Welcome to the ModelScheme Demonstrator.
We hope that this presentation will give you an indication as to how First Actuarial’s
ModelScheme program can give you essential guidance in the funding of your pension scheme,
whether you are a trustee, employer or other interested party.
To proceed, please choose one of the options below:
I am new to the ModelScheme Demonstrator, so will take
the full tutorial
I have already used the ModelScheme Demonstrator, and
wish to go straight into the presentation
1
ModelScheme
- providing an insight into pension schemes and their costs
Trustees and sponsoring employers of final salary schemes both walk a financial tightrope, and
need a thorough understanding of their schemes’ finances.
However, until now, it has been both difficult and expensive for employers to build pension
scheme costs into their overall business plans.
ModelScheme, developed by First Actuarial, is a tool that enables employers and trustees to
model the finances of their pension schemes under a variety of different scenarios and thus be
better informed about the financial consequences of any proposed future strategy.
This interactive demonstration will show you how Model Scheme can help guide you, and
prepare your scheme for the future.
If at any point you feel you want more information or need assistance, click on the help button
at the bottom of the screen, otherwise choose ‘Next’ to continue.
2
Why do you need ModelScheme?
ModelScheme gives you an insight into the interrelations between all the factors working around your
scheme:
•
Trustee Knowledge & Understanding
The Pensions Act 2004 has made it a requirement for Trustees to understand the laws relating to pensions
and trusts, and especially the principles of funding occupational pension schemes, and the principles of the
investment of scheme assets. For more information on this subject, click here
•
Investment Strategy
Clearly, it is beneficial to know more about your scheme’s investments than the minimum that the law
requires. Optimising your investments will benefit both scheme members and employers, as benefits will
be made more secure at a lower contribution cost. But, high return investments can also entail risks. Will
your scheme be able to react to market changes? ….more
•
Financial Planning
ModelScheme provides ‘What if?’ analysis in real time, which allows you to see the impact of different
funding strategies on your scheme, and whether you will be able to manage your expenses if financial
conditions changes. ….more
•
Benefit strategy
Can you afford to keep your final salary scheme? Can you afford not to?
Is closing your scheme to new entrants or future accrual the right thing to do, or is it not the fix its painted it
to be? ….more
3
What does ModelScheme do?
Based on actual scheme information ModelScheme projects forward pension costs and funding levels based
on whatever set of assumptions you wish to explore. These include:
•
•
•
•
•
•
Membership changes
Market conditions
Modifications to the scheme including changes of accrual and closing to new entrants.
Actuarial Assumptions, such as mortality loadings
Expenses
Current scheme funding levels
ModelScheme produces “real time” outputs, to allow you to make sound business decisions.
The following example shows how ModelScheme can do this.
4
Sample Scheme
When you use ModelScheme for real, your scheme’s actual membership, funding level and status are used.
For this demonstration, our sample scheme has the following features:
•
•
•
•
•
•
•
Closed to future accrual
Assets at last valuation: £5,500k
Liabilities at last valuation: £8,700k
Deficit at last valuation: £3,200 k
Asset strategy: 50% Equities, 50% Bonds
Scenario: Stable economy
Rolling deficit spread method
The graph over the page shows how we expect the scheme’s membership to change over time
5
Total Membership
350
300
Number
250
200
150
100
50
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Actives
Deferreds
Pensioners
Widows
The graph above shows how each segment of the scheme’s membership will alter over time as a proportion
of the whole. Note that in a closed scheme such as this, there are no active members, and the number of
deferreds declines over time as members age and retire.
Hover your mouse over each section of the graph for a brief explanation
6
Stable Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
This graph shows how the funding level of the scheme is expected to vary over time.
The left hand axis shows the monetary amount of the assets and liabilities
The right hand axis and yellow line show the funding level. Notice how this trends to 100% over time
External forces work on the financing of pension schemes all the time, and the graph would look very different if
economic conditions change. On the next page we show how the funding graph would appear if there was a
recession
7
Recession Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
If there is an economic slump, the funding level of the scheme is reduced considerably. The depressed stock
market restricts investment growth, and hence the assets of the scheme. Note also how liabilities are also
constrained to a degree, as increases in prices are also limited.
If this was your pension scheme, would the sponsoring employer have the financial strength to bring it back to
an acceptable level of funding in case of recession?
8
Boom Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
During a period of economic boom, funding levels increase beyond 100%, thanks to buoyant investment
returns. Would the sponsoring employer have been able to pay lower contributions at an earlier stage if her
could have predicted the upturn. If this scheme was open to accrual, liabilities would have increased more due
to higher wage increases.
The rest of this presentation shows you how to use the ModelScheme Demonstrator and then allows you to
choose various economic and investment scenarios to see how the funding of the scheme will be affected.
