Benefit schemes

[studentactuary15]

Hi I really don't understand the terminology used for benefit schemes. I feel like there are 3 parties involved which are:

• The "scheme" or sometimes called the "sponsor",
• Employer,
• The person who gets paid the benefits (not sure what to call this, maybe "member" or "beneficiary"?)

Who is responsible for the investments and the risks involved? Who is responsible for the funding level to be adequate? Who actually pays the pension to the person who receives the benefits?

For DB schemes, I think there are only 2 parties involved - the sponsor/scheme = employee and there is then the people who receive the benefits. So then it works out like a "normal" situation where the employer bares the longevity and investment risks. The member bares risk that the pension pot isn't adequate.

For DC schemes, it is way more complex I feel...

Please can someone advise?

 

[Aman Sehra]

Hi,

In very simple terms, you can think of a pension scheme as a type of savings plan, to help the 'member' save for their future life as a retired person.

The member may be required to make contributions and put it into the pot of money, for their future. The sponsor may contribute to this pot too.

The 'sponsor' would be the one paying the benefits upon retirement, and is typically the employer.

I suggest having a thorough read through chapter 1 (Actuarial advice) and chapter 5 (Benefits overview and providers of benefits). This ought to help clarify some of the terminology used.

Thanks
Aman
ActEd Tutor