Elaborate on retirement plans.
Retirement plans help to build a corpus for retirement. They help to live independently financially and without worries. Most of the retirement plans provide annual installments or one time payout after the age of 60 years or on /after retirement.
In case of an unfortunate event like if the life assured passes away during the policy term, immediate payment is payable to the nominee by the insurance company. Death benefit will be higher of coverage or fund value or 105% of premiums paid. Vesting Benefit will be payable if the life assured survives the maturity age. In which case, payout will be fund value which has to be utilized for buying an annuity. Best known for: Long-term savings and retirement planning.
Benefit of Retirement Plan: Helps in building corpus for retirement.
This is just a simplified guide to different types of life insurance policies.
Why do companies give pensions to their employees?
Your pension helps you to maintain your standard of living in retirement, and savings provides important supplemental income for unforeseen expenses. Group pension plans provide guaranteed monthly income for life, which makes financial security in retirement much more achievable for those who have them.
There are various retirement plan choices available to employers that provide tax benefits for their employees. The results of the survey reflect past studies that found firms often offer retirement benefits to attract and keep talent and to aid employees in saving money.
What are the factors that affect the monthly pension payment?
a) Your age when you retire, which may result in a reduced pension
b) The pension option you choose
c) The premiums you pay for health coverage through the post-retirement group benefit plan
d) Any legally required deductions, such as income tax
What is a provident fund ?
A provident fund is an investment fund that is jointly established by the employer and employee to serve as a long-term savings to support an employee upon retirement. It also represents job welfare benefits offered to the employee.
What are pensions?
A pension is a retirement plan that provides a monthly income. The employer bears all of the risk and responsibility for funding the plan.
What was the recent development made by the Government w.r.t gratuity payments?
An increase in the basic pay of an employee will automatically lead to a higher gratuity payment to the employee. According to the new definition, bonus, pension contributions, provident fund contributions, house rent allowance, conveyance allowance, gratuity and overtime should not be included in the salary.
What are the decrements in pension policy other than death?
The decrements in a pension policy other than death are as follows:
a) Termination benefits
b) Survivor benefits
c) Accrued benefits
d) Post-retirement benefits
e) Pre-retirement death benefits
f) Retirement benefits
g) Other termination benefits
h) Compensation benefits
How to calculate pensions?
Pension=Average Salary*Pensionable Service/70, where,
Average Salary = Average of the Basic Salary + Dearness Allowance combined, drawn in the last 12 months, and,
Pensionable Service = the number of years worked in the organized sector after 15th November, 1995.
What is a defined benefit pension scheme?
A final salary pension plan is another name for the most popular kind of defined benefit pension plan. According to these plans, employee members are entitled to a certain level of benefit based on their length of service and their retirement wage.
In a defined benefit pension plan, a formula tied to the member’s wages and/or the length of their pensionable service determines the pension payout. The contributions from the company and the employee must be enough to cover the total pension payout, according to those in charge of the programme.
What is a defined contribution pension scheme?
A money purchase pension plan is often referred to as a defined contribution pension plan. These pension plans have regular employer contributions that are set as a dollar sum or a percentage of the employee members’ salaries. Additionally, the employee may contribute to the plan. Benefits are calculated based on the following factors: contributions made to the plan, investment returns on those contributions, and the cost of an annuity in retirement.
Regardless of how the assets perform, employers are not required to make any more contributions.
What is Financial Reporting Standard 17?
The Accounting Standards Board’s FRS17 accounting standard outlines the financial reporting requirements for organisations, including charities, that manage pension plans. This accounting standard mostly impacts organisations that run defined benefit plans; contribution-based nonprofits are not greatly impacted. Those organisations that have defined benefit plans are required to compute their pension expenditures and make substantial disclosures regarding their plans. FRS 17 doesn’t directly affect a defined benefit scheme’s cash flow, but it does increase transparency in the accounting for retirement payouts and highlights the costs and risks of providing defined benefit pensions.
What are the funding requirements for defined benefit pension schemes?
Most defined benefit pension schemes need to meet a statutory funding objective, known as technical provisions, which assesses the required levels of funding a scheme requires to provide benefits for its members. Employers need to work closely with the trustees of the pension scheme to agree what the technical provisions for the scheme should be and set out a schedule of contributions to meet and maintain this level. Regular valuations, at least every three years, are required to check whether the statutory funding objective is met; where it is not, trustees and employers will need to agree on a recovery plan.
What is the Pension Protection Fund?