9
Markets
The ModelScheme Demonstrator is very easy to use. First, you decide how you wish to model economic
changes using the buttons on the left under the heading ‘Markets’.
When using the real ModelScheme, the results from your pension Scheme’s last actuarial valuation are
entered, and rolled forward to date using actual market returns. Then a number of economic assumptions
for future are applied. In this simplified version, the options are:
Boom
The top button is economic boom this assumes that the economy with grow strongly in the future.
Stable
The middle button is a reasonable halfway house.
Recession
Choosing the bottom button models recession – that the economy will slow down in the future.
For detailed information on the economic assumptions used in this example, or assistance click on the
‘Help’ button below. Otherwise:
Choose ‘Stable’
10
Next, choose the investment strategy that you wish to explore using the buttons under the heading ‘Assets’.
Equities
The top button assumes that the scheme is invested wholly in equities.
Mixed
The middle button assumes a 50/50% mix of equities and bonds
Bonds
The bottom assumes that bonds are the only investment medium
Again, more information on the assumptions used can be accessed by clicking on the ‘Help’ button below.
Otherwise:
Choose ‘Mixed’
11
Stable Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Once you have made your choices, the ModelScheme Demonstrator produces a graph showing the
projected funding levels of the scheme. To view the overall contribution required:
Click on the ‘Conts’ button, left.
12
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Stable Assumption, Mixed Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
You have now completed the background section of the ModelScheme Demonstrator. Choose ‘restart’ to
view again, or
Click on the ‘Next’ button to try your own combinations of economic conditions.
13
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
14
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
15
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
16
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
17
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
18
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
19
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
20
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
21
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
22
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
23
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
24
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
25
First, please choose the economic assumption that you wish to base the model on
These are the buttons on the left under the heading ‘Markets’
Next, pick the asset allocation strategy
Click on either ‘Equities’, ‘Mixed’ or ‘Bonds’
Finally, choose the graph that you wish to view
Note that once you have made your first illustration, you can navigate directly to any of the others
without restarting from the beginning, for better comparisons
For full instructions about how to use the ModelScheme Demonstrator, click on the Tutorial button:
26
Boom Assumption, Equity Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Best Case Scenario
With the economy growing strongly, returns on the equity investments are high, and the deficit is
amortized by 2008, as the scheme reaches full funding. From this point onwards, the rate of increase in
the funding level reduces, as the employer is able to reduce contributions to the scheme
27
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Boom Assumption, Equity Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Best Case Scenario
As can be seen from the funding graph, the deficit is completely paid off in 2008, and strong returns on
equities mean that the employer can take a contribution holiday from 2009. In this circumstance, the
employer may consider reopening the scheme to accrual, or offering some other replacement benefits to
the workforce.
28
Boom Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Steady Increases
Over the next decade, the funding level gradually rises to 80%, as assets grow at a faster rate than
liabilities.
Requires contributions to the scheme remain relatively steady – click on ‘Conts’ for an illustration.
29
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Boom Assumption, Mixed Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Steady Increases
The cost of the fund oscillates slightly, but remains relatively steady at around £350k.
This might represent a fairly cautious approach to investment in times of strong economic growth
30
Boom Assumption, Bond Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Missed Opportunity?
Despite favourable conditions, the scheme remains only 50% funded at the end of the illustration period.
Asset growth is not enough to follow increasing liabilities, so there is no overall improvement in
scheme’s health.
31
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Boom Assumption, Bond Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Missed Opportunity?
Contributions increase by around a third over time, as the conservative investment strategy fails to keep
pace with the economy. Compare this graph with those for alternative investment strategies.
32
Stable Assumption, Equity Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Aggressive Investments
The funding level of the scheme increases gently over the whole period due to the good investment
returns, eventually reaching over 70%.
Compare this result with both the ‘Boom’ and ‘Recession’ scenarios.
33
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Stable Assumption, Equity Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Aggressive Investments
In this scenario, costs remain relatively stable, although there is a general increase over time.
Compare this with the costs which would be incurred if other investment strategies are taken
34
Stable Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Par
Funding remains level at around 65%, not as impressive as the returns generated by equities, but
possibly safer in the event that the economy takes a downturn
35
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Stable Assumption, Mixed Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Par
The contributions required grow slowly over the period illustrated. Compare these numbers with those
found under different market assumptions
36
Stable Assumption, Bond Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Too Cautious?
By the end of the illustration period, the funding level of the scheme is nearly 20% lower than if equities
were the chosen investments, despite additional contributions being made by the employer. This
situation may be reversed should a recession strike however.
37
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Stable Assumption, Bond Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Too Cautious?
