At the inception of, or when changes are made to a scheme, the social security institution carries out an actuarial valuation in order to address the level of protection that can be provided with a given level of financial resources and what financial resources are necessary to provide a given level of protection. The social security institution considers the factors affecting the analysis that are identified through the actuarial assessment of a social security system.
Key design parameters of the scheme, such as the minimum and maximum earnings subject to contribution, the type and level of benefits provided including the benefit formulae, eligibility requirements, retirement ages, the indexation of benefits and the schedule of contribution rates, determine the average benefit level as well as respective benefit levels for different income groups and generations and, at the same time, the cost of the scheme.
Some difficulties exist in evaluating the costs of a new scheme or of new provisions of an existing scheme which relate to the high level of uncertainty associated with the development of assumptions that cannot be based on the scheme’s specific experience and reliable data. At the same time, the success of the social security scheme and its good governance rely on decisions having a solid factual basis and on the conclusions and recommendations of actuarial valuations.