Page 102 - Group Insurance and Retirement Benefit IC 83 E- Book

normal pension date during the next n years. Such a level is clearly inadequate, since no

allowance is made for the accruing pensions of other members, including new entrants;
on discontinuance the pensions secured for members who had not reached normal

pension date would not, if reallocated among all members in service, be sufficient to
secure the accrued benefits. The value of n could be extended indefinitely, but the level

of funding would then become indeterminate and could only be explained to the
employer in the vaguest terms.

With a Life Office scheme it is important that the employer is told exactly what benefits

his premiums may be expected to buy over a period, and on what assumptions. If the Life
Office states no more than that, in its opinion, a premium of a certain amount will be

sufficient to secure the benefits of the scheme, the employer has no means of judging

whether the assumptions made by the Office are reasonable in the circumstances, nor any
means of comparing an estimate from one Office with another from a different source.

The Life Office is an insurer, and the limits of its cover should be made clear to the
employer.

Considering the two main types of scheme in turn:
(i) Graded schemes

In the case of a graded scheme a level of funding can be chosen which is sufficient to
secure, on defined assumptions regarding replacements, the pensions of all members

reaching normal pension date during the next n years, and also the pensions which will
have accrued by the end of the period in respect of all other members, including new

entrants, after allowing for the proportion to be secured by the member's own
contributions.

The cost emerging will be approximately equal to the projected cost during the period,

calculated by the Single Premium costing method and discounted and respired: in other
words, the anticipated fluctuations of Single Premium costing are ironed out.

It is usual to express the premium for future service pensions as a rate per £1 per annum
of pension accrual. By so doing, it is possible to allow automatically for fluctuations in

membership and payroll, and to maintain the cost at a more or less constant proportion of
payroll. The scheme is reposted at quinquennial or other suitable intervals, the new

projection being made for n years from the recasting date and allowance being made for