Page 97 - Group Insurance and Retirement Benefit IC 83 E- Book

is. 3d. per week for an annual pension of £1 per year of service, the employer's cost

would be negligible but would rise steadily as his staff grew older.

(2) Future cost
The future cost, expressed in terms of the average premium payable by the employer for

each £1 per annum of pension accrual, is affected by many variable factors, more or less
predictable in their effect as the case may be. The table in Appendix I indicate the general

trend resulting from the operation of each of the most important factors, both on a scheme

for salaried staff for whom an age-grade salary scale applies, and on a flat-rate scheme
for works employees. It will be seen that the dominant upward trend of Single Premium

costing as the membership ages is counteracted by three of the other five factors listed,

and is not normally aggravated by the other two.

The net effect depends on their relative magnitude and on the age distribution of the
present membership, weighted according to rate of pension accrual. In making estimates

of future costs it is usual to ignore the last four factors and to assume an average age for
replacements which may or may not take account of staff promotions. These estimates

are likely to be pessimistic in the case of works schemes where the turnover is high, but

may be nearer the mark for schemes for salaried staff where the turnover is usually lower
(except for females). In general, it usually happens that any predicted upward trend in the

cost of a Single.

Premium scheme does not fully materialize unless there is a contraction in membership.
With Annual Premium costing a downward trend will be predicted, but this trend may not

be fully realized in practice in a scheme for salaried staff, due to age-grade or inflationary

salary increases. If the future costs were predicted allowing only for the ageing of the
membership and the retirement of present members without replacement, the difference

between the Annual Premium and Single Premium costs would diminish, until after some

years the two costs would be equal; thereafter the Single Premium cost would be shown
to become progressively more expensive. In practice the action of the other factors which