In this scenario, the employer costs rise steadily as the return on bonds is not enough to defray the
scheme costs. Compare this graph with the one illustrating equity investments. Bonds are however the
‘safe’ investments should the market take a downturn.
38
Recession Assumption, Equity Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Worst Case Scenario
As the recession bites, the funding level of the scheme remains stuck below 60%, despite enormous
employer contributions. (See the contribution graph!)
Meanwhile, the liabilities continue to grow, leaving both employer and scheme in serious financial
trouble.
39
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Recession Assumption, Equity Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Worst Case Scenario
As the markets slow, returns on investments shrink, and costs grow steadily, to over £1m annually in
the coming decade. Could your company survive this? Remember, this example scheme is already
closed to accrual, so it will be difficult to control costs once they start to grow out of control.
ModelScheme allows the risks to be assessed and prepared for before they become realities.
40
Recession Assumption, Mixed Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Hard Times
Not surprisingly, the asset mix has provided a degree of protection from the volatility of the equity market
during the recession, but with a stronger performance by equities in times of economic stability, is the
‘safe’ middle ground of a 50/50 mix the correct strategy for your scheme
41
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Recession Assumption, Mixed Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Hard Times
As can be expected, investing in mixed assets produces a ‘middle of the road’ graph part way between
equities and bonds.
Remember, the Demonstrator is a much simplified version of ModelScheme. Your scheme may react
differently to various economic circumstances.
42
Recession Assumption, Bond Investments Funding Graph
17,500
130%
£000's
110%
12,500
100%
10,000
90%
80%
7,500
70%
5,000
60%
Funding Level %
120%
15,000
50%
2,500
40%
0
30%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Liabilities
Assets
Funding Level
Weathering the Storm
The funding level of the scheme depressed by the struggling economy, but investing in bonds has
offered a degree of protection from the worst of the market’s trouble.
43
1,250
50%
1,000
40%
750
30%
500
20%
250
10%
0
% Salary
£000's
Recession Assumption, Bond Investments Cost Graph
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Total Cost
Total % Sal
Weathering the Storm
Employer contributions rise steadily, but investing in bonds means that the company avoids the full cost
of the recession which it would have had to bear had it chosen a more equity based strategy.
44
45
Help
Click on the ‘Tutorial’ button for full instructions on how to use the ModelScheme Demonstrator:
Return to Tutorial
Please note that the ‘Back’ and ‘Next’ buttons at the bottom of the screen have been disabled for this section of
the presentation. Use the assumptions buttons on the left of the screen to navigate directly through the
demonstration.
To return to the presentation, click on the ‘Restart’ button
46
Help
Please choose either of the two options available:
Tutorial:
If you are new to the ModelScheme Demonstrator, we suggest that you should click on this
choice. This provides background information on ModelScheme, plus instructions about how to
use the Demonstrator.
Demo:
If you have already enjoyed the demonstration, and do not wish to follow the instructions again,
pick this option to go directly to the scheme illustrations.
Please note that the assumption buttons on the left of the screen have been disabled for the
tutorial section of the presentation
To return to the presentation, click on the ‘Back’ button
47
Help
There is no help topic associated with this page
Please note that the assumption buttons on the left of the screen have been disabled for the tutorial
section of the presentation
To return to the presentation, click on the ‘Back’ button
48
Help
There is no help topic associated with this page. For further details regarding the information
on the page, click on the links within the text
Please note that the assumption buttons on the left of the screen have been disabled for the tutorial
section of the presentation
To return to the presentation, click on the ‘Back’ button
49
Help
There is no help topic associated with this page
Please note that the assumption buttons on the left of the screen have been disabled for the tutorial
section of the presentation
To return to the presentation, click on the ‘Back’ button
50
Help
There is no help topic associated with this page
Please note that the assumption buttons on the left of the screen have been disabled for the tutorial
section of the presentation
To return to the presentation, click on the ‘Back’ button
51
Help
There is no help topic associated with this page
Please note that the assumption buttons on the left of the screen have been disabled for the tutorial
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The main economic assumptions used in the ModelScheme Demonstrator are as follows:
Assumption
RPI
Equity Return
Bond Return
Index Linked Gilts Real Return
Cash Real Return
Pre-Ret Discount
Post Ret
Revaluation
Boom
3.75%
8.19%
6.33%
1.94%
4.75%
7.13%
6.33%
4.38%
Central
3.00%
7.08%
5.22%
1.58%
4.00%
6.02%
5.22%
3.79%
Recession
2.25%
5.97%
4.11%
1.22%
3.25%
4.91%
4.11%
3.21%
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Risk v Reward
The level of return from various assets represent only one consideration in investments – the other main
one being risk. Risk is the degree of uncertainty on the return of a particular investment. Equity returns
for example, are expected to fluctuate with the markets, whereas bonds tend to be more stable. The
main assumptions used in this presentation are:
Assumption
RPI
Equity Return
Bond Return
Index Linked Gilts Real Return
Cash Real Return
Pre-Ret Discount
Post Ret
Revaluation
Boom
3.75%
8.19%
6.33%
1.94%
4.75%
7.13%
6.33%
4.38%
Central
3.00%
7.08%
5.22%
1.58%
4.00%
6.02%
5.22%
3.79%
Recession
2.25%
5.97%
4.11%
1.22%
3.25%
4.91%
4.11%
3.21%
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section of the presentation
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60
Trustee Knowledge & Understanding
•
The Pensions Act 2004 introduced for the first time a "knowledge and understanding requirement" for
trustees of occupational pension schemes, be they individual trustees or directors of a corporate trustee
company.
