For fuller glossaries see the final pages of USS's September valuation document, the Pensions Managment Institute pensions terminology site and the Oxford University pensions site
Accrued liabilities = liabilities already created prior to a particular date (usually the valuation date)
Bond = an IOU issued by a corporation or government promising to pay the holder a certain sum (the face value) after a certain number of years (the maturity) and in the meantime annual interest payments fixed as a percentage of the face value (the coupon)
Bond-based valuation = method of valuing a scheme's liabilities using yields on long-dated gilts or high-grade corporate bonds as the discount rate
Buy-out valuation (or wind-up valuation) = valuation of a scheme's liabilities based on the cost of paying an insurance company to take them on. USS estimates this to give a higher figure than an economic valuation.
Capitalisation of liabilities (or valuation of liabilities) = calculating their present value
Cash flow analysis (or budgeting approach) = method of assessing a scheme's funding needs by predicting cash flows into the future, rather than comparing assets and capitalised liabilities.
Covenant strength = the ability and willingness of employers to increase contributions to fund the scheme
Deficit (or funding deficit or actuarial deficit) = the sum of money that would need to be injected into a scheme so that its present assets are enough to meet all its liabilities as they fall due in the future. Conventionally this sum is calculated as the excess of the value of a scheme's liabilities over the value of its assets.
De-risking = switching a fund out of growth assets (especially equities) into non-growth assets (especially bonds).
Discount rate = the rate of return used to calculate the present value of liabilities and to calculate future service costs.
Economic basis = a basis for calculating the value of liabilities that uses as its discount rate the expected rate of return on 'matching' assets, i.e. assets that match the character of the liabilities. USS takes this to mean gilts, so the discount rate used is the yield on long-dated gilts.
FRS 102 = British standard for a method of valuing a scheme's liabilities that uses yield on long-dated AA corporate bonds as the discount rate. Its predecessor was FRS 17.
Funding target = technical provisions
Future service contributions = contributions needed to cover the pension payments which a scheme will become committed to making as a result of members' service after the valuation date
Gilt = government bond
Gilts plus = using the yield on long-dated gilts plus a fixed amount, based on the historical relationship between gilt yields and rates of return on other types of assets, as the discount rate in a valuation
IAS 19 = International standard for a method of valuing a scheme's liabilities that uses yield on long-dated AA corporate bonds as the discount rate (like FRS 102).
Investment strategy based valuation = valuation of a scheme's liabilities using predicted rate of return on assets assuming the fund's present investment strategy for the coming period.
Liabilities = future pension payments which a scheme is committed to making as a result of members' service. Often 'liabilities' is used to mean those liabilities already accrued by the valuation date, i.e. created prior to that date.
Mark-to-market valuation = valuation of a scheme's assets by their current market value (whether at a point in time or 'smoothed' over a period)
Reliance on the covenant = the difference between the self-sufficiency value of liabilities and the scheme's assets
Section 75 valuation = the valuation of a scheme's liabilities used when calculating the sponsor's debt should it become insolvent. This is based on the buy-out value of the liabilities.
Section 179 valuation (or PPF valuation) = the valuation of a scheme's liabilities used when calculating its levy payments to the Pension Protection Fund. This is based on the buy-out value of the liabilities the scheme would have if it entered the PPF (which are lower than the scheme's actual buy-out liabilities because the PPF does not pay out full benefits).
Self-sufficiency (or self-sufficiency value of liabilities) = the sum of money required to meet the scheme's liabilities with a very high confidence level (defined as 95%) by virtue of being invested in a low-risk portfolio. USS currently calculates this figure by using a discount rate of the real yield on long dated index-linked gilts +0.75%.
Solvency of scheme = whether its assets exceed or fall short of the buy-out value of its liabilities.
Solvency deficit = shortfall of assets relative to buy-out value of liabilities.
Statutory Funding Objective (SFO) = the sum of assets that a scheme is required by law to have.
Technical provisions (or technical provisions value of liabilities) = the present sum of money USS determines would be needed to cover the scheme's liabilities. USS currently calculates this as the sum that would be needed to meet the scheme's liabilities as they fall due with a 67% confidence level, given USS's planned investment strategy for its assets.
