5 - Benefits overview and providers of benefits Flashcards
Give three examples of “other organisations” that might provide benefits
- Trade unions
- Credit unions
- Charities
What benefits might the State provide?
- Retirement
- Ill-health
- Death
- Unemployment benefits.
The State may also provide financial instruments such as:
- National debt securities,
- State sponsored savings plans
- Facility to deposit money in State bank accounts
What is a multi - employer scheme and what is its key advantage and disadvantage?
A multi-employer scheme is a benefits scheme set up jointly with other employers, often from the same industry.
Advantage: It makes provision more cost effective.
Disadvantage: More care must be taken over allocating the liability for funding DBs, particularly in the event of the insolvency of one of the sponsors.
List the 7 key roles of the State in relation to benefit provision
- Direct provision of benefits, eg on retirement, death, ill health
- Sponsor the provision of such benefits,
- Provide financial incentives - through the tax system
> tax relief on contributions
> subsidise provisions - Education about provision
- Regulate to encourage or compel benefit provision by or on behalf of some of the population.
- Regulate benefit providers - to ensure security
- Provision of financial instruments - eg issue bonds, savings plans, deposit vehicles
List 3 possible roles of employers in relation to benefit provision.
- Educating, and either encouraging or compelling employees to plan benefit provision
- Financing of benefits for employees, in an orderly manner
- Providing a facility (scheme) for the provision of benefits
What are the roles of the individual in relation to benefit provision?
Finance benefits through a scheme provided by: > The State > An employer > An insurance company > Other financial organisation.
Finance benefits using individual products - savings or domestic property to finance benefits, or by way of financial support from families or local community schemes.
The motive for this can be:
- Compulsion or encouragement from State or employers
- Individual’s personal preferences
What role do financial institutions play in the provision of benefits?
They provide benefit schemes and insurance products.
They may also educate consumers on the importance of making benefit provision.
List 4 reasons why employers finance benefits for employees.
- Compulsion or encouragement from the State
- A desire to attract and retain good quality staff
- A desire to look after employees and their dependents financially beyond the level provided by the State.
- To pool expenses and expertise
Give 3 examples of how domestic property can be used as a source of benefits for an individual
- The home could be sold
- Loans can be secured on the accumulated equity in the home
- A capital sum may be available on inheritance of a domestic property
Defined Benefit Scheme
The benefit is defined in terms of a set of rules, for example a percentage of final salary for each year worked.
The benefit is not directly related to the contributions paid in or the investment returns earned.
The scheme may be funded or unfunded.
Defined Contribution Scheme
The benefit relates directly to the contributions paid in respect of each member, increased by the investment returns earned on those contributions
Defined Ambition Scheme
A scheme where risks are shared between the different parties involved, such as a scheme member, employers, insurers, and investment businesses
5 main providers of benefits
- The State
- Employers or a group of employers
- Individuals
- Financial institutions
- Other organisations
Describe a flexible benefits system
Under a flexible benefits system, employees are offered the option to choose between benefits, which the employee can ‘buy’ or ‘sell’
They are given a notional amount which they can spend
