Discontinuance Flashcards
Who should discontinuance benefit amount be fair to?
Member
Other members
Provider/Sponsor
What types of discontinuance benefit are there?
Lump sum - surrender
Conversion to paid up
None
How might discontinuance benefit amounts (terms) be decided?
Market practice
Regulations
Legislation
Difficulty of assessing it
What must a transfer value from a benefit scheme be?
Equitable between the member leaving, and those staying
Assets available may only be those that are funded
What are the options on discontinuance from a benefit scheme?
Transfer value
Retain benefit in scheme
Why is insurance insolvency rare (hence benefit scheme going insolvent)
Regulation from state
Regular reporting
Solvency requirements
What is done if MCR/SCR breached?
Regulator intervene
Close to NB
Establish recover plan
Monitored closely
Why is closing to NB good if in trouble, why bad, what might happen in the end?
Cost savings to pay off liabilities
Release NB capital
Dis-economies of scale hit
Sale/Merge with another provider to remove liabilities
What modelling should be done if a breach in MCR/SCR or potential takeover, what issues should it include?
Future solvency model - stoch/det Surplus values Shareholder profits net tax Loan repayments Staff relationships Redundancies Staff benefit schemes Tax outstanding Obligations financial outstanding Minority interests
What consideration in M&A’s would the potential purchaser take into account (as well as the breaches list)
Location
Systems integration
Relocation costs for staff
Unit cost effect
What happens if insurer cant’ meet liabilities and no purchaser? How’s it funded?
State scheme to pay all or some
Funded by levy on all other providers
Why might benefit scheme payments stop?
Insolvency of sponsor
Decision to stop financing benefits
If a scheme is discontinued, how will benefits to current members be effected and recalculated?
Rights of the beneficiaries Expectations of payments if not discontinued Reduced future benefits Reduced accrued benefits Legislation Regulation T's and C's Scheme rules
If benefits are to be reduced, what will effect the amount of reduction?
Legislation
Scheme rules
Type of benefit
Type of beneficiary
What assets may be available on discontinuance of benefit scheme, for payment of benefits
All Those that were funded Funded plus a bit extra - if sponsor solvent - if legislation on insolvent sponsor, debt of prior rank on wind up
How might an insolvent sponsor pay out benefits on a discontinued scheme?
Legislation - prior ranking debt on wind up
Insurance - insured payments against insolvency
Funding - parts of it already funded
What is the other thing that will reduce benefit payments on discontinuance of a scheme?
Expense of
- calculating the benefit allocation
- informing members
- securing appropriate assets
If a scheme is discontinued, and assets>liabilities, what can be done with surplus? How is it decided?
Pass back to sponsor
Increase benefits to members
Legislation decides
Must pay all members basic benefit before any additional
If allocating additional benefits on discontinued benefit scheme, what should be taken into account when coming up with amount?
Pay all members basic amount first
Length of membership
Contribution to surplus (level of salary?)
If a scheme is discontinued, what are the options for provision of benefits outstanding? ie. What can we do with the liabilities
Continue scheme, no further accrual of benefits
Transfer liabilities to another scheme, same sponsor
Transfer to an insurer to invest and provide benefits
Transfer to beneficiaries to get rid, who then must find an insurer
Give advantages and disadvantage or transferring benefit scheme rights to an insurers (transferring liabilities)
Benefits may be more or less than the benefit transferred, depends on experience of individual and assumptions
Reduced benefit if guaranteed benefits are offered by the insurer
