Factorsets
Factorset assumptions allow the schemes retirement factors (e.g. for early and late retirement or cash commutation) to be overridden with something else during a valuation. This might be useful to help conduct a factor review, or to allow cost neutral factors to be used for a particular basis type.
Each set of factors on a scheme can be overridden independently of the others. New bases that are created list all the factorsets with all status all category type assumptions and as usual more categories can be added for specific categories and member statuses. The list of factorsets will be unique to the scheme and determined by the scheme benefit setup.
Clicking on the rows brings up the dialogue:
There are several assumption types:
table by age is a straight replacement of the age related factor table with another.
table by age/year is allows different factors to be used for each future year.
table by age/period from event allows different factors to be used for different periods of time in service or deferment. It is included for consistency with other aspects of basis setting but probably not relevant.
table by age/period from vdate allows different factors to be used for different periods of time since valuation and is therefore equivalent to age/year
table by age/index allows different tables to be applied for different members depending on the value of an arbitrary integer lookup. For example for different categories of members.
cost neutral estimate instructs mantle to calculate an estimate of cost neutral retirement factors specific to the current valuation basis, the method for which is set out below.
The inflation rate overrides the future inflation rate associated with Early Retirement Factors. These are only used where the benefit calculations stipulate that pensions on early retirement should be revalued to normal retirement date before application of the factor. Care should be exercised to ensure that replacement factors take account of the customs of scheme in terms of factor setting. The inflation rate also affects the behaviour of the cost neutral estimate method.
Cost Neutral Estimate
Mantle knows whether the factor is of type cash commutation factor or early/late retirement factor.
Cash commutation factors are calculated as a single life annuity for the member, using the relevant post retirement discount rate and mortality assumption taken from the basis itself. It is most accurate to just set the basis for no cash commutation if a cost neutral cash commutation assumption is required. If you do use this option, note that Mantle does not know whether the scheme implements a single factor or different ones for each different pension increase regime in scope, so it uses the inflation rate assumption as the pension increase rate within the annuity.