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Faculty of Actuaries Institute of Actuaries
EXAMINATION
April 2006
Subject SA4RSA Pensions and other Benefits
Specialist Applications
MARKING SCHEDULE
Faculty of Actuaries
JB 13.2.06 Institute of Actuaries
Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
1 (i) Set out the issues normally considered when deciding on which of two funds
should be the recipient for the transfer of all assets and liabilities in a merger
exercise, and state with reasons which of Fund A or B above should be the
receiving fund in this instance. [5]
Which fund is larger. [½]
Less disruption if larger fund not moved, fewer members disgruntled
etc. [½]
Which fund is better funded. [½]
Next two points subject to surplus apportionment issues: [½]
(1) Easier to move members to the better funded fund, more
security for those being transferred. [½]
(2) Existing members of better funded fund may have to accept
slight dilution of security. [½]
Which fund has better overall trustee/administration arrangements. [½]
There may be issues in rules does one fund facilitate merger
better than other. [½]
Consider any amendments that may be required. [½]
Is one company more dominant than other what are the
respective preferences of employers/trustees. [½]
Communication aspects but this will be required in both funds. [½]
Does one group of members have more difficult issues in terms of
section 197 of Labour Relations Act? [½]
Decision as to which fund to use as receiving fund
Members past service rights must be protected whichever fund is
chosen. [½]
Including any member share of surplus in B. [½]
And any employer share of surplus in B can be used in whichever
fund is chosen. [½]
No transfer can be concluded before surplus apportionment in B
concluded [½]
Therefore, it comes down to size/funding/trustee & [½]
administration/LRA section 197 issues On basis of size/funding
possibly B will be more suitable vehicle. [½]
[Up to 5]
(ii) Discuss the factors each set of trustees should take into account in [8]
deciding whether to accept the parent company s proposals
Future Benefits
Who has power to change them in rules? [½]
If employer, then trustees can only seek to influence the changes. [½]
Might not be able prevent employer from changing future
service. [½]
Should not be seen to endorse changes as members benefits
being worsened but need to proactively seek solutions. [1]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Consider implications in terms of LRA section 197 [½]
Employment contracts [½]
Get legal advice [½]
Discuss with employers get understanding. [½]
Discuss or negotiate with members get consent. [½]
What are the alternatives? [½]
Total closure, with DC only who has power to initiate this. [½]
Winding-up who has power to initiate this. [½]
Would either measure be in the best interests of actives. [½]
Possibly very detrimental in case of Fund A members. [½]
Past Benefits
Is the security of members benefits improved by the merger. [½]
A Definitely but NRA to be 65 not 63 and also issue of member
surplus account, B Less clear cut because of R50m. [½]
How has the R50m special contribution been arrived at? [½]
What is the overall funding level of merged arrangement on a
realistic basis. [½]
Effect of shortfall in A will be eliminated by R50m special
contribution. [½]
Are past benefits to be maintained on full salary link basis
company proposals suggest CPI revaluation for future. [½]
Are past benefits to be restructured on a basis of equivalent value
section 14 considerations again plan looks to be CPI revaluation. [½]
Surplus apportionment issues
What is status of member s surplus account in A can it be
withdrawn and set against shortfall. [½]
Was there an employer surplus account in A that has been used
already in reduction of shortfall. [½]
What is reason for delay of surplus apportionment exercise in B. [½]
Have commitments to former members in B been fully determined. [½]
And what is B s obligation in terms of surplus at last statutory
valuation is current surplus sufficient for those obligations. [½]
What are surplus apportionment rules or decisions for future service
in both A and B. [½]
Revaluation issues
How will revaluation proposal actually work? [½]
What are the company s (sponsoring employer to merged fund and
ultimate parent) plans for future funding. Commitment, strength of
covenant etc. [½]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Overall
Take legal advice. [½]
Take actuarial advice [½]
[Up to 8]
(iii) Outline the issues the actuaries must consider in fulfilling the
statutory requirements of transfer and any other factors they should [4]
take into consideration.
