Chapter 5: Benefits overview and providers of benefits

Question 1

What is the role of companies in benefit provision

Answer 1

Pay for part of or all the cost of benefits.

Question 2

What is the role of Pension schemes in benefit provision

Answer 2

Provide a vehivle for the benefits

Question 3

Who are the key providers of benefit

Time: saving for retirement

Answer 3

• The state
• Employers
• Individuals
• Financial institutions
• Other organisations

Question 4

What are the key features of pension contracts

Answer 4

• Provide retirement benefits
• Provide other benefits such as withdrawal and death
• Can have the option to change the form and timing of the benefit
• They are long-term

Question 5

Who provides pensions

Time: retirement

Answer 5

• Occupational schemes
• Personal pension plans

Question 6

Name the types of pension scheme memebers

Answer 6

• Active
• Deffered memebers
• Current pensioners

Question 7

Explain the following types of pernsion scheme members:
* Active
* Deffered memebers
* Current pensioners

Answer 7

• Active - Still earning future pension benefits over time - still contributing
• Deferred memebers - Have stopped earning future benefits but have existing benefits
• Current pensioners - paid all the due payments and now receiving benefits

Question 8

Name the main types of pension schemes

Answer 8

• Defined benefits
• Defined contribution
• Hybrid schemes

Question 9

What is a defined benefit scheme

Answer 9

• Scheme rules define the benefit independently of the contribution,
• The benefits are not directly related to the investments of the scheme
• Even if the investments do not do well, the memeber will still receive the agreed benefit

Question 10

What is a defined contribution scheme

Answer 10

• Amount of a member’s benefit depends on the contribution made to the scheme.

Question 11

What is a hybrid scheme

Answer 11

Risks are shared between the different parties involved

Question 12

Examples of hybrid schemes

Answer 12

• Cash balance - lump sum at retirement
• Schemes where retirement age is increased for future service in light of increasing longegivity

Question 13

Who does the risk lie on in a defined benefit scheme ?

Be sure to elaborate

Answer 13

The provider - contributions need to meet a set future benefit, so the money they are putting into the fund may be volatile year-to-year

Question 14

Who does the risk lie on in a defined contribution scheme ?

Be sure to elaborate

Answer 14

The member - future benefits depend on the contributions made, so the memeber has to make sure that the contributions are enough for retirement

Question 15

How would a member’s benefit increase in a defined contribution scheme

Answer 15

Return on the fund

Question 16

What choices does a memeber of a defined contribution have after retirement

Answer 16

• Annuity
• Keep invested in the fund and withdraw regularly
• Take it as a lumpsum

Question 17

How are defined benefit schemes funded or unfunded

Answer 17

Funded - money placed aside and investment returns can be earned
Unfunded - pay-as-you-go basis

Question 18

How is a defined contribution scheme funded

Answer 18

Money is set aside over the working life of the member

Question 19

What regulatory schemes is a defined benefit scheme subject to

Answer 19

Assets enough to meet liabilities regulalarly

Question 20

Why is a defined contribution scheme not subject to the same regulatory requirements as a defined benefit

Answer 20

Liabilities (payouts) are usually equal to assets (what is in the fund)

Question 21

What should benefit schemes take into account when making investment strategies.

Answer 21

• Tax relief
• Constrained by regulation

Question 22

How does the state influence provision

Answer 22

• Direct provision
• Encourage provision
• Regulation of provision

Question 23

What is the state in turn influenced by

Answer 23

• Political viewpoints
• Economic viewpoints
• Fiscal viewpoints

Question 24

What are the categories of the role of the stae

Answer 24

• Provision of benefits
• Sponsoring of benefits
• Provide financial incentives
• Education or require education about the importance of providing for the future
• Regulate to encourage or compel benefits by or in behalf of part of the population
• Regulate bodies providing benefits

Question 25

Explain the following role of the state with respect to retirement benefits: * **Provision of benefits** * Sponsoring of benefits * Provide financial incentives * Education or require education about the importance of providing for the future * Regulate to encourage or compel benefits by or in behalf of part of the population * Regulate bodies providing benefits | Be sure to explain long-term and short-term attainment