The Pensions Act 2004 introduced the Pension Protection Fund (PPF). The PPF exists to provide compensation to members of schemes where the employer becomes insolvent and the scheme has insufficient funds to provide at least the same levels of benefit as the PPF to its members. The PPF is funded in part by existing pension schemes which pay a yearly levy, part of which depends on their risk profile.
What is the role of PFRDA?
As per PFRDA Act 2013, PFRDA is an Authority to promote old age income security by establishing, regulating and developing pension funds to protect the interest of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.
What is the National Pension System?
“National Pension System” (NPS) means the contributory pension system whereby contributions from a subscriber are collected and accumulated in an individual pension account called PRAN using a system of points of presence, a central recordkeeping agency and pension funds as may be specified by regulations.
Who is covered by the NPS?
NPS is applicable to all employees joining services of the Central Government including Central Autonomous Bodies (except Armed Forces) on or after 1st January 2004. Many State Governments have adopted NPS architecture and implemented NPS mandatorily through Gazette Notifications for their employees joining on or after a cut-off date.
What is a PRAN?
PRAN is an acronym for Permanent Retirement Account Number, which is the unique and portable number provided to each subscriber under NPS and remains with him throughout.
Are bank details mandatory for opening an NPS account?
Yes. For subscribers, the Bank details are mandatory. In case, Bank details are not available at the time of filling the form, subscribers can provide a declaration for providing the Bank details within six months or on opening of Bank account whichever is earlier.
Is NPS applicable to employees of State Autonomous Bodies?
Many State Governments have adopted NPS architecture and implemented NPS for the employees of State Government as well as for the employees of Autonomous bodies, State PSUs, Corporations, Boards, if notified in their respective gazette notifications.
Are there any tax benefits on NPS contributions for the central government employees?
Income Tax Act allows benefits under NPS as per the following sections,
a) Section 80CCE provides that the aggregate amount of deduction under Section 80CCC and 80CCD shall not exceed Rs 1 lakh. The Finance Act, 2011 provides that contributions made by the Central Government or any other employer to NPS shall be excluded while computing the limit of Rs 1,00,000. The contribution by the employee to the NPS will be subject to the limit of Rs 1,00,000.
b) Section CCD (2) provides that deduction in respect of contributions by the Central Government or any other employer to NPS available under Section 80CCD (2) will not be subject to the limit specified in Section 80CCE but it is subject to 10% of Basic + DA maximum.
What is the fundamental difference between a Defined Benefit (DB) and a Defined Contribution (DC) plan?
In a Defined Benefit plan, the retirement benefit is guaranteed based on a formula (usually salary and years of service). The investment and longevity risks fall on the employer. In a Defined Contribution plan, only the contributions are fixed. The final benefit depends on investment performance, and the risk falls entirely on the employee.
How do you calculate the “Funding Ratio” of a pension fund?
I calculate the Funding Ratio by taking the market value of the plan’s assets and dividing it by the actuarial present value of its liabilities. A ratio of 100% or more indicates the plan is fully funded based on current assumptions.
What are “Past Service Liabilities” vs. “Future Service Liabilities”?
Past Service Liabilities represent the value of benefits already earned by members for their service up to the valuation date. Future Service Liabilities (or Normal Cost) represent the value of benefits members are expected to earn in the coming year or future years.
Explain the “Current Unit Method” vs. the “Projected Unit Method.”
I use the Projected Unit Method for schemes where benefits are linked to future salary increases, as it accounts for the final salary at retirement. The Current Unit Method is used for schemes that are winding up or have no future salary link, as it only values the benefit based on service and salary to date.
If the discount rate increases, what happens to the pension liability?
The liability decreases. Since the liability is the Present Value (PV) of future benefit payments, a higher discount rate reduces the current value of those future cash flows.
Why is “Salary Growth” a crucial assumption in DB valuations?
Since DB benefits are often linked to a member’s “final salary,” I must project what that salary will be at retirement. If I underestimate salary growth, the fund will be underfunded when the employee actually retires.
How do you account for “Longevity Risk” in a pension fund?
I use Mortality Tables with built-in projection scales (like the CMI models) to account for the fact that people are living If members live longer than expected, the fund must pay out benefits for a longer duration, increasing the total liability.
How do you select a “Prudent” discount rate versus a “Best Estimate” rate?
A Best Estimate is a 50/50 probability outcome. When I add Prudence, I lower the discount rate (increasing the liability value) to provide a cushion against adverse experience.
What is the difference between a “Going Concern” valuation and a “Solvency/Wind-up” valuation?
