"Crowding out" limits the effectiveness of expansionary fiscal policy. When crowding out
happens, what happens to market interest rate and private investment?
Discuss why an economist might propose a policy that has a little chance of adoption.
Discuss the effects of an increase in pr if price.
(i) List the key methods of provision of benefits if a pension scheme is discontinued. [3] An employer sponsors a defined benefit pension scheme that is closed to new members. (ii) Discuss the cost and risk implications for the sponsoring employer if they were to secure all benefits of the pension scheme with an insurance company. [5] The sponsoring employer has received a quotation to transfer all liabilities to an insurance company. The quotation is lower than the amount estimated by the scheme's actuary at the most recent actuarial valuation. (iii) Suggest possible reasons for the difference in the actual cost and the cost estimated by the actuary. [3] The sponsoring employer discussed the quotation with the scheme's trustees and agreed not to proceed with the transfer at that time. One year later, the sponsoring employer has received another quotation from an insurance company. The quotation shows that the cost is lower than that received previously. (iv) Explain why the new quotation may be lower. [4] The scheme's trustees agreed to proceed with securing all benefits with the insurance company. (v) Discuss the impact on the scheme members of their benefits being secured with an insurance company. [4]The accounting standards board ('the Board") of a particular country has introduced new disclosure requirements so that stakeholders have a better understanding of the overall financial liabilities of a company. Pension schemes in the country are generally funded in advance but there is very little enforcement around this so schemes have a wide range of surpluses and deficits. (i) List the relevant information which could be included in company accounts under the new disclosure requirements. [3] (ii) Outline how this information would help stakeholders understand the significance of a company's pension scheme liabilities in order to gain a better idea of the company's overall financial position. [4] The following year the Board reviews the disclosures. They show a very wide range of assumptions used in the valuation of pension scheme liabilities and hence are of limited use to stakeholders. The Board has decided that consistency is needed to ensure that the pension liabilities are valued in a broadly consistent manner. It has asked an actuary to provide it with proposals on how this could be achieved. (iii) List the key valuation assumptions and approaches that could lead to significant differences in the values placed on pension scheme liabilities. [3] (iv) Set out the points the actuary would make in the report to the Board. [5]