•
A draft Code of Practice along with draft guidance on the standards of knowledge and understanding that
the Pensions Regulator expects of trustees have been issued, as have two scope documents setting out
the specific areas about which trustees are required to have knowledge and understanding. In particular,
the Regulator expects all trustees to carry out a "training needs analysis" based on the scoping
documents so that gaps in knowledge and understanding can be identified and addressed.
•
First Actuarial's approach to enabling trustees to meet the knowledge and understanding requirement is
to address the needs analysis stage through a self assessment questionnaire and then to prepare an
individual learning plan for each trustee based on the responses to the questionnaire. Each learning plan
is likely to include a mixture of face to face training, self study and perhaps even use of the e-learning
modules being developed by the Pensions Regulator. The self assessment questionnaire is available in
paper format or online. To access them, visit www.firstactuarial.co.uk, or contact Peter Shellswell on 0870
879 3102.
•
Trustees are now expected to have a far greater understanding of the issues affecting their pension
schemes than ever. To help trustees satisfy their legal obligations we offer a number of different courses
for trustees regarding pensions and trusteeship. The courses cover a wide range of topics, at all levels,
for both final salary and money purchase schemes. Existing courses are geared towards individual client
needs and range in duration from a few hours to a number of days. We do feel that, in order to allow an
efficient use of time, courses should be tailored to the specific details of a scheme. This promotes a
thorough understanding of the issues facing the scheme in question.
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Investment Strategy
•
Developing and adopting a coherent investment strategy is integral to managing the risks of your
scheme and to decisions relating to funding. First Actuarial can examine the relationship between the
profiles of the assets and the liabilities of your scheme in order to comment on whether a fundamental
review of the scheme’s investment strategy is required.
•
ModelScheme is an extremely effective interactive tool that will help trustees and employers to
understand fully the investment decisions that they need to make.
•
Determination of Appropriate Asset Allocation: We can assist in decisions as to how to allocate the
scheme’s assets between the key asset classes (equities, gilts, bonds etc).
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62
Financial Planning
Scheme Financial Planning Analysis: To-day, perhaps more than ever before, employers are looking for
ways to control the cost of a final salary pension scheme.
ModelScheme can explore a number of different options to provide answers to the many “what if”
questions being asked, such as:
•
•
•
•
What impact will changing the rate of accrual have on future contributions?
What happens if no new members are allowed into the scheme?
What happens to contributions if future accrual is stopped?
What happens if there is a fall in investment markets?
•
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Benefit strategy
•
•
•
•
•
•
•
Can your scheme afford to pay for its current level of benefits?
What will be the effect of closing it to new entrants or further accrual. Model Scheme shows you how!
ModelScheme can explore a number of different options to provide answers to the many “what if”
questions being asked, such as:
What impact will changing the rate of accrual have on future contributions?
What happens if no new members are allowed into the scheme?
What happens to contributions if future accrual is stopped?
What happens if there is a fall in investment markets
ModelScheme can answer these questions with ‘real-time’ illustrations.
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64
Exit ModelScheme Demonstrator
Thank you for using the ModelScheme Demonstrator.
We hope that it has provided an insight into how ModelScheme will be able to help you to make managing
your pension scheme easier and protect you from unforseen circumstances.
Free Trial Service
We offer a free trial service of ModelScheme using the information and data contained in the last actuarial
valuation report of. We will then meet with you to discuss the results and show how different factors will
affect your scheme and your company.
Then if you wish to proceed further, First Actuarial can follow this up with a full, up to date analysis of your
scheme and your needs, and demonstrate the effects of differing strategies in real time.
Contacts
For more information concerning ModelScheme, or any of the other services provided by First Actuarial,
please contact Peter Shellswell on 0870 879 3102. Alternatively visit our website at:
www.firstactuarial.co.uk
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