A Going Concern valuation assumes the plan continues indefinitely. A Solvency/Wind-up valuation assumes the plan stops today and all benefits are bought out by an insurer, requiring much more expensive, “risk-free” assumptions.
Explain “Liability Driven Investment” (LDI) to a pension trustee.
LDI is a strategy where I focus on matching the investment portfolio to the timing and size of the pension Instead of just chasing high returns, I use assets (like bonds or swaps) that move in the same direction as the liabilities to protect the fund’s solvency.
What is the impact of high inflation on a “Pensioner’s Increase” (Indexation)?
Many pension plans have benefits that increase annually with inflation. High inflation increases these future benefit payments, thereby increasing the liabilities. I model these using “Inflation Swaps” to hedge that risk.
What is “Sponsor Covenant” and why does it matter?
The sponsor covenant is the employer’s legal obligation and financial ability to support the pension scheme. If the employer is financially weak, I might recommend a more conservative investment strategy.
What is a “Buy-in” and how does it differ from a “Buy-out”?
In a Buy-in, the scheme buys an insurance policy as an asset to cover benefits, but the scheme remains In a Buy-out, the individual policies are handed to the members, and the insurer takes over the liability entirely.
How do “Longevity Swaps” work?
I use a longevity swap to hedge the risk of members living longer. The scheme pays fixed cash flows to a reinsurer, and the reinsurer pays the actual benefits due to the members.
Explain “Collateral Management” risk in an LDI portfolio.
LDI often uses derivatives. If interest rates rise, the value of these swaps falls, and I must provide collateral (cash) to the bank. I maintain a “liquidity ladder” to ensure we don’t run out of cash during market volatility.
How do you calculate a “Transfer Value” (CETV)?
I calculate the Cash Equivalent Transfer Value (CETV) by determining the Present Value of the member’s accrued benefits using “best estimate” assumptions for discount rates, inflation, and mortality.
What is “Section 75 Debt” and when is it triggered?
This is a debt on the employer triggered when they stop participating in a scheme or the scheme winds up. I calculate this on a “Full Solvency”
Why would a “Surplus” in a pension fund be a problem?
A surplus can be “trapped.” Returning it to the employer often triggers a high tax In 2026, we focus on “Surplus Extraction” rules to encourage productive investment.
Define the “Recovery Plan” and “Journey Plan.”
A Recovery Plan is the schedule of contributions to close a funding gap. A Journey Plan is the long-term strategy to move toward a low-dependency or buy-out target.
What is “Data Tracing” and why is it critical before a Buy-out?
I lead tracing exercises to find “lost” If data is wrong, an insurer will increase their risk premium, making a buy-out more expensive.
How do “Early Retirement Factors” ensure actuarial neutrality?
I apply a reduction factor to early retirees’ pensions so that the Present Value of the reduced pension starting now equals the Present Value of the full pension starting at the Normal Retirement Age.
Explain the impact of “Deferred Member Revaluation.”
Benefits for members who have left the company but not yet retired must be revalued annually (often by CPI) to protect against inflation.
What is a “Trivial Commutation” lump sum?
If a member’s total pension value is below a small threshold (e.g., £30,000), I can offer a one-off cash payment to extinguish the liability and save on admin costs.
How do you model “Spouse’s Benefits” in a mortality projection?
I assume a “Proportion Married” and an “Age Difference” between partners to ensure we reserve enough to pay the spouse after the member passes away.
What is the “Virgin Media Remedy”?
I am tasked with reviewing historical records to provide retrospective actuarial confirmations for past scheme amendments that might otherwise be void.
How does the “Pensions Dashboard” deadline change data requirements?
I need to ensure data is clean enough for members to see their “Estimated Retirement Income” digitally by the October 2026 deadline.
Explain “CDC” (Collective Defined Contribution) schemes.
It’s a middle ground where employer costs are fixed, but the risk is pooled across all members. I calculate annual increases based on fund performance.
What is the role of the “PPF” (Pension Protection Fund)?
It’s a safety net for underfunded schemes with insolvent I calculate the PPF Levy (the insurance premium) the scheme must pay.
Explain “Scheme Specific Funding” vs. “Prescribed Assumptions.”
Scheme Specific allows me to choose assumptions reflecting the specific.
Prescribed are fixed by a regulator for consistency across the industry.
What is a “Fiduciary Management” model?
Trustees delegate day-to-day investment to a third I monitor the manager to ensure their choices stay in sync with the liabilities I project.