Is merger proposal reasonable and equitable and will it accord full
recognition to: [½]
(1) rights and reasonable benefit expectations of members in each
fund for past service pre and post merger [½]
(2) any additional benefits (pension increases) payment of which is
established practice; and [½]
(3) payment of minimum benefits [½]
The merger is unlikely to render receiving fund financially unsound [½]
or, if A, prevent it from attaining a financially sound condition
timeously. [½]
because of the R50m proposed payment. [½]
Actuary to ceding fund to also consider any other aspects of rules of [½]
receiving fund that might be less advantageous in receiving fund.
Such as commutation or winding up provisions. [½]
He could suggest the use of guarantees to be applied to transferees
only. [½]
And the need for legal advice. [½]
Both actuaries might wish to consider the future funding
commitment from sponsor to merged plan. [½]
Note: it is possible that surplus apportionment issues will be
mentioned in this sub-part too, but clearly marks can be awarded
only once for those points.
[Up to 4]
(iv) Discuss the impact of the proposed changes from the employed members
viewpoint and comment on which of the two benefit scales is likely to be the
more popular choice. [7]
Past service: accrued leaving service benefits unaffected. [½]
And minimum benefit technically unaffected [½]
Assume death benefits unchanged. [½]
NRA: A impaired B same. [½]
Adjustment for two years late should be considered for A s existing
members not required for future members. [½]
Pensionable Salary:
B members lose the bonus element. [½]
Salary adjustments should be considered. [½]
But need to harmonise salaries in any event. [½]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
And so possibly adjustment to B benefit for existing B members
only. [½]
Contributions: But as lower Pensionable Salary also used for
contributions, then mitigates above effect. [½]
A: 7% to 7.5% increase is small but maybe important in eyes of
members. [½]
B: 6% to 7.5% is much larger increase and problematic. [½]
Some adjustment should be considered for both A and B existing
actives. [½]
Revalued Career Average
Merit, productivity and promotional increases, and general salary [½]
inflation that is not linked to CPI will be forfeited
But those members whose earnings only increase at rate close to CPI,
may feel little downside. [½]
And in engineering sector perhaps majority of salaries broadly only
inflation linked. [½]
However, executives / managers / specialised staff and any so-called
high fliers most affected [½]
For them there may need to be some adjustment to compensate. [½]
Basic Salary on 1 April
This could be disadvantageous to A and B [½]
Because increases in year ignored hence ignored in revaluation [½]
But also means contribution increases only once a year [½]
A and B salary increase dates need to be harmonised. [½]
Option to choose 2% or 1.6% accrual
Given above comments most A members would probably stay on 2%
for a similar contribution amount. [½]
If no compensating adjustment for existing B members, then more
might opt for 1.6% rate to keep contribution amount similar. [½]
However those who place a high value on defined benefits will opt to
stay on 2%. [½]
It will be good governance to illustrate effect of changes. [½]
This will highlight the problems with the proposals. [½]
General
A actives employed as artisans may see the deal as acceptable. [½]
Although there could be problem in regard to NRA 65. [½]
There is likely to be problems in regard to existing B actives. [½]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Who give up more than A actives. [½]
Difficult to justify given that Fund B is financially sound [½]
And that there may be substantial surplus accounts. [½]
Also problems for all staff not in artisan category [½]
Thus it may not be possible to implement restructure without quid
pro quo s . [½]
[Up to 7]
(v) The chief financial officer (CFO) of the parent corporation currently
acts as a trustee to both Funds A and B.
(a) Outline his general responsibilities and duties as a trustee. [3]
(b) Comment on any areas of potential conflict of interest for the
CFO. [3]
(c) Suggest ways in which any conflict could be minimised. [2]
[Sub-total 8]
(a)
Administer fund within Rules.
Operate within Trust Law.
Operate within Legislation.
Act in the interests of the beneficiaries.
Act prudently / honestly / not for profit.
Seek specialist advice where appropriate.
Strike a fair balance between the interests of different
classes of beneficiary.
Invest the fund assets, safe custody.
Maintain confidentiality.
Exercise discretionary powers.
Meet regularly and maintain proper minutes.
