withdrawal and death. We have to take care of survival probability for person withdrawing from the pension scheme before retirement till his normal retirement. Now we look at: , accumulated for each future year of service till retirement age. We will accumulate each year accrual separately till retirement so total FSB is: where we define: Example 1.1: Suppose 1.4 Actuarial Funding Methods 1.4.1 A good funding method should meet the following four factors (Lee E M, 1986) Stability: It is generally accepted that an employer will look for Stability. Fluctuating cash flows are considered unacceptable. Liquidity: Only expected present value of future income is greater than expected present value of future outgo is not sufficient condition. Any funding method must ensure there is enough money available for the fund to pay the promised benefits. Security: Any funding scheme is secured if sufficient fund is built up to make future liabilities payments. However, as Lee (Lee E M, 1986) says the mere existence of fund separate from the assets of the employer obviously does not in itself guarantee pension rights. The size of the fund in relation to its liabilities is crucial. Durability: Basically it is special case of stability; it is required to deal with changing structure, without becoming unstable. However, the relative importance of these and other issues affecting the rate at which funds are put aside to meet future liabilities varies from case to case. 1.4.2 Actuarial Funding Methods After calculation of liabilities considering actuarial assumptions, we will look now the available methods of funding to fund required to meet future liabilities. The term funding method is used to refer to the way of determining the amount and timing of contributions made to meet the future liabilities. Whichever the method we use, the main objective is always the same, the contributions made to the fund, have to be sufficient to ensure that promised benefits are paid on time. Under the funding methods we need to define the following: Standard Fund (SF) This is the amount of liabilities to be recognized (theoretical value of fund that should be held) as on valuation date. Standard Contribution Rate (SCR) This is the amount of contribution required as derived by the method used. It assumes that fund held equals the standard fund. In this context the fund may be taken to be the value of asset held in pension fund. The contribution derived may be defined as an absol ute amount or percentage of salary. Contributions are only normally payable in respect of members accruing benefit i.e. active members of pension scheme. Recommended Contribution Rate (RCR) This is the contribution rate which is required to maintain the accrued liability and accumulated fund equal. Therefore RCR is SCR plus correction adjustment (i.e. any imbalance between the accumulated assets and accrued liabilities). We will discuss the following three methods of funding: Entry Age Method Aim To establish the level of contribution rate that, when payable over the active lifetime of the employees, is sufficient to meet the benefits being provided. Description Attained Age Method Aim To establish for active members of the pension scheme the level of future contribution rate such that, the future contributions will sufficient to provide future accruals of benefits. Description Projected Unit Credit Method (Projected Unit Method) Aim To main tain a fund equal to the value of accrued benefits, by taking in to consideration projected amount to date of payment. Description We will look in later chapters at the available mortality tables, the effect of changing mortality table and impact of future improvements on funding methods discussed above. Chapter 2: 2.1 Morality Assumption and Standard Mortality Tables Benjamin Franklin wrote, In this world nothing can be said to be certain, except death and taxes, but while death might be a certainty, its timing is far from certain. As with any actuarial calculation, technical provisions require assumptions to be made about the future course of all those factors affecting the cost of providing the benefits. These assumptions must beÂÂ  chosen prudently. Key assumptions will include inflation, investment return and how long scheme beneficiaries are expected to live (longevity). A mortality rate refers to the assumed probability of dying within a year whereas longevity usually refers to the future expected lifetime derived from any particular set of mortality rates. There have been significant new developments in the field of mortality relevant to pension scheme funding. Evidence has shown for many years that mortality is steadily reducing, so that the expectation of life (longevity) is increasing. Evidence also shows that there is s ignificant variation in pensioner mortality by amount of pension. There is evidence to suggest that socio economic circumstances and lifestyle choices such as smoking, drinking and exercise habits have an impact on mortality. However, it is not likely that these factors can be accessed directly. We should bear in mind that mortality has the following features: wide variability is observed between individuals; there is variability year on year in the whole population; long term trends can be observed in age specific mortality of whole populations; and historically, experts have usually underestimated the rate at which mortality will reduce (longevity increase). An analysis of a schemes own mortality experience will usually provide relevant evidence. However, with a small membership, random fluctuations could make this unreliable as a sample from which to draw inferences about the future. In the case of small schemes, it may not be worthwhile to undertake this an alysis, instead relying on more general factors such as industry, occupation or pension size or use of the standard tables. There are two basic decisions need to be taken on mortality assumptions while