Answer 25

* Needed in countries where life expectency >>> retirement age * There is the option of passing this on to employers, but the state will have to make provisions for the unmeployed and the self-employed. * Ensuring that they can meet their basic needs in retirement * Met by borrowing in the short-run and hiking taxes in the long-run

Question 26

Explain the following role of the state with respect to retirement benefits: * Provision of benefits * **Sponsoring of benefits** * Provide financial incentives * Education or require education about the importance of providing for the future * Regulate to encourage or compel benefits by or in behalf of part of the population * Regulate bodies providing benefits

Answer 26

* Employers may contribute towards an employee's retirement * Individuals may also contribute to their retirement benefits * The state does so for its employees

Question 27

Explain the following role of the state with respect to retirement benefits: * Provision of benefits * Sponsoring of benefits * **Provide financial incentives** * Education or require education about the importance of providing for the future * Regulate to encourage or compel benefits by or in behalf of part of the population * Regulate bodies providing benefits

Answer 27

Tax relief

Question 28

# Explain the following role of the state w.r.t to retirement benefits * Provision of benefits * Sponsoring of benefits * Provide financial incentives * **Education or require education about the importance of providing for the future** * Regulate to encourage or compel benefits by or in behalf of part of the population * Regulate bodies providing benefits

Answer 28

* State can have own educational intiative * Can stipulate the minimum amount of information that the pension provider should disclose

Question 29

# Explain the following role of the state with respect to retirement benef * Provision of benefits * Sponsoring of benefits * Provide financial incentives * Education or require education about the importance of providing for the future * **Regulate to encourage or compel benefits by or in behalf of part of the population** * Regulate bodies providing benefits

Answer 29

* Encourage - tax breaks * Compel - stipulation that each individual should join a benefit scheme - stipulate min benefit - stipulate min contribution

Question 30

# Explain the following role of the state w.r.t to retirement benefits * Provision of benefits * Sponsoring of benefits * Provide financial incentives * Education or require education about the importance of providing for the future * Regulate to encourage or compel benefits by or in behalf of part of the population * **Regulate bodies providing benefits**

Answer 30

Need to balance between: * Encouraging providers - flexibility and freedom of action * Protecting consumers - need for regulation and supervision

Question 31

What are examples of regulatory actions

Answer 31

* Marketing rules * Benefit limits * Reporting requirements * Investment restrictions * Security of benefits * Rights of beneficiaries

Question 32

What fianncial instruments(securities can the state provide

Answer 32

* Goverment securities * State savings plans * Deposits into state banks

Question 33

What is the role of employers in the provision of benefits

Answer 33

* Education of employees * Encourage or compel employees to plan benefit provisions * Orderly financing of benefits * Provide a facility for the provision of benefits - a benefit scheme

Question 34

Why does the employer finance benefits

Answer 34

Compulsion or encouragement from the state The need to attract and retain good employees * Attractive to employees * As good as competitor * Reward to loyal employees A desire to look after employees and their dependents Pooling of expenses and expertise

Question 35

What are flexible benefit systems

Answer 35

Some employees already have a good provision plan in place and may require different benefits from the employer - additional salary, holidays, more days off

Question 36

Single employer schemes

Answer 36

* Financing is shared between the employer and employee

Question 37

What is a contributory single employer scheme

Answer 37

Both employer and employee contribute

Question 38

What is a non-contributory single employer scheme

Answer 38

Only employer contributes

Question 39

Multi-employer schemes

Answer 39

Set up jointly with other employers - usually from the same industry

Question 40

Benefit of multi-employer scheme

Answer 40

* Cost effective * Leads to a greater need for care with defined benefits schemes, or where employer becomes insolvent

Question 41

Fund segregation

Answer 41

Holding the pension scheme's investments seperate from the company, usually overseen by trustees

Question 42

What is the role of individuals in the provision of benefits

Answer 42

* Financing - through encouragement or compulsion * May be in a formal benefit scheme or non-specific

Question 43

How can the state steer individuals towards certain provisions ?

Answer 43

* State can steer them towards certain provisions using tax relief

Question 44

Other Financial institutions and organisations

Answer 44

* Managers (trustees) of the funds of the benefit scheme. * Informal ones include stokvels and burial societies * Other organisations include trade unions, charities and credit unions.