The trend of future cost in group life and pension schemes

Abstract

The volume of group life and pension scheme business transacted by life offices in this country is considerable, and is increasing steadily. A great deal of work is being spent in the preparation of quotations for such schemes. Readers may, therefore, be interested in a method of reducing to a minimum an especially uninteresting part of the work arising in connexion with quotations for schemes in which the cost of pension benefits for future service or of life assurance benefits is calculated on the ‘single-premium’ basis.In these schemes it is customary for the amount of life assurance cover provided during any Scheme Year, and the amount of pension earned in respect of that year, to depend only on the salary of the member and not on his age. The employee normally contributes an amount, also fixed in relation to his salary, to purchase part of the pension by means of a deferred annuity providing a return of premiums without interest in the event of his death. The employer in each year pays the single premium required to purchase the balance of the pension accruing in respect of that year's service (usually by a deferred annuity without return of premiums in the event of the employee's death), and also to purchase the whole of the temporary life assurance granted during that year. The employer's premiums are recalculated each year on the basis of the ages attained in that year and thus for any individual employee the cost to the employer increases from year to year. Considering the scheme as a whole, this rise is partly or wholly compensated by deaths, withdrawals and retirements, and it may be quite reasonable to expect that the cost in the future will only rise by a small amount, or even decline.