Discuss the conditions for price discrimination.

A small employer sponsors a large defined benefit scheme which closed to new members ten years ago and they are concerned about the risks associated with this scheme. Explain how the employer might use insurance to manage its financial exposure to the benefits associated with this scheme that come into payment before retirement age. [3] (ii) Describe how the purchase of annuities in the names of the members would affect the risks faced by the employers and members of the scheme. [4] An incentive exercise is defined as an invitation or inducement provided to a member to change the form of their accrued defined benefit rights. Set out the arguments for and against the employer undertaking an incentive exercise. [4] [Total 11] The accounting standards board ("the Board') of a country is deciding whether to revise its guidance for producing accounting disclosures for defined benefit pension schemes. The Board has asked an actuary for advice on whether the Attained Age or Projected Unit method would be more appropriate as a method of producing accounting valuations. Comment on the suitability of each of these methods for the purpose of performing accounting valuations. [3] The Board has also asked the actuary to provide advice on how schemes should set their mortality assumptions. In particular, it has asked the actuary to cover the factors that schemes should consider when setting their mortality assumptions. (ii) Set out the points the actuary should include in their response. [6] Under the Board's current guidance, the discount rate is determined based on the expected return available from each individual scheme's assets. (iii) Discuss alternative ways of calculating a discount rate to be used in producing the accounting disclosures. [6]Define sponsor covenant. [2] The trustees of a large defined benefit pension scheme are concerned that the sponsoring employer is in financial difficulties. (ii) Set out the initial investigations the trustees could make in order to verify their concerns. [5] The investigations carried out by the trustees show that the sponsor covenant has weakened. (iii) Suggest possible actions the trustees might take. [6] The chair of the trustees wishes to modify the scheme's investment strategy in response to the weakening of the covenant. He has proposed investing in high-risk growth assets. (iv) Discuss the suitability of the chair's proposal. [6]