Article Explaining Pension Plan Stochastic Modelling Published in Benefits Canada

Benefits Canada Magazine

The ups and downs of stochastic modelling

Article written by Julia Friesen, Analyst at PBI Actuarial Consultants Ltd., in collaboration with Charles Manty, Investment Consultant, published in Benefits Canada.

Extract

Are you interested in forecasting your pension plan’s funded position? If so, read on.

In fact, you can even determine your plan’s expected average contributions and funded position just by having an idea of what average inflation or investment returns to expect over the next few years.

Still intrigued?

Stochastic modelling—estimating potential outcomes by allowing for random variation in one or more inputs over a period of time—allows pension plans to do just that.

However, in the process of forecasting your plan’s funded position, you’ll have to consider the following questions:

• How high or low could inflation and investment returns end up being over the next few years?
• How strongly or poorly funded could your plan become at the end of, and during, those years?
• How can you determine a credible range of possible future funded positions?

Stochastic modelling can help you tackle these issues.

Please click on the links above to view the article.

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