[½ each, up to 3]
(b) Possible conflict between the 2 sets of trustees. [½]
If merger perceived as better for one fund than other. [½]
Difficult to act for both sets of members impartially. [½]
Conflict with CFO role. [½]
Where he will look to control costs. [½]
So reduction of benefits is good in this respect. [½]
May wish to reduce the amount of the special contribution
(incentive for the trustees to agree to merger). Set special
contributions and future funding on a weaker basis, leading
to less member security. [1]
[Up to 3]
(c) Resign as a trustee to both funds. [½]
Do not participate at trustee meetings for project duration. [½]
Attend trustee meetings but do not vote on the merger
proposals or attempt to influence. [½]
Confine input to trustees to information and employer
motivation for change. [½]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Resign as CFO (unlikely). [½]
Appoint an independent trustee as a temporary replacement. [½]
[Up to 2]
[Total up to 8]
(vi) At the last valuation dates the asset allocation was:
Fund A: 60% equities, 40% bonds;
Fund B: 75% equities, 15% bonds, 10% cash.
Outline key issues for strategy going forward. [5]
The active member liabilities were 23% of total for A and 24% of
total for B.
However, matching difficulties exist in SA.
Small inflation-linked bond market & very low turnover.
Not a good spread by duration of either long nominal RSA bonds or
long inflation-linked RSA bonds.
That said, the current strategy for B definitely appears to be
overweight in equities.
And possibly a little on high side for A.
Bond exposure in B appears far too low.
And B s cash holding is possibly moderately high.
Although not greatly in excess of liability to former members.
[½ each, up to 2]
In considering strategy going forward, need to look at:
combined liability profile
statement of investment principles
cashflow requirements
high pensioner liability and low actives so may be net negative
cashflow
attitude to risk of both trustees and employers
use R50m contribution in rebalancing asset allocation
strength of covenant of sponsor
possibly more index-linked benefits going forward with revalued
career average
but existing salary related liabilities might also be mainly
inflation driven than merit etc. (given suspected artisan make-up)
consider manager review or review of mandates
is there need to hedge assets for former members or for
members surplus accounts?
[½ each, up to 3]
[Up to 5]
[Total up to 37]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
2 [½ mark per bullet point except where stated]
(i) The HR director has asked you to comment on the proposed design. Set out
the points that you would make in your response, highlighting how well the
following design objectives will be met: [11]
Improving recruitment and retention [Up to 5]
Assuming no compensating cuts in remuneration package, pension fund
should make overall package more attractive.
But will workforce appreciate the value of a pension fund?
Or prefer extra direct remuneration, as option instead of fund?
Communication will be important to emphasise the value of the fund.
There is some flexibility in design could be more.
It is simple to understand.
Although level of benefits will be modest.
Especially death in service (particulary if service not long).
Age related contribution scale may be regarded as unfair.
But proposed scale itself not adequate in dealing with problem of
increasing cost of benefits as age increases.
Is fund competitive for this sector?
Compulsory member contributions might be unattractive.
Meeting the budget set by the FD [Up to 4]
Overall costs initially depend on take up by existing staff.
But, Income Tax Act requires compulsory membership for new
employees.
And so in a few years (depending on staff turnover) take up not an issue.
Compulsory member contribution might mean initial take up is less than
100%.
Depends on take up of over 45s compared to under 45s.
If age/salary profile is evenly spread then likely to be within budget.
Have initial and ongoing expenses been allowed for.
Cost issues related to longevity and investment guarantees implicit in
conversion rates set by Trustees could pose problems for budget in longer
term.
Because of minimum benefits in terms of Pension Funds Act there will be
no profits on withdrawal or death in service to help finance Fund.
And because of minimum pension increase provisions of Pension Funds
Act no profits could emerge here to help financing.
Can budget be afforded in future years? Would not be easy to reduce
contribution scales in future.
Managing risk for the Company [Up to 2]
DC places traditional DB risks before retirement onto members.
But risk of imbalance between members under & over 45.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Longevity and investment risks post-retirement could cause a shortfall to
emerge in Fund hence risk of additional employer funding required.
Hence need to ensure these risks are priced appropriately on ongoing basis.
Risk of cost increases for administration and actuarial and for fidelity &
professional indemnity insurance eliminated by gross employer rate of 6%.
Risk that members are disappointed with ultimate benefits achieved.
[11]
(ii) Suggest some modifications to, and other issues that should be considered in
regard to, the design that would help to alleviate some of the difficulties that
you have identified in each of the three areas in (i) above: [5]
Allow flexible retirement ages.
