Question 1:
Give the formulae for the Standard Contribution Rate (SCR) and Actuarial Liability (AL) for each of the following funding methods:
a) Credit Unit Method
b) Projected Unit Credit Method
c) Entry Age Method
d) Attained Age Method
Question 2:
Tylon Plc has been running a non-contributory Defined Benefit scheme for the last 20 years. Employees must complete a probatory period of 6 months to join the scheme. It provides a pension benefit of 2% per year of service (since joining company) based on final salary at retirement. The pension is indexed by CPI while in deferment and in payment. Pensioners can commute 30% of their annual pension for a lump sum at a commutation rate of 13 (current annuity rates at retirement are 10). Death in service benefits are 48 times the salary at the time of death. Leaver benefits are computed on a Defined Contribution approach based on the contributions paid by the company every year. Employees of Tylon also enjoy a State Pension which is contributory for both employer and employee.
Tylon Plc is currently going through tough economic times. Its pension scheme is now in a deficit position. Its HR manager has requested your advice on areas of the scheme/benefit design which can be amended for new employees.
a) Outline the points to be made to the HR manager and how your proposed actions will help reduce cost.
b) What are the issues you anticipate if the HR manager is to apply the new scheme/benefit design to existing employees and pensioners?