PENSION FUND CREDIBILITY

• Main Author: Christ Aditya, Kevin
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/84117
• Institution: Institut Teknologi Bandung

Increased financial literacy of the needs and risks during retirement has led to an increase in the number of pension plan participants in recent years. This trend is expected to continue growing in the coming years. A method to determine the amount of reasonable pension contribution that reflects the level of risk faced by each participant is needed, with the aim of workers obtaining retirement benefit and pension funds being able to cover their obligation to pay benefits. This poses complex challenges in modelling diverse actuarial assumptions, such as mortality, morbidity, and interest rates. A credibility method is proposed to utilise past experience data to predict future contribution rates. This method considers the risk characteristics of pension insurance participants, leading to more precise estimates. This study applies credibility method to Company ABC’s defined benefit experience data by partitioning using limited-fluctuation model (LF) and greatest-accuracy model (GA). The distribution approach and the sample mean approach are used to estimate past experience, with the loglogistic distribution being the best candidate to describe contribution rate. Analysis suggests that the distribution approach partitioning using the GA model has best prediction ability based on RMSE, with MAE values in the range of 11-15%. Based on the GA model with the distribution approach, workers should set aside 12.22% of their monthly base salary to fulfil their retirement benefit obligations.