Avoid having compulsory member contributions but that will mean
higher employer rate will be required for meaningful benefit.
Have a level contribution rate for all members if subsidisation is an
issue.
But this will not address aspect of increasing benefit costs with increasing
age, which requires contribution scale increasing with age.
Question implies that ongoing expenses will be deducted from members
funds.
Make annuities of choice with insurers at retirement in members names
obligatory.
But insurers have many margins also possibility of commissions to
third parties hence aggravates problem of inadequate level of benefits.
Other points
Investigate employees preferences in regard to a pension or provident
fund and contribution rate and benefits including risk benefits.
Tax efficient to have member contributions up to 7.5% in a pension fund.
But tax advantageous before retirement to have all contributions paid by
employer if provident fund.
Risk benefit costs can be prohibitive, especially in AIDS affected
industries, leaving too little contribution for retirement saving.
Allow additional voluntary contributions.
Likely inadequate level of benefits can only be addressed by higher
contributions.
And part of risk of disappointment in ultimate benefits can possibly be
addressed by investment guarantees, but at expense of lower returns.
It is assumed defined benefits will not be considered by employer.
[Up to 5]
(iii) List the key requirements of the following Myners Principles:
Effective decision making [3]
Trustees should have necessary skills individually and collectively.
Decisions should only be taken by people with necessary skills.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Trustees must have sufficient skills/training to evaluate any advice given.
Trustees need sufficient in-house support on investment matters.
Trustees should be paid.
An Investment sub-committee should be set up to provide focus.
Trustees should have a forward looking business plan.
Clear objectives [1]
Trustees should consider & publish characteristics of each investment
option on offer.
Trustees should take members circumstances into account when choosing
range of funds to offer.
Trustees should offer a sufficiently wide range of investment options for
members to invest in to satisfy risk & return criteria of most members.
Performance measurement [1]
Trustees should set investment policy objectives and measure success
against those objectives.
In regard to the performance of each option.
Their own performance.
And performance of their advisers.
[5]
(iv) Using only the information provided in this table calculate the described
disclosures for a benefit statement with an effective date at the Launch Date
for the following two members:
A member who joins the fund on the Launch Date (which is his 35th
birthday), whose basic pay is R150 000 p.a. and who chooses to invest his
DC fund 100% in equities.
A member who joins the fund on the Launch Date (which is his 50th
birthday), whose basic pay is R250 000 p.a. and who chooses to invest his
DC fund 100% in cash. [8]
For 35 year old joiner
Joint contributions in years 1 to 10 inclusive = 10% basic salary [½]
Joint contributions in years 11 to 30 inclusive = 12% basic salary [½]
Accumulate at (9% pa less 1% for expenses) = 8% p.a. to age 65 [½]
a10 @ 8.0 / 7.0 = net 0.93458% discount rate = 9.549 [½]
a20 @ 8.0 / 7.0 = net 0.93458% discount rate = 18.250 [½]
10% R150 000 9.549 1.0830 [½]
+ 12% R150 000 1.0710 18.250 1.0820 [½]
= 1 441 325 + 3 011 953
= 4 453 278 [½]
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Convert to pension (i.e. 17) [½]
= R261 958 p.a. [½]
Salary at 65 = 150 000 1.0730 = R1 141 838 p.a. [½]
Replacement ratio = 261958/1141838 = 22.9% [½]
For 50 year old joiner
Joint contributions in years 1 to 15 inclusive = 12% basic salary [½]
Accumulate at (6% pa less 1% for expenses) 5% p.a. to age 65 [½]
a15 @ 5.0 / 7.0 = net negative 0.018692% discount rate = 17.338 [½]
12% R250 000 17.338 1.0515 = 1 081 334 [½]
Convert to pension (i.e. 17) [½]
= R63 608 p.a. [½]
Salary at 65 = 250 000 1.0715 = R689 758 p.a. [½]
Replacement ratio = 63608/689758 = 9.2% [½]
(v) The HR Director is wondering whether to provide an enhanced annual benefit
statement to include both of the described disclosures and some additional
disclosures. He has asked for your advice. [12]
(a) Set out the limitations of providing the described disclosures only.
