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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%. (i) 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] (viii) Suggest other options the scheme could offer at retirement. [5] 1 281A company currently provides a defined benefit pension scheme for its employees. The benefits provided by the scheme are a pension equal to 1/60th of final salary for each year of service, plus a death benefit lump sum of two times salary. The company is proposing to replace the current scheme with a flexible benefit scheme. (i) Explain what is meant by a flexible benefit scheme. [1] (ii) List the benefits that could be included in the proposed scheme. [5] The company decides to set up a flexible benefit scheme, offering a range of benefits to employees. The scheme has been designed such that the overall benefit provision will have the same expected cost to the employer as the current scheme. (iii) Explain why the employer might want to provide a core level of certain benefits under the flexible benefit scheme. [2] (iv) Set out the advantages and disadvantages of this new scheme to: (a) the employer; and (b) the employees. [8] [Total 16]