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Actuarial Risk Management > Chapter 5: Benefits overview and providers of benefits > Flashcards

Chapter 5: Benefits overview and providers of benefits Flashcards

1
Q

What is the role of companies in benefit provision

A

Pay for part of or all the cost of benefits.

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2
Q

What is the role of Pension schemes in benefit provision

A

Provide a vehivle for the benefits

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3
Q

Who are the key providers of benefit

Time: saving for retirement

A
  • The state
  • Employers
  • Individuals
  • Financial institutions
  • Other organisations
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4
Q

What are the key features of pension contracts

A
  • Provide retirement benefits
  • Provide other benefits such as withdrawal and death
  • Can have the option to change the form and timing of the benefit
  • They are long-term
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5
Q

Who provides pensions

Time: retirement

A
  • Occupational schemes
  • Personal pension plans
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6
Q

Name the types of pension scheme memebers

A
  • Active
  • Deffered memebers
  • Current pensioners
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7
Q

Explain the following types of pernsion scheme members:
* Active
* Deffered memebers
* Current pensioners

A
  • Active - Still earning future pension benefits over time - still contributing
  • Deferred memebers - Have stopped earning future benefits but have existing benefits
  • Current pensioners - paid all the due payments and now receiving benefits
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8
Q

Name the main types of pension schemes

A
  • Defined benefits
  • Defined contribution
  • Hybrid schemes
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9
Q

What is a defined benefit scheme

A
  • Scheme rules define the benefit independently of the contribution,
  • The benefits are not directly related to the investments of the scheme
  • Even if the investments do not do well, the memeber will still receive the agreed benefit
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10
Q

What is a defined contribution scheme

A
  • Amount of a member’s benefit depends on the contribution made to the scheme.
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11
Q

What is a hybrid scheme

A

Risks are shared between the different parties involved

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12
Q

Examples of hybrid schemes

A
  • Cash balance - lump sum at retirement
  • Schemes where retirement age is increased for future service in light of increasing longegivity
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13
Q

Who does the risk lie on in a defined benefit scheme ?

Be sure to elaborate

A

The provider - contributions need to meet a set future benefit, so the money they are putting into the fund may be volatile year-to-year

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14
Q

Who does the risk lie on in a defined contribution scheme ?

Be sure to elaborate

A

The member - future benefits depend on the contributions made, so the memeber has to make sure that the contributions are enough for retirement

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15
Q

How would a member’s benefit increase in a defined contribution scheme

A

Return on the fund

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16
Q

What choices does a memeber of a defined contribution have after retirement

A
  • Annuity
  • Keep invested in the fund and withdraw regularly
  • Take it as a lumpsum
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17
Q

How are defined benefit schemes funded or unfunded

A

Funded - money placed aside and investment returns can be earned
Unfunded - pay-as-you-go basis

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18
Q

How is a defined contribution scheme funded

A

Money is set aside over the working life of the member

19
Q

What regulatory schemes is a defined benefit scheme subject to

A

Assets enough to meet liabilities regulalarly

20
Q

Why is a defined contribution scheme not subject to the same regulatory requirements as a defined benefit

A

Liabilities (payouts) are usually equal to assets (what is in the fund)

21
Q

What should benefit schemes take into account when making investment strategies.

A
  • Tax relief
  • Constrained by regulation
22
Q

How does the state influence provision

A
  • Direct provision
  • Encourage provision
  • Regulation of provision
23
Q

What is the state in turn influenced by

A
  • Political viewpoints
  • Economic viewpoints
  • Fiscal viewpoints
24
Q

What are the categories of the role of the stae

A
  • Provision of benefits
  • Sponsoring of benefits
  • Provide financial incentives
  • Education or require education about the importance of providing for the future
  • Regulate to encourage or compel benefits by or in behalf of part of the population
  • Regulate bodies providing benefits
25
Q

Explain the following role of the state with respect to retirement benefits:
* Provision of benefits
* Sponsoring of benefits
* Provide financial incentives
* Education or require education about the importance of providing for the future
* Regulate to encourage or compel benefits by or in behalf of part of the population
* Regulate bodies providing benefits

