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Ch 23

N

Nimisha

Member
Hi
I am not very clear with the concept of Terminal funding on pg 10 and the difference btw Terminal and Pay as you go approach.
Pls explain.
Thanks in advance!
 
Hi
Under Pay as you go (PAYG), funds are provided only when they are needed to pay a benefit immediately.
Under Terminal funding, funds are provided at the point at which the first benefit payment is due.
If the benefit payment is a single lump sum, the approaches are the same.
However, if the benefit is a series of payments such as an annual pension, under PAYG the contributions would be made regularly at an amount equal to each pension payment made to the member. Under Terminal funding, the contribution would be an amount expected to be sufficient to pay all of the pension payments, and it would be payable when the very first pension payment is due to the member.
Hope that example helps.
 
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