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Hurdle Rate

arongunninghamarongunningham Member
edited October 2018 in Technical stuff

One of those really annoying questions (sorry)!

For a DB transfer, can we still call a single life annuity CY including escalation a 'hurdle' rate?

Does a hurdle rate have to be single, level, no escalation?

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Comments

  • Andy_SchleiderAndy_Schleider Member

    I think there is a good explanation of this in the AF7 examplar, question 1

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  • arongunninghamarongunningham Member
    edited October 2018

    oh yeah!

    The ‘hurdle rate’ is the annual investment return required after charges, to provide a capital sum sufficient to purchase a single life level annuity, with no guarantee period that matches the initial level of scheme pension payable from scheme normal pension age.

    The ‘critical yield’ also includes the capital cost of future escalation for the pension in payment, dependant’s benefits and any guaranteed period.

    ...Seems like it would be inappropriate to call anything else a 'hurdle rate'

    Thanks

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