Risk (Benefit Schemes)

Question 1

Key risks - benefit schemes participants

Answer 1

1. Sponsor
   *level - higher than expected cost
   *time - contributions required at inopportune time
2. Member
   *level - lower than expected benefits
   *time - benefits not received when needed
3. State
   *expected to put right any losses public incurs

Question 2

Defined benefit - benefit risks

Answer 2

2inc
1. Funds - inadequate
* Insolvent spinsor
*under funding
*mismatch
3. Needs nor met
*inflation erosion
*misunderstanding
*change of circumstances
4. Change of promise - state/regulations
5. Assets - illiquid

1. Default
2. Failure to pay contribution on time
3. Reduced benefits
4. Communication inadequate
5. Mismanagement general economic
6. Takeover

Question 3

Defined benefit - contribution risks

Answer 3

1. Timing - unknown
2. Insufficient assets/insolvency
   *benefit amount
   *eligibility to accrue benefit
   *eligibility to receive inflation
   *investment return
3. Third party take over
4. Illiquid assets
5. Level contributions

Fraud
Fines
Administration
Advice
Tax
Decision
Payments

Question 4

Defined contribution- benefit risk

Answer 4

Aein
1. Annuity rates - worse than expected
*consider risks to both member and provider
2. Expenses
3. lower than expected - investment returns
4. Needs not being met
*inflation
*design

1. Default
2. Failure
3. Reduced
4. Communication
5. Mismanagement
6. Takeover
7. Annuity rates
8. Expenses

Question 5

Defined contribution- contribution risks

Answer 5

1. Timing
2. Insufficient /insolvency
3. Third party take over
4. Illiquid
5. Level
   * unaffordable
   *inflation erosion

Fraud
Fines
Administration
Advice
Tax
Decision
Payment

Question 6

Sponsor risks

Answer 6

Dtdcd
1. Default on contributions
2. Contributions not on timely manner
3. Default on loans provided to scheme
4. Decide not to make contributions
5. Communicate poorly to clients

1. Contributions
   Default
   Timely
2. Communication
3. Cover ratio

Question 7

Investment Risk

Answer 7

Muv dirt
1. Mismatch liabilities
2. Uncertainty
3. Volatility of returns
4. Default risk
5. Investment expenses/inflation/interest
6. Reinvestment risk
7. Tax risks

1. Default
2. Uncertainty
3. Reinvestment
4. Mismatch
5. Investment exp/infl
6. Volatility
7. Tax

Question 8

DC - future contributions depend on

Answer 8

1. Benefit amount
2. Ability to accrue benefits
3. eligibility to receive benefits inflation
4. Investment return