C5 Providers of benefit Flashcards
What are the 3 types of pension scheme?
DB, DC and Hybrid
Types of pension scheme
Defined Benefit
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 schemes may be funded or unfunded.
Defined Contribution
Benefit depends directly on the contributions paid, the investment returns earned net of charges, and the annuity rates at retirement
Hybrid
A defined contribution scheme with a minimum defined benefit guarantee (known as an underpin) or a defined benefit pension scheme with a defined contribution underpin.
5 main providers of benefits
- State
- Employers
- Financial institutions
- Other corporations
- Individuals
Role of State in benefit provision
Key role of the State in benefit provision (PEER)
- Provision and financing of benefits
- Educate public on importance of providing for future
- Encourage or compel private provision
- Regulate private provision
Type of benefits provided by the State
State-provided benefits
Retirement, ill-health, death and unemployment benefits
Role of State in non-retirement benefits
- Depends on the perceived significance and importance to the individuals of the benefits
- Ill health benefits are often considered important and role may be similar to retirement benefits
Financial instruments provided by the state
- Direct investment in national debt ( govt bonds)
- State sponsored saving plan (NPS, PF)
- Deposit with statebanks
Roles of the employer in relation to benefit provision
Roles of the employer in relation to benefit provision
1. Provision (sponsorship) of benefits
2. Provision of a vehicle, e.g. a benefits scheme, for the provision of benefits
3. Encouragement or compulsion to employees to provide benefits
Why employers finance benefits for employees?
Why employers finance benefits for employees (PEAP)
1. Paternalism
2. Encouragement and compulsion from the state
3. Attract and retain good quality staff
4. Pool expenses and expertise
Pros and cons of Multi-employer schemes
Multi-employer schemes
Benefits scheme set up jointly with other employers, often from the same industry:
+ Cost efficiency
- Allocating liabilities between employers (fund segregation important)
Define ‘Flexible benefit system’ and describe when it might be useful
Flexible benefit system – definition
Employees are offered the option to choose between different benefits (e.g. extra holiday, dental care, child care), which employee can ‘buy’, or ‘sell’
Flexible benefit system – meeting employee needs
1. Allows employees to select from a menu of different benefit options
2. Enables different groups within workforce (e.g. single, married, with dependants, young old) to select benefits appropriate to their needs
3. Recognises that needs can change over time as personal circumstances change
4. Not giving employees benefits that are not valuable to them
Flexible benefit system – employer needs
1. Fulfils employer’s paternalistic desires, by tailoring benefits to each employee and recognising that needs change over time
2. Reminding employees on a regular basis of the value of their benefits
3. Helps to recruit and attract good quality staff
4. Not paying for benefits that employees do not value
5. Helps employers to reward staff according to their contribution
6. Provides benefits to staff in the most cost-effective manner, as new benefits can be offered at little or no cost to the employer.
Role of the individual in benefit provision
Role of the individual in benefit provision
Main role is to finance benefits through, eg:
1. State scheme
2. Employer scheme
3. Insurance company
4. other financial organisation
Alternatively, individuals may use individual savings or domestic property to finance benefits
Individuals may also group together and pool their finances through, for example:
1. Trade unions
2. Employee associations
3. Religious organisations
4. Continuous Care Retirement Communities (CCRC)
Role of financial institutions in benefit provisions
Role of financial institutions in benefit provisions
1. Provide benefit schemes and insurance products
2. May educate consumers on importance of making benefit provision
List 4 Other corporations providing benefits
Other corporations providing benefits
1.Continuous Care Retirement Communities (CCRCs)
2. Trade unions
3. Employee associations
4. Religious associations