But see comment regarding repeated points for caveats in (b) below.
Provides an illustration to assist members with financial planning
for retirement.
But a member may choose an annuity that is not in the prescribed
form (e.g. pension increases, spouse s benefits).
And cost of annuities is likely to be different in practice from those
in table.
Does not give a member any idea of the sensitivity of the
projection to the assumptions in that:
- Investments may not perform as expected in long term.
- Moreover, short term movement in equities can cause
substantial change in value.
- With potential for grave concern if close to retirement.
- Salary may not increase as assumed.
- Contributions may not be paid as expected.
Hence, statement gives member no concept of the risk he bears.
Differential assumptions for performance of different asset classes
are not provided.
They may influence members investment choices.
A member needs indication of the additional saving he requires in
his private arrangements.
A member needs to consider his needs for risk cover.
Statement needs to show current Fund value.
Statements will be out of date by the time members receive them.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
(b) List the additional caveats that you would wish to include
alongside the described disclosures.
These immediate following 6 points in italics are already points above
and should not be allowed to score twice.
Valid only at effective date.
Provides a guide to benefits, not a quote/guarantee.
Investments will not necessarily perform in line with assumptions.
Salary growth will not necessarily be in line with assumptions.
Small changes in the assumptions adopted can lead to large
variation in the results.
Cost of annuities will depend on level of increases and spouse s
benefits chosen.
Expense allowance may need to change in the future.
Cost will also depend on nominal and real interest rates at time of
retirement and on mortality bases considered appropriate at that
time.
A member might need to consider what additional saving he will
need and he might need to seek independent advice.
State benefits are minimal, and focused on the indigent, in SA and
so you should not rely on any supplementation from this source.
Assumes nil AVCs and no changes in member and company
contributions.
(c) Make some suggestions for the additional disclosures that might be
appropriate on an enhanced benefit statement.
Some points here should not count if already scored above in (a) or
(b).
Illustrate different investment options, but with cautionary about
risk.
Possibly with brief explanation why different asset classes can be
expected to give different returns.
Give clear statement/indication of risks (investment returns,
inflation, mortality, expenses).
Important for members to understand that cash and bonds also have
risk.
Clear statement of all assumptions.
Provide figures on a range of investment assumptions (e.g. to show
the impact of +/ 1% change in these).
Provide figures on a range of salary growth assumptions.
Provide figures using a range of annuity options.
Provide figures at an early retirement date.
Current fund value relative to a needs based value where needs
defined in some practical way for risk cover.
Provide stochastic illustration of results (funnel of doubt).
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
(vi) Repeat the calculations in (iv) twelve months after the Launch Date for the 35
year old joiner, listing any additional assumptions that you need to make. [5]
Additional assumptions needed: [½ mark each]
Ignore dividend income on equities.
Investment managers (and therefore DC funds) have performed in line
with market.
Salary increases midway through year in line with assumptions.
Market value falls in equities occurred evenly through year.
Expense deduction was actually 1% of fund value per annum.
No change in investment strategy during the year.
For 35 year old joiner
Fund value at end of year 1
= 10% 150 000 1.07½ 0.75½ 0.99 = 13 303 [½]
Accumulate at (8% p.a. less 1% for expenses) 7% p.a. to age 65 [½]
a9 @ 7.0 / 7.0 = net 0% discount rate = 9.000
a20 @ 7.0 / 7.0 = net 0% discount rate = 20.000
13303 1.0729 + 10% 150 000 1.07 9.0 1.0729
+ 12% 150 000 1.0710 20.000 1.0720 [½]
= 94 641 + 1 027 654 + 2 740 412
= 3 862 707 [½]
Convert to pension (i.e. 19) [½]
= R203 300 p.a. [½]
Replacement ratio = 203300/1141838 = 17.8% [½]
(vii) Set out the points that you would include in a letter to the HR Director
explaining the results of your benefit statement calculations and the
implications for communicating with members twelve months after Launch
Date. [5]
Essential to include some explanatory literature with this year s statements
because projected pensions at NRA are lower than shown last year.
This is due to:
- Investments have not performed in line with assumptions.
- In particular 25% fall in equity market values over whole year.
- Which accounted for about 13% of overall lower results.
