Page 101 - Group Insurance and Retirement Benefit IC 83 E- Book

group as a whole is entirely separated from the application of that premium towards the

purchase of pensions for individual members within the group. In such circumstances
various future trends can be taken into consideration in calculating the premium for the

scheme.
It will be recalled that, in the purchase of past service pensions by the Indefinite Funding

method, the lump sum cost of purchasing the pensions outright is calculated and spread
over a period.

Premiums are used as they are paid, to buy pensions outright for individual members in
order of proximity to normal pension date. The actual amount of the installment of

premium depends on the period over which it is desired to spread the purchase of the

pensions; it must, however, be sufficient to ensure that pensions are fully purchased by
normal pension date in every case.

The important feature of this method of purchase is that the calculation of the premium
installment is entirely divorced from the allocation of the premiums paid, subject only to

the solvency test.
The method forms the basis of one of the Controlled Funding techniques.

Instead of using the premiums to buy pensions outright, it is possible to apply them as

level premiums to purchase the pensions of as many of the members, taken in order of
proximity to normal pension date, as the installment permits. Another form of Controlled

Funding uses this method, which has the merit of allocating the employer's premiums to a
wider group of members.

These two methods may be described as Single and Annual Premium Controlled Funding
respectively. The method of allocating premiums is, however, incidental to the main

purpose, which is to separate the calculation of the premium from its allocation to

individual members.

The level of funding

Before the premium payable can be calculated, it is necessary to determine the level at
which the scheme is to be funded. It is possible, for example, to determine a funding level

just sufficient to purchase, on certain assumptions, the pensions of members reaching