Test 1 = the demand that the fund's investment strategy must be set so that that in 20 years time the self-sufficiency value of liabilities will not exceed the technical provisions value of liabilities by more than would be covered by employer contributions of 7% of salary paid annually for 20 years. (See An integrated approach to scheme funding, 2014 p. 14 and Understanding 'Test 1': a submission to the USS Joint Expert Panel, Sam Marsh, 2018)
Value of assets = what a scheme's assets are worth, whether this is determined by market value or by some other method
Value of liabilities (or present value of liabilities) = the amount of money that would be needed to meet the scheme's liabilities as they fall due if it were invested at an assumed discount rate
Valuation of a scheme = the method of assessing a scheme's funding needs used by USS, of comparing its present assets and capitalised liabilities.
Valuation date = the date to which the valuation of a scheme refers (e.g. for the current valuation of the USS scheme the valuation date is 31 March 2018)
Yield = the rate of return on a bond, expressed as a percentage of its current market value (see graph of gilt yields over last 10 years)
Yield curve = a line on a graph showing the yields of bonds of the same type but with different maturities (for more see Investopedia: yield curve)
Economic basis = a basis for calculating the value of liabilities that uses as its discount rate the expected rate of return on 'matching' assets, i.e. assets that match the character of the liabilities. USS takes this to mean gilts, so the discount rate used is the yield on long-dated gilts.
FRS 102 = British standard for a method of valuing a scheme's liabilities that uses yield on long-dated AA corporate bonds as the discount rate. Its predecessor was FRS 17.
Funding target = technical provisions
Future service contributions = contributions needed to cover the pension payments which a scheme will become committed to making as a result of members' service after the valuation date
Gilt = government bond
Gilts plus = using the yield on long-dated gilts plus a fixed amount, based on the historical relationship between gilt yields and rates of return on other types of assets, as the discount rate in a valuation
IAS 19 = International standard for a method of valuing a scheme's liabilities that uses yield on long-dated AA corporate bonds as the discount rate (like FRS 102).
Investment strategy based valuation = valuation of a scheme's liabilities using predicted rate of return on assets assuming the fund's present investment strategy for the coming period.
Mark-to-market valuation = valuation of a scheme's assets by their current market value (whether at a point in time or 'smoothed' over a period)
Section 75 valuation = the valuation of a scheme's liabilities used when calculating the sponsor's debt should it become insolvent. This is based on the buy-out value of the liabilities.
Section 179 valuation (or PPF valuation) = the valuation of a scheme's liabilities used when calculating its levy payments to the Pension Protection Fund. This is based on the buy-out value of the liabilities the scheme would have if it entered the PPF (which are lower than the scheme's actual buy-out liabilities because the PPF does not pay out full benefits).
Self-sufficiency (or self-sufficiency value of liabilities) = the sum of money required to meet the scheme's liabilities with a very high confidence level (defined as 95%) by virtue of being invested in a low-risk portfolio. USS currently calculates this figure by using a discount rate of the real yield on long dated index-linked gilts +0.75%.
Solvency of scheme = whether its assets exceed or fall short of the buy-out value of its liabilities.
Solvency deficit = shortfall of assets relative to buy-out value of liabilities.
Statutory Funding Objective (SFO) = the sum of assets that a scheme is required by law to have.
Technical provisions (or technical provisions value of liabilities) = the present sum of money USS determines would be needed to cover the scheme's liabilities. USS currently calculates this as the sum that would be needed to meet the scheme's liabilities as they fall due with a 67% confidence level, given USS's planned investment strategy for its assets.
Test 1 = the demand that the fund's investment strategy must be set so that that in 20 years time the self-sufficiency value of liabilities will not exceed the technical provisions value of liabilities by more than would be covered by employer contributions of 7% of salary paid annually for 20 years. (See An integrated approach to scheme funding, 2014 p. 14 and Understanding 'Test 1': a submission to the USS Joint Expert Panel, Sam Marsh, 2018)
Value of assets = what a scheme's assets are worth, whether this is determined by market value or by some other method
Value of liabilities (or present value of liabilities) = the amount of money that would be needed to meet the scheme's liabilities as they fall due if it were invested at an assumed discount rate
Valuation of a scheme = the method of assessing a scheme's funding needs used by USS, of comparing its present assets and capitalised liabilities.
Valuation date = the date to which the valuation of a scheme refers (e.g. for the current valuation of the USS scheme the valuation date is 31 March 2018)
Yield = the rate of return on a bond, expressed as a percentage of its current market value (see graph of gilt yields over last 10 years)
Yield curve = a line on a graph showing the yields of bonds of the same type but with different maturities (for more see Investopedia: yield curve)
No comments:
Post a Comment
Note: only a member of this blog may post a comment.