valuation: the base table (including any adjustment) to reflect the schemes current mortality experience; and the allowance for future improvement. We are available with many pensioners mortality tables some older ones are: Based on 1967 1970 experience collected from UK insurance companies: Life Office Pensioners, Female, Amounts (PA) 90f. Life Office Pensioners, Male, Amounts (PA) 90m. Based on 1991 1994 experience collected from UK insurance companies, published in CMIR 17, 1999: Pensioners, Female, Amounts (PFA) 92. Pensioners, Male, Amounts (PMA) 92. Latest are: Based on 1999 2002 experience and around 90,000 deaths, collected from UK insurance companies, published in CMI Working Papers 21 22, 2006 and CMIR 23, 2009. Pensioners, males, N ormal, Amounts (PNMA00) Pensioners, females, Normal, Amounts (PNFA00) Based on 2000 2006 experience called SAPS tables Series 1 S1, collected by 30 June 2007 from UK self administered pension schemes (SAPS), published in CMI Working Papers 34 and 35, 2008. All pensioners (excluding dependants), Female, Lives (S1PFL) All pensioners (excluding dependants), Female, Amounts (S1PFA) All pensioners (excluding dependants), Female, Amounts, Light (S1PFA_L) All pensioners (excluding dependants), Female, Amounts, Heavy (S1PFA_H) All pensioners (excluding dependants), Male, Lives (S1PML) All pensioners (excluding dependants), Male, Amounts (S1PMA) All pensioners (excluding dependants), Male, Amounts, Light (S1PMA_L) All pensioners (excluding dependants), Male, Amounts, Heavy (S1PMA_H) The data collected by CMI which covers 7 years period, which includes almost 10 million lives and around 380,000 deaths and collected from 350 separate pension schemes (Punter S outhall, 2008). (See Appendix I Table 2.1 for the extracts of some of the tables mentioned above.) 2.2 Selection of Mortality Table It is normal practice to use standard mortality tables, unlike when choosing other demographic assumptions. However, you may choose to adjust those standard mortality tables to reflect various characteristic of covered group, or to provide for expectation of future mortality improvement. If the scheme population have sufficient credibility to justify its own mortality table, then the use of such table could be appropriate. Unlike other decrements, mortality rates have consistently improved in the past. Past experience indicates mortality rates have continued to improve and that we can see in the available old and latest mortality tables which can be shown in Appendix II Fig: 2.1. In 2008, the Office for National Statistics published the 2008 based UK national population projections. Using these new projections results in a significant change from our previous assumptions, which has reflected the 2006 based population projections. Appendix I Table 2.2 shows comparison from 2006 to 2008 data of expected future lifetime values for male aged 65 years with and without future improvement in mortality. As we can see from 2006 to 2008 with or without improvement in mortality expectation of life have increased around 13.1%. The effect of a change in mortality basis on schemes liabilities depends on individual factor such as the age and gender profile, and the balance between current and former members and the benefits payable. A strengthening of longevity as explained above would be expected to increase the cost of accruing benefits in pension schemes by around 0.5% to 1% of pensionable pay and significant effect on PSB. But the actuarial profession publishes standard tables of mortality rates derived from extensive analysis of information it collects from insurance companies. So we will only focus on available standard tables. 2.3 Probability of survival and expected no. of deaths Appendix II Table: 2.3 and Appendix II Fig: 2.2 shows conditional survival probabilities for an individual aged 65. We can note that as mortality is improving probability of survival increases to higher age and people live longer and more benefits will be payable as they live longer. We can see from Appendix I Table 2.4 and Appendix II Fig: 2.3 how no. of deaths which have reduced over past years. We can also note that expected no. of death of person aged 55 in 1980 and in 2008 have dropped around 50% and expected no. of death of person aged 75 in 1980 and in 2008 have dropped around 40%. This definitely shows that people live longer and these will have effects on pension scheme and its pace of funding. 2.4 Expectation of Life Particular attention should be paid to assumptions about future mortality. Here the experience is of a sustained trend in one direction, that of longer life expectancy (i.e. decreasing mortality rates). We must use the latest available relevant data on likely future mortality rates. We can see the expectation of life of a male life aged 65 has increase from around 15 years in 1980 to 19 years in 2008. (See Appendix II Fig: 2.4) In the UK, where pensions are index linked (and for which the impact of changes in mortality are therefore more significant*), a pension liability calculated using a base (i.e. un projected) mortality table might typically increase by 30 percent when switching to the same table projected forwards to allow for future improvements, and by 35 percent when switching to a generational table based on the same base mortality table. (Figures are based on the approximate increases at age 65 for a UK male born in 1950. For older plan members and for current pens ioners, the impact will be less.) (See Appendix II Fig: 2.5) (* The impact of mortality improvement on index linked pensions is greater than on flat pensions because the amounts paid to those who live long are much greater.) Over the last 25 years the no. of people aged 65 and over in the UK has increased by 16 per cent, from 5.5 million to 9.8 million. In 1982 the population aged 65 and over accounted for 15 per cent of the population; by 2007 this had reached 16 per cent. There are far