17. Which of the following increases the velocity of money?
a. An increase in the number of shopping trips per period.
b. A decrease in the real consumption expenditure.
c. An increase in the time interval between successive trips to the bank.
d. A decrease in interest rate.
15. Consider a temporary proportional downward shift of the production function.
How does this change affect the work effort?
a. The work effort decreases
b. The work effort increases
c. The work effort does not change
d. Not enough information to answer the question.
A medium-sized defined benefit pension scheme is currently open to new entrants. The sponsoring employer is looking to close the scheme and replace it with a defined contribution scheme. The employees' representatives would like the employer to participate in some form of risk-sharing. (1) Discuss the possible approaches for pension schemes where the risk can be shared between the sponsor and the members. [12] The employer has proposed a Collective Defined Contribution (CDC) Scheme. (ii) Describe how a CDC scheme might work, highlighting the differences compared to a traditional defined contribution scheme. [8] The defined benefit scheme has now closed to future accrual. It has been proposed that active members at the time of closure, who remain in employment, will retain the link to their final salary for their accrued benefits. (iii) Outline the risks to the members and sponsor of retaining this link. [3] The sponsor wants to reduce the remaining risk in the defined benefit scheme. (iv) Discuss FIVE possible ways that these risks can be reduced or removed. [10] An advisor to the sponsor has suggested that the costs of buying out the scheme benefits are currently very attractive, compared to recent history. (v) Suggest reasons why buyout costs have become more attractive. [4] Following the closure to accrual the final salary link was not retained. A valuation was carried out as at 1 January 2019. The results on an ongoing basis are as follows: Assets: E210m Liabilities: Deferreds: $75m Pensioners: 1250mThe sponsoring employer has requested an estimate of the cost of securing all benefits with an insurance company as at 1 January 2020. The following summary data and the assumptions used in the ongoing valuation have been provided: Data as at 1 January 2020 Total pensions paid during 2019: 625m Average term to retirement of deferred members: 12 years Asset value at 1 January 2020: $250m Assumptions Discount rate (pre and post retirement): 3.25% p.a. (determined as the yield on government bonds as at 1 January 2019 plus 1.25% p.a.)- Pension increases (in payment and deferment): 2.25% p.a. (determined as implied inflation as at 1 January 2019). The assumptions for estimating the cost of securing benefits with an insurance company are as follows: * Discount rate - pre retirement: based on the yield on government bonds less 0.4% p.a. Discount rate - post retirement (for non-pensioners): based on yield on government bonds less 0.4% p.a. . Discount rate - post retirement (for pensioners): based on yield on government bonds plus 0.4% p.a. . All other assumptions are to be the same as for the ongoing valuation. As at 1 January 2020, the yield on gilts was 0.2% p.a. lower and implied inflation was 0.3% p.a. higher than as at 1 January 2019. (vi) Estimate the cost to the employer of securing all benefits with an insurance company as at 1 January 2020. State any additional assumptions that you make. [13]2 The Trustees of a large defined benefit scheme have noticed that the number of transfer value quotations provided has increased significantly over the past year. However, the proportion of these quotations that result in a transfer of benefits has fallen compared to historical levels. (i) Suggest reasons for: (a) the increase in requests. (b) the fall in the proportion of quotations that have resulted in the transfer of benefits. [6] The initial results of the latest funding valuation have just been produced. The funding level on a scheme funding basis was 90%, and on the Cash Equivalent Transfer Value (CETV) basis was 95%. (ii) Suggest the main reasons why the CETV basis produces a higher funding level than the scheme funding basis. [5] The analysis of the scheme's experience since the previous valuation shows a loss on transfers out. If this experience is shown on a year-by-year basis then the first year shows a small gain, with a small loss in the second year and a larger loss in the third year. (iii) Suggest reasons for this pattern of gains and losses. [6] The sponsor has seen the initial results and suggests that the Trustees should reduce all future transfer values. (iv) Outline the considerations the Trustees should make before agreeing to reduce transfer values. [8] The sponsor has suggested that, given the increase in transfer value quotation requests, and the fact that the basis is weaker than the funding basis, allowance should be made in the funding basis for a proportion of members transferring out. (v) Set out the points the Trustees should consider before responding to this proposal. [3]
