Risk (Benefit Schemes)

Question 1

Key risks - benefit schemes participants

Answer 1

1. Sponsor
   *level - higher than expected cost
   *time - contributions required at inopportune time
2. Member
   *level - lower than expected benefits
   *time - benefits not received when needed
3. State
   *expected to put right any losses public incurs

Question 2

Defined benefit - benefit risks

Answer 2

FINCAM
1. Funds - inadequate
2. Insolvent spinsor
3. Needs nor met
*inflation erosion
4. Change of promise - state/regulations
5. Assets - illiquid
6. Mismatch - A&L

1. Default
2. Failure
3. Reduced
4. Communication
5. Mismanagement
6. Takeover

Question 3

Defined benefit - contribution risks

Answer 3

Atilt
1. Assets- insufficient yo make payments
2. Timing- unknown timing of contributions
3. Insolvency risk
4. Level of contributions - future unknown
5. Third party take over

Question 4

Defined contribution- benefit risk

Answer 4

Ban
1. Annuity rates - worse than expected
*consider risks to both member and provider
2. Expenses
3. Benefits - lower than expected - expenses
4. Needs not being met

1. Default
2. Failure
3. Reduced
4. Communication
5. Mismanagement
6. Takeover

Question 5

Defined contribution- contribution risks

Answer 5

Fia
1. Fixed contributions result in less than expected benefits
2. Increases in contributions could make contributions unsustainable if too fast and high
3. Assets are insufficient to make contributions

Question 6

Sponsor risks

Answer 6

Dtdcd
1. Default on contributions
2. Contributions not on timely manner
3. Default on loans provided to scheme
4. Decide not to make contributions
5. Communicate poorly to clients

Question 7

Investment Risk

Answer 7

Muv dirt
1. Mismatch liabilities
2. Uncertainty
3. Volatility of returns
4. Default risk
5. Investment expenses/inflation/interest
6. Reinvestment risk
7. Tax risks

Question 8

DC - future contributions depend on

Answer 8

1. Benefit amount
2. Ability to accrue benefits
3. Prob of eligibility
4. Inflation
5. Investment return