Benefits Overview And Providers Of Benefits

Question 1

Type of schemes

Answer 1

Defined benefit - the scheme rules define the benefits independently of the contributions payable, and benefits are not directly related to the investments of the scheme. The scheme may be funded or unfunded

Defined contribution - the scheme provides benefits where the amount of an individual’s benefits depends on the contributions paid into the scheme in respect of that member, increased by the investment return earned on those contributions

Hybrid - a scheme where risks are shared between different parties involved, for example, scheme members, employers, insurers and investment businesses

Question 2

Major roles played by the state

Answer 2

• direct provision of benefits, e.g. on retirement, ill health, death

• sponsoring of the provision of benefits, e.g. by providing financial instruments

• provision of financial incentives, usually through the tax system

• education on the importance of providing for the future

• regulation to encourage or compel benefit provision

• regulation of benefit providers

The state could also provide financial instruments, e.g. the issue of bills and bonds, savings plans, deposits with the State Bank

Question 3

Reasons for employers sponsoring benefit provision

Answer 3

• compulsion or encouragement from the state

• the attraction and retention of good quality staff

• a desire to look after employees and their dependants

• to pool expense and expertise

Question 4

Individuals

Answer 4

Individuals can also finance benefit provisions, this could be a reason of:
• compulsion or encouragement by the State or employers
• the individual’s personal preferences