The valuation of a social security scheme includes analysis of future uncertainties and their impacts on the scheme. An actuary identifies and, if possible, quantifies risks stemming from future uncertainties.
Uncertainty is intrinsic to the valuation since it addresses future events, and users of an actuarial valuation must be aware of this fact. The actuarial analysis of social security schemes is based on models as well as on a number of assumptions. Social security schemes are very complex and their future income and outgo depend on many economic and demographic factors, so the models will not be a perfect representation of future reality. Moreover, the projection of cash flows of social security schemes is performed over an extended future time period. With the passage of time, the emerging picture will almost certainly differ from the projections of any actuarial valuation.
The social security institution, as part of its risk management process, should identify future uncertainties and address the risks they pose to the social security scheme. This guideline should be read in conjunction with Part E of these Guidelines.