doc__table__722

| 65 | The Projected Unit Credit Method (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method) sees each period of service as giving rise to an additional unit of benefit entitlement (see paragraphs 67-71) and measures each unit separately to build up the final obligation (see paragraphs 72-91). Example illustrating paragraph 65 A lump-sum benefit is payable on termination of service and equal to 1 % of final salary for each year of service. The salary in year 1 is 10 000 and is assumed to increase at 7 % (compound) each year. The discount rate used is 10 % per annum. The following table shows how the obligation builds up for an employee who is expected to leave at the end of year 5, assuming that there are no changes in actuarial assumptions. For simplicity, this example ignores the additional adjustment needed to reflect the probability that the employee may leave the entity at an earlier or later date. Year 1 2 3 4 5 Benefit attributed to: — prior years 0 131 262 393 524 — current year (1 % of final salary) 131 131 131 131 131 — current and prior years 131 262 393 524 655 Opening obligation — 89 196 324 476 Interest at 10 % — 9 20 33 48 Current service cost 89 98 108 119 131 Closing obligation 89 196 324 476 655 Note: 1. The opening obligation is the present value of benefit attributed to prior years. 2. The current service cost is the present value of benefit attributed to the current year. 3. The closing obligation is the present value of benefit attributed to current and prior years.

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Source: EUR-Lex (Cellar) · retrieved 2026-11-08 · Text as adopted (Official Journal); later amendments are not incorporated in this text.