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Corporate activity - calculations - Coggle Diagram
Corporate activity - calculations
There are no set rules for determining the funds that should be transferred when a group of members move from one scheme to another as a result of a corporate activity.
During an acquisition, the terms will be the subject of negotiation by the Vendor and Purchaser.
The main factors that need to be agreed are:
the calculation method to be used to determine the bulk transfer value
the actuarial assumptions to be used when applying that method.
the benefits that will be valued e.g. the allowance for discretionary practices, beneficial options.
Methods to determine bulk transfer value
Value of accrued benefits
Value of leaving service benefits
Share of fund.
Assumptions used to determine bulk transfer value
The Purchaser's actuary is likely to argue for using more prudent assumptions than the Vendor's actuary.
The Purchaser wants its scheme to receive the highest transfer value relative to the liabilities taken on, so reducing future contribution requirements.
The Vendor is likely to argue for the lowest transfer value possible relative to the liabilities transferred, in order to protect the funding position of its scheme, and reduce its future contribution requirements.
A solvency basis, the funding bases of the two schemes, a best estimate basis and an accounting basis can each be considered suitable reference points when setting the bulk transfer basis.
Benefits in the Purchaser's scheme
For both past and future service benefits, the Purchaser needs to decide whether the transferring members' benefits should be
on the same benefit structure as its existing members
on a completely new scale
a 'mirror image' of what they received in the Vendor's scheme
Transferring members could be granted year-for-year service credits in the Purchaser's scheme in respect of past service.
Alternatively, allowance could be made for differences between the benefit design of the Vendor's and Purchaser's schemes by:
applying a simple ratio to transferring members past service in the Vendor's scheme
calculating service credits for each individual member
Assumptions used should be consistent with those used to calculate the bulk transfer value