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A company sponsors a defined contribution pension scheme where it contributes 10% of salary. Members can contribute at a level of their choice between 0% and 10% of salary. On retirement at age 65 each member's accumulated fund is converted to an inflation-linked pension with a 50% spouse's pension attached to it. The conversion rates are set each year by an actuary. Over the last five years, only 80% of eligible members have chosen to join the scheme, and the average contribution rate of those members has only been 2%. Suggest ways by which the company could increase the participation rates and contribution levels. [5] The default investment fund choice for the scheme is a lifestyling fund. (ii) Explain what is meant by lifestyling and why it is often used. [3] Each year members are sent personal benefit statements. (iii) Suggest what information could be included in these statements. [5] (iv) Explain why it is important that the information included in the members' benefit statements is clear and relevant. [2] The company is considering offering income drawdown at retirement as an alternative to annuity conversion. (v) Explain what is meant by income drawdown. [1] (vi) Set out the factors a member should consider when deciding between income drawdown and an annuity. [4] (vii) Comment on the changes that may be required to the default investment fund if income drawdown is to be offered. [3] (vili) Suggest other options the scheme could offer at retirement. [5] [Total 28]A mature defined benefit pension scheme currently has an investment allocation strategy of: 60% invested in global equities and 40% invested corporate bonds. The scheme is closed to new entrants but is open to future benefit accrual. The funding valuation discount rate is set with regards to the expected return of the Scheme's assets and there is currently a small deficit on the funding basis. Outline the advantages and risks of the current investment strategy. [7] It has been suggested that the scheme's investment strategy should move to 100% invested in domestic Government bonds. (ii) Discuss the impact of moving to the proposed investment strategy. [8] The 100% Government bonds investment strategy has now been adopted. (iii) Set out the principles that will apply to calculating transfer values. [5] On retirement, the members of the scheme have the option to take a transfer value and use it to purchase an annuity from an insurance company to provide their pension. (iv) Set out the advantages of this option for members and the employer. [5] [Total 25]A UK manufacturing company has entered into a futures contract that requires it to deliver an agreed sum of $US to a counterparty at an agreed date in the future. Which of the following best describes the likely impact on the manufacturing company's margin on the contract if the value of the $US rises against the company's home currency? A Some of the margin paid to date will be returned to the company. B The margin will remain unchanged. C An additional margin will have to be deposited by the manufacturing company. D The margin will have to be renegotiated between the two parties to the contract. [2]
