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Dear Sir,
From what I’ve understood, a companies pension scheme asset cannot exceed it’s asset ceiling. Asset ceiling arises when a company no longer needs to contribute as much as before.From the OT notes:
“Asset ceiling is the present value of any future cash savings of not having to contribute to the scheme as it is in surplus”What i don’t understand is, the asset ceiling is a saving, that the company does not have to contribute towards the employees pension scheme. so why is it being recorded as a pension asset?
If the pension asset is 10, asset ceiling is 7, shouldn’t only 3 be recorded as a pension asset, as 3 is the amount which the company needs to contribute towards the scheme. because by definition asset ceiling is “future cash savings of not having to contribute”. so in this eg, the company is saving 7 and needs to pay only 3 towards the scheme.
However, in the notes, 7 is recorded as an pension asset, and 3 is expensed…could you kindly explain please?
ThanksIn pension questions you just have to copy the numbers into the right place in the accounts.
Anything else belongs in the actuary exam!
The asset ceiling is the theoretical concept. The standard requires us not to allow did pension asset to exceed this amount. That’s all that you need to worry about
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