Chapter 5 - Benefit overwiew and providers of benefits

Question 1

What is a defined benefit scheme?

Answer 1

it is a scheme where the scheme rules define the benefits independently of the contributions payable,

and benefits are not directly related to the investments of the scheme

Question 2

What is a defined contribution scheme?

Answer 2

• it is a scheme that provides benefits where the amount of an individual member’s benefits depends on the contributions paid into the scheme in respect of that member, increased by investment returns earned on those contributions

Question 3

Who are the main providers of benefits

Answer 3

• the state
• employers
• individuals
• financial institutions ( insurance companies, banks)
• other organisations ( e.g trade unions )

Question 4

List 6 key roles of the state in relation to the provision of benefits

Answer 4

DR PRES

• Direct provision of benefits for the population
• Regulate the providers of benefits
• Provide financial incentives ( tax incentives)
• Regulate to encourage or compel benefit provision
• Educate the population about the importance of saving for retirement
• Sponsor the provision of benefits ( providing an appropriate financial instrument)

Question 5

List 4 reasons why employers finance benefits for employees.

Answer 5

1. Compulsion or encouragement from the State
2. A desire to attract and retain good quality staff
3. A desire to look after employees and their dependents financially beyond the level provided by the State.
4. To pool expenses and expertise