older people in the population than ever before. In addition, the older population itself is ageing. The fastest increases in population were seen for the population aged 85 and above (sometimes called oldest). Since, 1982 the no. of oldest have risen by nearly 680,000, to reach 1.3 million in 2007. Oldest represent 1.1 per cent of total population in 1982 and, nearly double in 2007, represent 2.1 per cent of total population. National population projections indicate that population ageing w ill continue for next few decades. By 2032 the no. in oldest population is projected to more than double, reaching 3.1 million representing 4 per cent of total population. The no. of people aged 65 and above is projected to increase by two third to 16.1 million, while the no. of people between ages 16 to 64 will only increase by 2.90 million. Based on projections, the population aged 65 and above will account for nearly 23 per cent of the total population in 2032, while the proportion of the population aged between 16 and 64 is due to fall from 65 per cent to 60 per cent. (See Appendix II Fig: 2.6) 2.5 Main drivers of past and future mortality Medical Advances: Medical advances have been responsible for a large element of current improvements in mortality rates. Smoking Trend: The prevalence of smoking in the UK fell from 51 per cent for males aged 16 and above in 1974 to 28 per cent in 1994, since when declined has slowed, with 25 per cent of males smoking in 2005, with similar trend in female smoking prevalence. Infectious diseases: Whilst recent medical advances and other factors have continued to lead a regime of increasing life expectancy, other factors work in opposite direction. These include the threat from new infectious disease and the re emergence of gold ones, such as tuberculosis, which may prove resistant to existing antibacterial agents. Uncertainty at young ages: Mortality rates in 1980s and 1990s increased for young ages as death related to AIDS, drug and alcohol abuse and violence more than offset improvement in health related causes of death at these ages. The cohort effect: Various explanations for cohort effects have been put forward like: Differences in smoking patterns between generations Better diet and environmental conditions during and after the Second World War Differing birth rate, with those born in periods of low birth rate facing less competition for resources as they age Benefits from the introduction in the late 1940s of the Welfare State These generations have benefited from medical advances which have increasingly affected older people. 2.6 Assumptions of Future Improvement in mortality and life expectancies Current annual improvements in mortality rates vary considerably by age and sex. The mortality projections assume that these rates will gradually improve. We will see how these improvements affects expectation of life considering period and cohort effect. Period life expectancy is the average no. of years a person would live based on age specific mortality rates throughout his life. It does not allow for any later actual or projected change in mortality. (E.g. life expectancies are worked out assuming pensioner experiences the projected mortality rates for age 65 in 2008, age 66 in 2008 and age 67 in 2008 and so on.) Cohort life expectancy are calculated using age specific mortality rates which allow for know or projected change in mortality in later years and it measures how long a person of a given age would be expected to live. (E.g. life expectancies are worked out assuming pensioner experiences the projected mortality rates for age 65 in 2008, age 66 in 2009 and age 67 in 2010 and so on.) Period life expectancies are useful measure of mortality experienced over given period and for past years. Cohort life expectancies, even for past years usually require projected mortality rates. Above mentioned period and cohort life expectancies are illustrated in Appendix II Table 2.5 and Fig: 2.7. It is noted that in 1981 the period life expectancy was around 13 years and cohort life expectancy was around 14 and in 2051 it has increases to around 23.7 years and 25.3 years respectively, which shows that pensioners live longer and that affects pace of funding. For example a person aged 65 now his expectancy is compared in Appendix I Table 2.2, which shows just in 2 years time how these life expectancies have changed. It might be appropriate to adjust standard mortality tables to reflect scheme, employer or geographic factors where evidence exists to support this. Consideration should be given as to the likely persistence of these differences in the f uture. Illustrations can be of variety of forms, such as: mortality rates at certain sample ages; risk sensitivity on funding methods by showing the effect of a 10% reduction in all mortality rates; life expectancy at certain sample ages; annuity factors at certain sample ages on period and cohort mortality rates; showing the discount rate shift which is equivalent to the mortality improvements adopted; for large schemes, showing charts of future funding levels based on initial funding, future contributions; small schemes might wish to illustrate concentration risk by, for example, scenario testing (e.g. by supposing those with the highest liability survive 5 years (say) longer than assumed.) Chapter 3: 3.1 Impact of different mortality tables on Funding Methods As discussed in chapter 2 of available mortality tables, we now analyze the impact of using different set of mortality on funding methods (i.e. on SCR, SF and RCR). While not wanting to increase employers costs needlessly, we might use up to date mortality when calculating pension scheme solvency or contribution requirements. Thus, there may be specific evidence (for example, a study of actual plan mortality experience) to suggest that plan members will experience heavier than average mortality. So how significant are the differences between the various types of mortality tables? Or more important, what is the impact on pension liabilities and costs of changing the assumed level of future mortality? The answer, of course, depends on the current mortality assumption and other assumptions. 