Hi, I have had a go at X5 and I am looking at the solutions and it mentioned 'crystallised' a lot. I have not come across this and I have googled it, but I can't seem to understand how it applies to the scenarios. For example, Q5.3.c solution - "any deficit would be crystallised within the transfer value calculation, reducing the benefit received". Or Q5.3.d solution - "It may be possible to avoid realising assets. However, any scheme deficit would again be crystallised, reducing benefits". So does it mean that it they have been accessed, or have been realised, but how would the deficit be crystallised, like would it be quantified in the transfer? Can you please help me understand. Many thanks
Hi studyboy321 You're on the right track. A shortfall in the value of assets compared to the value of liabilities means that assets are expected to be insufficient to cover required liability outgo in the future when this is needed ... but they may not be. If option (a) in question X5.3 is followed and the scheme is run as a closed fund, it could be that good (eg investment) experience (ie better than assumed in assessing the value liabilities and possibly assets) will decrease or offset any deficit so that, in future, there will be a lower deficit or even a surplus. In this context, crystallising the deficit means making it actual rather than expected - so that there is no possibility of it reducing in future. Either of the methods you mention - X5.3 (c) or (d) - would result in liability outgo effectively being met early, possibly while there's a deficit. If there was a deficit (in assets vs the money needed to either provide benefits under (c) or (d)), it would be crystallised if either of these methods were used, in that it would be make actual rather than expected, removing the possibility of it being offset by good experience in future. I hope this helps.