- And fall in expected future returns for both equities and cash
- Although fall in bond yields would have given good returns for
members with portfolios geared to bonds.
- Moreover, cost of annuities has increased by 10%.
- Reflecting a fall in future yields (assuming no mortality changes).
Impact is worst for those members furthest from NRA.
Impact is worst for those members invested in equities.
But members with long term horizons can possibly hope for a recovery in
equities.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
Members could be assured that all contributions were paid and invested.
Might want to offer face to face communication/helpline for members who
are concerned.
Is investment performance down due to market performance or poor
manager performance?
Those invested in cash portfolios might want to consider switch of part of
programme into equities or bonds, because:
- Cash returns very low relative to inflation.
- And equity portfolios after 25% fall might now be offering better
relative value even on a risk adjusted basis this view might need to
be tested.
- Bonds likely to be offering more than cash need to look at different
duration portfolios.
(viii) Outline the points that you would make in your response, concentrating on the
following aspects: [12]
Whether the introduction of these underpins is likely to improve or
worsen the chance of the fund meeting the three design objectives set out
in part (i) above. [6]
Option of underpins might make fund more attractive.
In that it would improve member security.
And help to lessen risk.
But members might see any additional contribution as a negative factor.
However, the defined benefit minimum has immediate apparent value for
both the 35 year old and the 50 year old member, seeing as it offers
minima of 30% and 15% replacement ratios, respectively.
Other employers unlikely to be offering anything similar these types of
underpins are rare, especially investment guarantee.
Company will very likely incur extra cost unless excessively cautious
pricing of options.
Pricing will need to be reviewed on a regular basis.
And, in case of minimum 0% return in each year, reviewed at frequent
intervals depending on approach to pricing and willingness of employer to
participate in meeting costs.
Protects Company from risk of members becoming disgruntled about the
level of risk in DC funds.
But with downside of price for the options if Company s risk is to be zero.
Care needed re selection against fund need to think carefully about
whether members should only have a one-off choice to select an underpin.
Guarantees of this nature not viable proposition if too few select them.
There will be minimum benefit implications and complications.
Costs of running fund likely to increase with increased complexity.
Risk that members will invest their funds more aggressively once they
have paid for the underpin.
Effect of underpins will need to be included on annual benefit statement.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
How you would estimate the cost of each underpin [4]
Investment return min 0%
Examine statistical data on market returns in different sectors.
Stochastic modelling of assets to understand probability of negative
returns occurring in any particular year.
Impossible to calculate cost exactly.
Separate modelling needed for each asset class.
Look at costs of options on continuous, or rolling, basis but very
expensive this way, and costs of options changes over time.
Look at costs of zero-cost collars on continuous, or rolling, basis.
And not possible to give firm commitment to members about option price
will vary as financial conditions vary.
Note the cost will be higher than the cost of a capital guarantee because
return is guaranteed at minimum zero in every year.
DB underpin
Stochastic modelling needed to assess how likely underpin is to bite.
Deterministic modelling indicates that underpin is likely to bite for all
members.
Cost will vary by age of member.
Past service shortfalls could emerge periodically they will have to be
funded.
Surpluses may similarly emerge need to consider how such will be
managed.
Impossible to calculate cost exactly.
Again possibility of using options and zero-cost collars to reduce
possibility of serious shortfalls but again with associated cost issues.
How you would structure the underpin charge to members [1]
Investment return min 0%
Charges need to reflect investment choices made.
Charges need to err on cautious side to reduce Company exposure to risk.
Pass on additional running costs.
DB underpin
Charges should be age-related (at least banded by age).
Charges need to err on cautious side to reduce Company exposure to risk.
Pass on additional running costs.
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Subject SA4RSA (Pensions and other Benefits Specialist Applications) April 2006 Marking Schedule
How the funding and investment strategy of the fund might need to
change as a result of introducing these underpins [1]
Actuary will need to advise about reserves required to fund underpin.
Pay as you go basis would not be acceptable to Registrar.
Company will want some say in investment strategy relating to additional
reserves.
And possibly also in relation to basic liabilities.
Might wish to restrict range of fund choices offered to members (e.g.
remove very volatile asset classes).
[Total 63]
END OF MARKING SCHEDULE
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