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Scheme design - options (High level factors to consider when designing…
Scheme design - options
options
transfer to or from another scheme
early receipt of the benefits
late receipt of the benefits
changing the level and/or form of pension increases
conversion of the benefits from pension to cash (commutation)
conversion of additional contributions to pension to cash (augmentation)
transfer of benefits from one beneficiary to another
High level factors to consider when designing options
fairness to the member taking up the option
fairness to the other beneficiaries
the provisions in the benefit scheme's documentation
regulatory and legal requirements
whether to evaluate the option on a market-related basis or some other basis
scheme's investment strategy
scheme's funding level
strength of the sponsor convenant
whether consent is being sought
treatment of discretionary benefits
selection
can be guarded against by setting terms that favour one option over another and by setting suitable eligibility crtieria.
simplicity of admin/ understanding/ planning
cost of calculation
value of money
tax
the desire to encourage (incentive) or discourage take up
consistency
prudence
take up rate
Consent
members
by definition
Custodians e.g. trustees
ensure fairness between those taking up the option and those not taking up the option
Employers
May wish to control the flow of benefits while members are still in employment
better regulate their employees' behaviour
regulators and government
unlikely to directly give consent but may require certain parties to give consent
actuaries
unlikely to give direct consent
may be required to advise on the terms or certify that practice has been reasonable
guarantees
min benefits from a DC scheme
min benefits granted in respect of a transfer in or additional contributions