3.1.1 Actual pension calculation We can assume one pension scheme which pays pension of 1/80th of final pensionable salary and 50% widows pension with assumed male members given in Appendix I Table 3.1 and we will analyze the effect of changing mortality table on SCR, SF and RCR. Other assumptions are. We can see from Appendix II Fig: 3.1 and 3.2, because of improvements the mortality has decreased from 1980 to 2008. There is increase in SCR and RCR due to increase in future accruals and benefits because of decreased mortality rates. If we compare these rates using similar mortality S1PMA, we can note that these rates are decreasing as we compare light to heavy mortality respectively. Similarly we can see in Appendix II Fig: 3.3 where SF has same effect, but as under attained age and projected unit method definition of SF is same so it will have same value but under entry age method it will always be higher. 3.2 Future Improvement in mortality For funding valuations where tables have not already been moved to a projected basis, companies are likely to face pressure from management boards, employee representatives and plan trustees to move to more realistic mortality assumptions, leading to increased contributions to the plan. If companies assume heavier mortality than their scheme members actually experience, shortfall in fund and actuarial losses will emerge as pensioners live longer than expected and it increases the pace of funding. Companies typically use the same mortality assumption for their funding valuations as for their accounting valuations. But there is an argument that the prudence assumption has to be built into a funding valuation to calculate contribution requirements and plan solvency which is not appropriate for an accounting valuation. The materiality of the mortality improvement assumptions increases when: The group being valued is predominately active lives. The scheme provides cost of li ving increases. If we underestimate future improvements the cost of the pensions to be paid in coming decades will also be underestimated. And the contributions made as financing will be too low, all other things being equal. On other hand, if people dont live as long as assumed we may have locked money unnecessarily. The developments over past few years lead us to choose mortality by two steps. First we decide upon base or current mortality for the pension scheme and then if required we apply some set of improvements to obtain assumptions for future years. There is tremendous change in population structure age wise as shown in Appendix I Table 3.2 and Appendix II Fig: 3.4 in 1981 around 20.2% of population was over age 60 where as in 2010 around 22.5% of population is over age 60 and it is expected that this will increase to 30.8% of population by 2051 which definitely shows how people are living longer which increases pressure on pension schemes and its pace of funding. For people from over pension age group, in 1981 it was around 10.0 million from total population and in 2010 it has reached to around 12 million due to improvements and these trend is expected to continue and no. of people in over pension group in 2051 are expected to be around 16 million (See Appendix I Table 3.3 and Appendix II Fig: 3.5). These growing populations will have large impact on pension schemes and its funding. 3.3 Suitable funding method After discussing effect of different mortality rates on funding methods we need to see which methods will be most suitable for funding pension scheme: Entry Age Method Under this method for contribution, only prospective members future benefits are considered so there might be accrued liability of present members which is unfunded. Future funding contributions are the entry age future benefits and adjustment for difference between accumulated assets and accrued liabilities. Attained Age Method As these calculations ignore accrued benefit, another calculation is required to compare the accrued liabilities with accumulated fund assets. The accrued liabilities are calculated in same manner under PUM and adjustment also made in exactly same way as under PUM. The important factor under this method is that it focuses on stability of future. Projected Credit Unit Method (Projected Unit Method) This is arguably the most important actuarial funding method, so it is importa nt to understand its fundamental objectives. The goal is to maintain the pension fund assets at such a level that, with future contributions the fund will be able to pay all accrued benefits until the last beneficiary dies. Each method has its own strengths weaknesses. The SCR and RCR as percentage of earning are obviously more under the attained age method. However the SCR and RCR under the entry age and projected unit methods are satisfactorily level as well. However if we compare SF, it is more under entry age method than attained age and projected unit method. And the use of any of these methods should not cause concern to pension schemes but the crucial thing is mortality assumption to use for these funding methods. Chapter 4: 4.1 Conclusions It is very difficult to justify mandating a single actuarial funding method with single mortality assumption. Employers in different industries or at different stages of their development (from start up to developed) will have correspondingly different funding objectives and experiences different mortalities. All funding methods described and discussed in chapter 1 are sound and systematic, but it is important to select ideal mortality assumption considering improving mortality. This leads to the following conclusions on the observations: Periodically updating the mortality table assumption