Assumption analysis IAS 19

Fair and more justifiable assumptions. That is the goal of conducting an assumption analysis. It provides an analysis of the assumptions used for a client’s IAS 19 valuation.

PRI helps clients with IAS 19 valuations of pension liabilities. The valuations are based on a handful of underlying assumptions, where the discount rate and inflation are dependent on financial markets.

Our assumption analysis helps clients make informed decisions as to the level of the other assumptions, such as salary increases, employee turnover and mortality rates.

Increased scrutiny and requirements from auditors and investors

The background to this service is that more and more stakeholders, such as auditors and investors are paying more attention to these assumptions. With that, there is increased pressure on companies to explain and justify why the assumptions and pension liabilities are as they are. We have therefore developed this service in order to assist clients analyze and explain these assumptions which in turn helps to ensure that the pension liabilities are a fair best estimate.

Assumptions based on company-specific data

PRI carries out a client-specific analysis of salary increases, employee turnover and mortality based on historical data. For example, we can generally see a relation between increasing age, falling salary increases and changes in employee turnover, especially in the ITP 2 plan where the population is ageing. This trend is an example of why many companies may wish to review their assumption-setting.

The assumption analysis is not recommended to be carried out every year, rather perhaps every third or fourth year. The analysis can be carried out for both companies that are already IAS 19 clients with PRI and for those that are not.