Hi Dominic
I think that inter-generational fairness between members is an issue that needs to be considered in many DB pensions schemes, whether the funding strategy is, for example, a prudent ongoing basis or a self-sufficiency approach. Eg it is an issue when allocating surplus.
However, it becomes more important as a scheme approaches the end of its life, because the number of members are decreasing, experience may become relatively more volatile and the sponsor may be reluctant to pay further contributions into the scheme and may not be able to get back any scheme surplus easily. So, for example:
- if a really prudent funding approach has previously been used, there might be a lots of assets left and very few members, and so they may get very large discretionary increases
- if a much less prudent approach has been used and there is then some poor experience, the scheme may run out of money before the last few members die.
This exam question is about a scheme changing to a different strategy and the pros and cons of each. I think the trustees are probably already having to be careful about inter-generational fairness and this won't become a bigger issue for some years (eg we don't actually know that this scheme is closed to new entrants). As such, I suspect that other issues may be considered to be more important and hence inter-generational fairness isn't covered in the Examiners' Report.
I hope that helps
Gresham
Last edited: Aug 14, 2023