to reflect current mortality levels with or without mortality projections or using mortality projected beyond the valuation date may accumulate assets closer to accrued liabilities. The stronger the mortality change, the grater the difference between funding methods if mortality assumptions are not updated on regularly. Defined benefit pension schemes that experiences consistent mort ality improvements and do not adjust or update the mortality tables may develop inadequate assets. This project suggests updating the mortality table will help maintain the assets level close to accruing liabilities. Mortality rates have decreased significantly over the last few decades, and the improvement continues. But there is considerable uncertainty over future trends in mortality. Companies that sponsor DB plans are left with difficult decisions about what allowance to make for future age improvements when determining costs. It concludes that there is considerable evidence suggesting that socio economic variables affect mortality rates, in particular there exists an inverse relationship between mortality rates and pace of funding. The study showed a strong inverse relationship between funding methods and post retirement mortality, and that this relationship diminished with age. To make allowance for future improvements in mortality, an adjustment can be made to the discount rate (investment return assumption). Additionally, as a matter of good practice, an adjustment to one factor to allow for prudence in another factor can be made. However, the interest rate deduction which is equivalent in its effect to the improvement factors adopted could be useful. 4.2 Recommendations: There are many ways in which we can tackle the problem of future improvement and decreasing mortality. One way of approximate allowance for uncertainty in future improvements and decrease in morality is to adjust other assumptions (for example, using a latest available mortality table, but reducing the discount rate by 0.5% to compensate for improvements). Another change can be made in pension scheme by capping pensionable salary growth to some fixed level to control the impact of pay rises on DB pension costs. Another can be longevity swaps which means derivative contract that offsets the risk of pension scheme members living longer than expected. This is a scheme that makes regular payments based on agreed mortality assumptions to an investment bank or insurer and, in return the bank or insurer pays out amounts based on the schemes actual mortality rates. Pension schemes keep assets and so retain investment and inflation risks. The swap counterparty is usually an investm ent bank, which then lay off all mortality risks. Pension scheme pay a fixed regular premium to offload the risks that they will have to keep paying out pensions to retirees for longer than planned for In the UK, the use of generalized linear models (GLMs) to help and understand longevity exposure in pensions schemes. Some suggestions that companies can do to manage the risk of decreasing mortality and future improvements: Review current processes: Many companies can manage the process by reviewing their selection of funding assumptions on regular basis. But, the important factor is that companies should make an effort to understand their schemes assumptions and how they relate to their specific experience. And they should thoroughly review their scheme and assumptions, possibly analyzing industry wide experience or segmentation of their scheme membership in more detail. Analyzing the risks: Carrying out a detailed analysis to identify and quantify the main risks in valuation and funding, including mortality, in providing benefits. This will help companies explore how these risks can be managed or mitigated. Buy out the risk: One of the important possibilities can be that to buy out the pension liabilities using group annuity insurance policies, where insurance markets are developed. In theory, this is one way to settle all aspects of the pension obligation (not only mortality risk, but also expense and investment risk) and may be the only way of terminating a plan. Insure against volatility: Reinsurance of longevity risk is one option, although this is very challenging to set up and has not yet been used extensively but, innovation is leading to other ways of carving up the mortality risks of pension funding more cost effectively. 4.3 Direction to further research In the process of preparing the project, several issues have come up which are to be considered for additional research. Is there a relationship between the concentration of retiree lives and appropriate projection of mortality table? It seems that choosing an appropriate post retirement mortality table is very important with regards to ensuring adequate assets, but how important are pre retirement mortality tables? There can be many mortality adjustments which can be analyzed based on following factors: Collar (White (Skilled), Blue (Unskilled), etc.) Income Occupation Country of Residence or other geographic location Presence of medical coverage It would be interesting to know how often valuing actuaries are changing mortality assumptions. One suggestion to find out: When the mortality assumptions were changed What was the new mortality table What is the size of pension scheme Is there any correlation when mortality assumptions are changed with the release of new mortality tables and when a mortality table is prescribed by law? These shows improvements in longevity come at a cost. Although there are wide ranging, socio economic costs associated with improved longevity, it is the pressure on pension schemes that has frequently caught the attention of governments, companies, and the general public. Employers have come under increasing strain as with limited amount of available capital is used to provide pensions for longer periods than expected when the schemes were designed.