Pension Cost Measurement And Sensitivity Analysis

China is now in the accelerating phase of aging process. The past afew years has seen the government promoting a three-stage protectionscheme persistently. Pension fund market in mainland China hasexperienced great development with reformation dividend of regulationand institution. But it is still at the initial stage of development comparedof that in western markets. Then, through the comparison of two differentways of thinking, i.e. accrued benefit method and projected benefit costmethod. We explained the two rationales in pension cost measurement. Wedeveloped three equations of pension cost measurement: unit creditmethod, individual level cost methods and aggregate level cost methods.Unit credit method sees to higher, Unit credit method stands on the pointthat the increase in payoff after retirement should be tied to specific year ofservice. Individual level cost method and aggregate level cost methodlevels out contribution over the entire period of plan membership. Thedifference of the two methods lies in whether to see an employee’s accountas an individual account or the account of the firm on the whole as anindividual account. The empirical study is about unit credit method andIndividual level cost method with a real human resource database.Assumptions including mortality, substitution rate, wage growth rate,investment return etc. are set according to economic environment andexperience in developed countries. Find pension cost in differentinvestment style scenarios with some sensitivity analysis.