Discontinuance

Question 1

Who should discontinuance benefit amount be fair to?

Answer 1

Member
Other members
Provider/Sponsor

Question 2

What types of discontinuance benefit are there?

Answer 2

Lump sum - surrender
Conversion to paid up
None

Question 3

How might discontinuance benefit amounts (terms) be decided?

Answer 3

Market practice
Regulations
Legislation
Difficulty of assessing it

Question 4

What must a transfer value from a benefit scheme be?

Answer 4

Equitable between the member leaving, and those staying

Assets available may only be those that are funded

Question 5

What are the options on discontinuance from a benefit scheme?

Answer 5

Transfer value

Retain benefit in scheme

Question 6

Why is insurance insolvency rare (hence benefit scheme going insolvent)

Answer 6

Regulation from state
Regular reporting
Solvency requirements

Question 7

What is done if MCR/SCR breached?

Answer 7

Regulator intervene
Close to NB
Establish recover plan
Monitored closely

Question 8

Why is closing to NB good if in trouble, why bad, what might happen in the end?

Answer 8

Cost savings to pay off liabilities
Release NB capital
Dis-economies of scale hit
Sale/Merge with another provider to remove liabilities

Question 9

What modelling should be done if a breach in MCR/SCR or potential takeover, what issues should it include?

Answer 9

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

Question 10

What consideration in M&A’s would the potential purchaser take into account (as well as the breaches list)

Answer 10

Location
Systems integration
Relocation costs for staff
Unit cost effect

Question 11

What happens if insurer cant’ meet liabilities and no purchaser? How’s it funded?

Answer 11

State scheme to pay all or some

Funded by levy on all other providers

Question 12

Why might benefit scheme payments stop?

Answer 12

Insolvency of sponsor

Decision to stop financing benefits

Question 13

If a scheme is discontinued, how will benefits to current members be effected and recalculated?

Answer 13

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

Question 14

If benefits are to be reduced, what will effect the amount of reduction?

Answer 14

Legislation
Scheme rules
Type of benefit
Type of beneficiary

Question 15

What assets may be available on discontinuance of benefit scheme, for payment of benefits

Answer 15

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

Question 16

How might an insolvent sponsor pay out benefits on a discontinued scheme?

Answer 16

Legislation - prior ranking debt on wind up
Insurance - insured payments against insolvency
Funding - parts of it already funded

Question 17

What is the other thing that will reduce benefit payments on discontinuance of a scheme?

Answer 17

Expense of

• calculating the benefit allocation
• informing members
• securing appropriate assets

Question 18

If a scheme is discontinued, and assets>liabilities, what can be done with surplus? How is it decided?

Answer 18

Pass back to sponsor
Increase benefits to members
Legislation decides
Must pay all members basic benefit before any additional

Question 19

If allocating additional benefits on discontinued benefit scheme, what should be taken into account when coming up with amount?

Answer 19

Pay all members basic amount first
Length of membership
Contribution to surplus (level of salary?)

Question 20

If a scheme is discontinued, what are the options for provision of benefits outstanding? ie. What can we do with the liabilities

Answer 20

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

Question 21

Give advantages and disadvantage or transferring benefit scheme rights to an insurers (transferring liabilities)

Answer 21

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