Be sure to explain long-term and short-term attainment

A
  • Needed in countries where life expectency&raquo_space;> retirement age
  • There is the option of passing this on to employers, but the state will have to make provisions for the unmeployed and the self-employed.
  • Ensuring that they can meet their basic needs in retirement
  • Met by borrowing in the short-run and hiking taxes in the long-run
26
Q

Explain the following role of the state with respect to retirement benefits:
* Provision of benefits
* Sponsoring of benefits
* Provide financial incentives
* Education or require education about the importance of providing for the future
* Regulate to encourage or compel benefits by or in behalf of part of the population
* Regulate bodies providing benefits

A
  • Employers may contribute towards an employee’s retirement
  • Individuals may also contribute to their retirement benefits
  • The state does so for its employees
27
Q

Explain the following role of the state with respect to retirement benefits:
* Provision of benefits
* Sponsoring of benefits
* Provide financial incentives
* Education or require education about the importance of providing for the future
* Regulate to encourage or compel benefits by or in behalf of part of the population
* Regulate bodies providing benefits

A

Tax relief

28
Q

Explain the following role of the state w.r.t to retirement benefits

  • Provision of benefits
  • Sponsoring of benefits
  • Provide financial incentives
  • Education or require education about the importance of providing for the future
  • Regulate to encourage or compel benefits by or in behalf of part of the population
  • Regulate bodies providing benefits
A
  • State can have own educational intiative
  • Can stipulate the minimum amount of information that the pension provider should disclose
29
Q

Explain the following role of the state with respect to retirement benef

  • Provision of benefits
  • Sponsoring of benefits
  • Provide financial incentives
  • Education or require education about the importance of providing for the future
  • Regulate to encourage or compel benefits by or in behalf of part of the population
  • Regulate bodies providing benefits
A
  • Encourage - tax breaks
  • Compel - stipulation that each individual should join a benefit scheme
  • stipulate min benefit
  • stipulate min contribution
30
Q

Explain the following role of the state w.r.t to retirement benefits

  • Provision of benefits
  • Sponsoring of benefits
  • Provide financial incentives
  • Education or require education about the importance of providing for the future
  • Regulate to encourage or compel benefits by or in behalf of part of the population
  • Regulate bodies providing benefits
A

Need to balance between:
* Encouraging providers - flexibility and freedom of action
* Protecting consumers - need for regulation and supervision

31
Q

What are examples of regulatory actions

A
  • Marketing rules
  • Benefit limits
  • Reporting requirements
  • Investment restrictions
  • Security of benefits
  • Rights of beneficiaries
32
Q

What fianncial instruments(securities can the state provide

A
  • Goverment securities
  • State savings plans
  • Deposits into state banks
33
Q

What is the role of employers in the provision of benefits

A
  • Education of employees
  • Encourage or compel employees to plan benefit provisions
  • Orderly financing of benefits
  • Provide a facility for the provision of benefits - a benefit scheme
34
Q

Why does the employer finance benefits

A

Compulsion or encouragement from the state
The need to attract and retain good employees
* Attractive to employees
* As good as competitor
* Reward to loyal employees

A desire to look after employees and their dependents
Pooling of expenses and expertise

35
Q

What are flexible benefit systems

A

Some employees already have a good provision plan in place and may require different benefits from the employer - additional salary, holidays, more days off

36
Q

Single employer schemes

A
  • Financing is shared between the employer and employee
37
Q

What is a contributory single employer scheme

A

Both employer and employee contribute

38
Q

What is a non-contributory single employer scheme

A

Only employer contributes

39
Q

Multi-employer schemes

A

Set up jointly with other employers - usually from the same industry

40
Q

Benefit of multi-employer scheme

A
  • Cost effective
  • Leads to a greater need for care with defined benefits schemes, or where employer becomes insolvent
41
Q

Fund segregation

A

Holding the pension scheme’s investments seperate from the company, usually overseen by trustees

42
Q

What is the role of individuals in the provision of benefits

A
  • Financing - through encouragement or compulsion
  • May be in a formal benefit scheme or non-specific
43
Q

How can the state steer individuals towards certain provisions ?

A
  • State can steer them towards certain provisions using tax relief
44
Q

Other Financial institutions and organisations

A
  • Managers (trustees) of the funds of the benefit scheme.
  • Informal ones include stokvels and burial societies
  • Other organisations include trade unions, charities and credit unions.
     

Actuarial Risk Management (38 decks)

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