Objectives and methods of funding defined benefit pension schemes

Abstract

The Objective of Funding1.1. As every actuarial student is taught:‘Pay-as-you-go is acceptable for a State pension scheme because the State is, for practical purposes, assured of a continuing existence.’However:‘The position is quite different in the case of an occupational scheme, since an employer's business may cease to exist.’1.2. It seems to us to follow, therefore, that the prime purpose of funding an occupational pension scheme must be to secure the accrued benefits, whatever they might be, in the event of the employer being unable or unwilling to continue to pay at some time in the future. To that end, the contributions would have to be sufficient both to pay the benefits as they fell due for as long as the scheme continued, and also to establish and maintain a fund which would be sufficient to secure the accrued benefits in the event of contributions ceasing and the scheme being discontinued, whenever that might occur.