 Hey guys, it's MJ the student's act tree and we're talking CT5 chapter 11 Which is pension funds now pension funds are one of those things that you either get or you don't if you get them This is the easiest chapter in the course if you don't this is probably going to be one of the most challenging So let's go through it if you don't understand it. I have made a little Cheat sheet at the end that you can just learn off by heart and get a few marks for But otherwise you might grasp it and you might be able to get full marks So yeah, we're just going to talk through this chapter this is the notation that we need to know and These are the various sections. We're going to be going through The first one is actually quite easy. It's this whole lump sum on age retirement. So When someone retires, they're going to get paid a thousand bucks. Okay, and it's quite simply this formula Now we've seen D 50 before but we've never seen the CR 65 Okay Now this is where pensions gets a little bit interesting and that is you get to define this notation as you see fit So I've defined the C 65 are to equal this You'll see later on that we can define it to mean something different. So in pensions sometimes This is the answer. You write down in the test. There's no numbers. There's this is it You write down that formula and you define what your Features are all your your commutation functions are But it can get a little bit more difficult and what we're going to see we're going to just progress through the varying levels of difficulty Because now let's say the last one you got a lump sum on retirement Well, I'm so you're going to get a lump sum on death and the difference between death and retirement is that death can occur on Any year whereas retirement we said was going to happen on age 65 So now we define this new symbol called M and what M is it is the summation of CD and CD is Very similar to what we had before but now it's on the death Decrement and look how we've made it X plus or half before it was the X and the X aligned Why have we done that? Well, think about it deaths can occur Any time of the year so we make the assumption that they occur Uniformly across the year which means on average they're going to happen halfway. It's an assumption but it makes good mathematical sense and So that's all we had to define this and we needed to define this in order to define this which is then used in the question Okay, but don't worry it gets more challenging We introduced this thing known as the salary scale so in business or when you start to work your salary will grow this will Be because of inflation and because of merit, you know, you're getting more experienced You're getting smarter Well, hopefully so salary scale. It's it's quite a simple process I don't want to spend too much time on it, but basically if you're earning 25,000 Now you use the salary scale and it'll tell you that at age 40 You should be making 39,000 Then there's also this whole accrued benefit future benefit perspective service benefit Very good to read through because you need that when you now start bringing in Final pensionable salary and what this is it's what's your final salary going to be and you can see we've got this other Function here called Z. But Z. It's not that bad. It is just the average of your last three salaries the last three of them and The big thing is with the salary scale is note that we use sx minus one and not sx Okay, this is because we the question will normally talk about the salary He was making in the previous year if the salaries are revised continuously, then it's going to be x minus a half Okay, now when we combine the salary scales with Retirement or death or whatever we can get these expected cash flows Okay, but they're not very rarely asked in the test What we normally asked is the expected value so here the expected value of the death and service benefit and Now what we're doing is we're bringing in the salary scale and We have to create a new commutation function and This is smxd and you can see it again. It's a summation this one stops at mpa minus one and That's the last retirement date and you can see here. We introduced the salary scale And we introduced it over there. So we get the whole salary effect and it all works out quite nicely Like I said, don't worry if you'd not understanding this some people grasp it other people don't I'm more on the Don't side, but I have been that's probably why I'm not explaining it that well But we'll get through to it and right at the end. I'll show you a quick way how do you know how to answer these questions? So this is when age retirement is on benefit you're gonna get a proportion of your salary It's like a loyalty thing. So the longer you work the more years you Gonna be so that m you're gonna get a greater faction of your salary and what's interesting here Okay, compared this one to this one over here. This is the death benefit. You're getting four times this one you're only getting a fraction of it, but You see it's RA now and what we've done is we've introduced an annuity here in the C commutations and I'll see now is because it's on the average salary. It's going to be Zed Okay, and it's revised continuously So you can see it starts getting very tricky very quickly I've just defined the rest of the notation we use over there But it gets it gets harder. Okay, because you can also do the expected present value of the future service benefit Okay, and with this one we introduce the symbol R and R is the sum of the M's and remember the M This is M bar now needs to just be corrected for because it's a continuous. Yeah You can see it starts getting difficult. Okay This is a typical question that you might be asked in the test And you can actually see that it's not that bad because these values here are tabulated in the orange book So this question would be saying with only three marks. You'd write this out You put in the figures and it's simple simple It starts getting tricky When you know, they start introducing these little things like patches not included Okay, because then notice how the bars not included because part is not included. This isn't tabulated So you'd have to go and get each of these tabulated functions Okay, and yeah, I mentioned that there could not find them in the tables But then they could also say that there could be a maximum pension of 40 60th or final pension salary and then that way you have to subtract And if it's certain conditions, so it starts it starts escalating. So it's getting quite tricky The ill health retirement benefit. This actually makes it much simpler. It's just a different decrement. Otherwise, it's kind of the same stuff And then the final thing is this whole future contributions, which introduces yet another commutation function Okay, and this is the sum of D bars and D bars is equal to that And this is how much what percentage of someone's salary do they have to contribute in order to Meet sub pensionable fund Okay, so if this has gone all over your head Don't worry. I have made this cheat sheet all in which I have to Have to just drag up here. So run out of screen space Is it all gonna fit in no it doesn't all fit in okay, but essentially If you learn this Okay, learn this what this is. It's just a breakdown or a quick summary of all the things that we have gone through You'll know that when they want to lump some put in this one when they want to lump someone dead put in that one When they want an annuity benefit past age retirement you put in that one when they want a future one you put in that one so kind of learn this off by heart if you don't know what's going on and Especially if like you've got two days before the exam and then just learn They will be quite a nice little pattern that you'll see emerging with these ones So they aren't that hard to learn and then you're in the exam You might get a an easy question where you just write out this formula and you put in the table values And it's really easy or it can be really hard where there's those You know, it's only part she has not included and there's a maximum Introduce and they might introduce something else. That's really funny That way then you are in a little bit of trouble because you need to think the question through and no amount of learning will We'll be able to get through it But if you do write up this basic structure, you will pick up one or two marks You won't just get a zero for that question But like I said, I'm probably not the most qualified person to be talking about this Because I am one of the people who do battle with it But yeah, I've been doing some past papers and some of them look like a set of very easy and others are quite tricky But yeah, this is Chapter 11 pension funds Yeah, I hope I explained it Ask ask questions in the comment section below. I might not be able to answer them But maybe somebody else who's watching them will be able to answer them So check out the comments and answer the questions if you can Awesome. Thanks guys and study hard. Cheers