Page 106 - Group Insurance and Retirement Benefit IC 83 E- Book

1. Pensions on withdrawal and early retirement

The benefits available on withdrawal and early retirement are fixed by rule in relation to

pension‘s accrued to date: they are not dependent on the amounts of pension which may
have been secured by the employer's premiums. In order to meet the point that the

pension actually secured for him may fall short of a member's entitlement under the rules,
provision is made for past allocations of premium to other members to be set aside, if

necessary, and for the premiums so released to be reallocated to the withdrawing

member. In the long run the level of funding should be adequate to enable such benefits
to be provided out of normal premiums, unless the pensions granted exceed the accrued

pensions, or their early retirement equivalent; the solvency of the scheme may, however,

be temporarily affected in the immediate future, and in such circumstances it may be
necessary to require an extra payment from the employer instead of permitting the

reallocation of past premiums.

(1) Discontinuance

A general reallocation of premiums allocated to members in service who have not

reached normal pension date takes place on discontinuance. Pensions available will not
exactly match the accrued pensions, but should be roughly equivalent if the costing

assumptions have been borne out reasonably well in practice—except of course, during
the period when the past service liability is still being met.

(2) Turnover

Most withdrawal take place at the younger ages, at which no pension will have been
secured by the employer's premiums. There is thus little wastage to the employer on

account of surrender values. Such surrender values as do arise are generally added to the

next premium and re-used. The loss to the Life Office of potential surrender profit is a
point which should be considered when framing the terms for the scheme, particularly

if 100% refunds of employee's contributions are to be made on withdrawal.