What factors affect the exchange rate.
A large company sponsors a final salary pension scheme which is currently open to future accrual of benefits. The company board has stated an aim of reducing the cost of sponsoring the scheme. (i) Suggest six possible actions the company board could take to achieve its aim. [3] (ii) Comment on the likely effectiveness of four of the actions you have identified in part (i). [4] [Total 7] In a developed country, a law has recently been passed which requires all companies based in that country to provide pension benefits to their employees. A small engineering company which has never provided any pension benefits has asked an actuary for advice in setting up a pension scheme. (i) Set out the key issues the company should consider in designing the pension scheme. [6] The company is concerned about the risks associated with providing pension benefits. (ii) Set out the actions the company could take to manage these risks through the benefit design. [8] The company workforce has a strong employee representation which has asked for input into the initial design of the benefits. (iii) Identify the key features which the employee representatives might look for in the pension scheme. [4]A defined benefit pension scheme has a commutation option at retirement where members are permitted to exchange part of their pension for a cash lump sum. Commutation factors have historically been set to be actuarially neutral on the funding valuation basis. The current commutation factors at age 60 and age 65 are as follows: E16.45 for every El of pension per annum at age 60 and E12.30 for every El of pension per annum at age 65. These were determined using a net discount rate of 2.1% p.a. The equivalent net discount rate now is 2.3% p.a. All other assumptions remain unchanged. Estimate the commutation factors at ages 60 and 65 assuming they are updated to allow for the revised assumptions. [4] The scheme's trustees have asked their actuary for advice on whether the scheme's commutation factors need to be changed. (ii) Set out the points the actuary might make in their response. [6] [Total 10] The government of a developed country with an ageing population wants to reduce the amount it spends in respect of its older citizens. (i) Outline methods by which the government's financial expenditure on the elderly could be reduced. [4] Outline how the government could encourage more saving for retirement among the working population. [7] A government adviser has put forward the following two proposals: Annual state pension payments are only to be increased if national average earnings have risen over a certain threshold over the previous year. State pension benefits are to be linked to national life expectancy and will reduce if life expectancy increases. Discuss the advantages and disadvantages of each of these proposals. [9] [Total 20]
