Chapter 5 - benefits overview and providers

Question 1

what are the key features of a pension contract?

Answer 1

• primarily used to provide an income in retirment to an individuals and sometimes even dependents
• may provide some other benefits i.e. lump sum on death to the dependent
• there may be options to change the form and timings of the benefits
• long term arrangement

Question 2

Who are the stakeholders of a pension fund?

Answer 2

members
- pay contributions

sponsors/employers
- set benefits
- pay contributitions

actuary/valuator
- ensure fund is solvent
- sighn off on investments
- set benefit schemes and contribution rates

financial intitutions
- insure benefits
- administration
- investments

regulators
- ensure consumer protection
- regulate the services providers

Board of trustees
- investment of assets/contributions
- admin duties
- fiduciary duty to act in best interest of members
- certain functions may be delegated

Question 3

Why would an employer provide benefits?

Answer 3

• regulated to
• provide for employees and dependents (paternalistic)
• economies of scale
• attract and retain employees
• offer benefits in line with competition/industry

Question 4

outline the types of members in a pension fund

Answer 4

active members
- members still earning future benefits over time
- current employee of sponsoring company

deferred members
- members who have stopped earning future benefits but still have an existing benefit entitlement that will come into payment in future
- employees who used to work for sponsoring company but have since left

current pensioners
- members receiving benefit entitlement