(Papers) ACET Paper May 2010 "ST4 – Pension and Other
Q. 1) Define the following terms:
a) Defined Accrued Benefit method
b) Lifestyling asset allocation
d) Waiting Period
e) Free Cover
Q. 2) The head of HR is thinking of introducing a long term employee benefit.
List the separate objectives from an employer and an employee perspective that
he should consider.
(i) List the advantages and disadvantages of a pension scheme buying
annuities when pensions come into payment compared with paying them direct from
the scheme’s resources.
(ii) Explain how a scheme’s investment policy might be constrained by the need
to purchase insurance company annuities on retirement.
Q. 4) You are the advising actuary to a medium-sized defined benefit pension
scheme. The finance director of the sponsoring company has heard about the
possibility of using asset-liability models to set a pension scheme’s investment
strategy. He has asked you to provide him with further information.
Discuss the uses to which asset-liability models can be put and the
limitations of their use.
Q. 5) A large company in India operates an established funded final salary
pension scheme. The scheme is contributory and the assets are directly invested.
A regular actuarial valuation of the scheme was carried out as at 31 December
2009 and showed a considerable improvement in its ongoing finances. The ongoing
valuation basis includes an assumed rate of investment return of 7% per annum
and salary growth of 4% per annum.
The figures below have been drawn from the 2006 and 2009 valuation reports
with amounts have been given in Rupees million.
During the inter-valuation period the contributions paid were Rs. 50 million
per annum and the benefits payout were Rs. 35 million per annum
(i) List all the sources of surplus which are likely to be considered when
carrying out an analysis of surplus for a pension scheme such as this.
(ii) Estimate the investment return achieved and the surplus arising from
investment experience and comment on your results
(iii) Comment on the contribution to the analysis from salary increases