Pension actuarial valuations aims to assist governments and the management units of social security schemes to ensure the long-term financial, fiscal, economic and political viability of their pension scheme as well as the adequacy of the benefits provided. They are especially important when analysing the financial and adequacy effects of major structural reforms in the case of existing schemes.

The actuarial valuation of a pension scheme is performed through several stages by using a set of tools and models for the financial projections of social insurance schemes. These models can be adapted to the particular situation of various national pension schemes. The main ones are:

• The population projection model (ILO-POP) produces population forecasts which match the standard UN methodology for demographic projections on the basis of an initial population structure combined with mortality, fertility and migration assumptions. The model is used as a standard input producer for the ILO actuarial pension model which requires long-term population forecasts.
• The labour force model (ILO-LAB) and the economic model (ILO-ECO) provide the projected employment and macroeconomic variables (as inflation, productivity growth, salaries growth, etc.) constituting a part of the framework for the pension model.
• The pension model (ILO-PENS) is used to undertake long-term financial and actuarial projections for national pension schemes. The model projects the insured population by cohorts of single age and gender into the future through the application of scheme entry and exit rates (probabilities of retirement, invalidity, death…). The model estimates future expenditure and revenues and computes a set of adequacy and financial sustainability indicators. The main indicators are the PAYG cost rate, the General Average Premium (GAP) and the income replacement rates.

The different stages to perform an actuarial valuation are:

• Collection of current and past data of the scheme and of the general demographic, labour and economic context;
• Tripartite consultation on the main objectives of the actuarial valuation;
• Data review, clarifications and additional data requests;
• Setting assumptions and validating with stakeholders;
• Actuarial projections: data processing, analysis and consolidation, model calibrations, calculations, result analysis and sensitivity tests, reform options (if any) and calculations in line with reform options (if any);
• Draft report including analysed data, assumptions, main results and indicators and recommendations;
• Comments on the draft report by stakeholders;
• Presentation of the final draft report integrating the comments from stakeholders and endorsement of the report by the government; and
• Possibility of training the staff on the use of the model.