Hi am confused by this question. This part of the question says "...deffered pensions would be increased so that they are based on members' salaries at retirement age (from their employer at that time)." I am wondering whether it means the NRA of the scheme or the members early retirement age. the words in brackets don't offer additional help..in mhy opinion. the solution is also confusing in some parts especially the 3rd,8th bullet points
First off, the emphasis in the 30x papers is slightly different to CA1, so you always should bear this in mind when doing 30x papers as practice for CA1. By this I mean that there will be some comments that are given in 30x solution which may not appear in a perfect CA1 answer to the same question (and vice versa). Not that the comment is wrong, just that the focus of the exam is slightly different. (One could take your problem as an example of this - the solutions don't make sense to someone studying CA1 but is likely to make more sense to someone who studied 304) From a pensions perpective (which may include things not covered in CA1 since it's been a while and have been studying pensions since) The question is asking for comments (with emphasis on relevance to the client (Government)) on making pension plans pay retirement benefits based on salary at retirement. Eg Person is a member of ABC Pension Plan and leaves at 35 with salary of £X. Joins XYZ Company and retires at 65 with salary of £Y. What are your comments on ABC paying benefits on £Y rather than £X (possibly with increases since age 35)? Many of the points are similar to the reasons against a final salary state plan. The question does not make it clear which retirement age it is, eg could be NRA in ABC Pension Plan, could be date actually receives benefits, could be corresponding ages in XYZ pension plan (which could be different) or State Pension Age. As far as this question is concerned it makes no difference which retirment age you use, since the main issue is paying benefits on a salary you don't control. (Practically, if the policy was implemented with some sense of rationality, then it would probably be based on salary at date person gets pension from ABC, as this is when first payment is paid (and therfore calculated)). "Members’ salaries will not be in the control of the sponsoring employer after members leave service." ABC has no influence on what XYZ pays the members and therefore the liability for the pensions is very risky. Perhaps I'm too cynical, but possible areas of abuse could be: ABC could be having a bad time; XYZ is a competitor and has a lot of former ABC employees about to retire; XYZ could raise salaries for all these members to increase ABC's liability/pension cost and make things even worse for ABC; Note effect could be quite significant if member has 30+ years of service with ABC and say one or two with XYZ (who only is affected by one year's salary increase and small pension liabilities if any) Employee could make a deal with XYZ (or himself if form his own company) where they both benefit and ABC has to pay. "Schemes could not windup/terminate as they do not know their obligations." Say the member left ABC at 35 and then after 10 years ABC goes bankrupt/is part of a merger/whatever and the ABC pension plan needs to be wound-up. Winding-up is usually done by the purchase of annuities for all members. Here lies the problem, how much pension does ABC buy for the member? His pension is based on a salary to be determined in 20 years (at age 65 with member now 45) Key problem is you have liabilities now on salary you have no control over. Most of the other points are consequences of this, eg need regular updates on salary from other employers in order to perform meaningful actuarial valuations (which I'm sure you can see there are lots of potential problems with a) having access to competitors salay info and b) reliance on third party for info (where they are not motivated to provide reliable data promptly etc)
