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A large defined benefit pension scheme is undergoing a formal actuarial funding valuation. The trustees have just received a valuation report from the actuary to the scheme. The report complies with UK professional standards. (i) Outline the professional requirements that would have applied in the production of the report. [3] The scheme has recently closed to new entrants. The sponsor is also considering ceasing accrual in the scheme. (ii) Explain how each of these two events might impact the Standard Contribution Rate and Actuarial Liability. [7] As part of the report the life expectancy on the valuation basis is shown for members of the scheme at age 65. This has reduced since the last valuation, whilst the life expectancy of the general population has increased. (iii) Suggest reasons why this might have happened. [3] During the valuation process the sponsor announces that its profits for this year are expected to be significantly lower than in previous years. (iv) Discuss how the trustees might react to this announcement. [9] [Total 22]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%. (i) Suggest ways by which the company could increase the participation rates and contribution levels. 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 draw down 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] (viii) Suggest other options the scheme could offer at retirement. [5] [Total 28]
