Rightly or wrongly, I regard that as a type of 'final salary scheme'. As you illustrate, different schemes have different definitions of 'final' salary, and schemes may change that definition.A Final Salary scheme is one common example of a Defined Benefit scheme. Before the restructuring my company's scheme paid out an amount that depended on length of service and a notional salary that was the average of the best 3 out of the last 11 years' service. Many employees therefore 'wound down' as they approached retirement, without losing too much of their pension as a result.
Yes, but my point was that a fund can only exist if contributions go into it, rather than funding current pensions.Don't forget the existence of a fund, into which the employer pays as well, the amount being determined by actuaries and dependent on both the amount of existing employees' contributions and the liabilities, i.e. pensioners.
Actuaries obviously have to make assumptions/predictions (particularly in relation to investment returns and life expectancy), on the basis of which they can calculate estimated required contributions, but they have to work within the framework of the rules which exist to safeguard the pensions of existing scheme members.Possible, rather than probable; that's why we have actuaries.
Of course it is, if the income is sufficient.I rather doubt that it is allowable to have a scheme which is reliant on 'current' contributions to at least partially honour pension commitments to existing members
Did you read and understand what I just wrote?Of course it is, if the income is sufficient. I'm not sure what you're struggling with - there's a sum of money - the fund - which has incomings - contributions by members and employers, investment growth - and outgoings - pension payments, fund managers' fees. The incomings over time have to be sufficient to fund the outgoings over time.
Exactly - since such a scheme would not really be worth the paper it was written on. One might just as well 'trust' an employer (if they still exist) to pay pensions out of current assets and income (including ongoing 'pension contribution income') for as long as was necessary (which, as far as I am aware, is not allowed for anyone but 'the State').I can't see that a scheme worked as stillp describes would meet solvency requirements.
Yes. I wish you had done the same for me.Did you read and understand what I just wrote?
Can you tell me where I wrote that the fund is insufficient for the scheme's obligations to be honoured?Everything you say above would be fine so long as assumptions and predictions about future happenings with the employer proved to be correct. However, as I said, what if the company ceases trading tomorrow, so that future contributions by members and employer will be zero from now on?
You wrote ...Can you tell me where I wrote that the fund is insufficient for the scheme's obligations to be honoured?
If the company goes bust, such that the income falls to zero for evermore (hence no more payments into fund), if the fund's honouring of obligations (to scheme members) was previously reliant on at least some ongoing 'income' (going into the fund), once that ongoing income falls to zero, it could not then be able to fully honour its obligations. Put another way, in terms of your statement, if a 'sufficient' income is required by the scheme, then it can't be 'sufficient' if it becomes zero!Of course it is, if the income is sufficient.
Of course it is, if the income is sufficient.
I'm not sure what you're struggling with - there's a sum of money - the fund - which has incomings - contributions by members and employers, investment growth - and outgoings - pension payments, fund managers' fees. The incomings over time have to be sufficient to fund the outgoings over time.
In that case there will be no new entrants to the scheme.If the company goes bust, such that the income falls to zero
I'm sure that's one of the reasons.This is surely why a pension scheme and its fund are constituted be totally separate from the employer and its employees, and why the scheme/fund has to be able to honour its obligations regardless of the future fate of the employer.
I'm not sure why you should think that.You seem to be considering the pension scheme and employer as being far more 'associated' than they are, or should be.
Of course, However, there could be thousands receiving, or due to receive, pensions from the scheme. If, per your suggestion, they would only get their full expected pension if there was ongoing 'sufficient income' from members contributing to the scheme, then those drawing, or due to draw, pensions would obviously be hard done by if contributions (from anyone, not only 'new entrants to the scheme) suddenly ceased.In that case there will be no new entrants to the scheme.
Maybe I've misunderstood, but you have made statements that suggest that an employer has more involvement in the management of a pension scheme than is (or should be!) the case).I'm not sure why you should think that.
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