Analysing and understanding pension scheme finances is an important area for Employers and Trustees.

First Actuarial is well placed to help. We have developed an interactive graphical software package - ModelScheme - to illustrate the potential impact of different business strategies and economic scenarios on scheme finances.

How does ModelScheme help?

ModelScheme provides Employers and Trustees with:

  • Education: A thorough understanding of the finances of their scheme and those factors that will affect the funding level of the scheme and the contribution rate required in future years;
  • Assessment of Attitude to Risk: Overall, there is a trade off between the short-term volatility of the scheme’s funding level and the expected long-term cost. We can help the Employer and Trustees to better understand this trade off and so make better informed decisions on an appropriate balance;
  • Determination of Appropriate Asset Allocation: We can assist in decisions as to how to allocate the scheme’s assets between the key asset classes (equities, gilts, bonds etc).
  • Scheme Financial Planning Analysis: To-day, perhaps more than ever before, employers are looking for ways to control the cost of a final salary pension scheme.

ModelScheme can explore a number of different options to provide answers to the many “what if” questions being asked, such as

  • What impact will changing the rate of accrual have on future contributions?
  • What happens if no new members are allowed into the scheme?
  • What happens to contributions if future accrual is stopped?
  • What happens if there is a fall in investment markets?

Strategy Review Process for ModelScheme

We have formulated a Strategy Review Process to assist Employers and Trustees in understanding the finances of their scheme. It comprises of four main elements:

  • Collation of membership, asset and other data
  • Set up of ModelScheme
  • Meeting to discuss results; and
  • Preparation of report summarising key recommendations.

ModelScheme results

The key part of the process is the meeting at which the results generated by ModelScheme are analysed and discussed.

The results are presented in easy-to-understand graphical form providing the financial information to support a meaningful discussion on a range of issues covering:

  • Impact of different investment strategies on:
  • Volatility of Funding Level/ Contributions
  • Future Contribution Requirements
  • Benefit Design
  • Development of Cash Flow
  • Management of Surplus/Deficit

The meeting can also be used to explore, in real time, additional “what if scenarios” that may be of interest.

ModelScheme recommendations

After the meeting, we provide a written report summarising the discussions and, if appropriate, our recommendations.

Within the report we will use graphs to illustrate the unfolding of your scheme’s finances under different economic or business scenarios

Free Trial Service

We offer a free trial service using the information and data contained in the last actuarial valuation report. We will then meet with you to discuss the results and show how different factors will affect your scheme.

Under our trial service, we do not prepare a report and our comments cannot and should not be construed as advice – and hence cannot be used as the basis for any decisions by the Employer or Trustees.

Modelling Approach

ModelScheme does not use detailed stochastic modelling techniques and simplifies a number of the actuarial techniques that would be required for a formal actuarial valuation. However, the results produced provide a valuable insight into your Scheme finances.

Should a more detailed study be required at any stage then we would of course be pleased to help.

[A ModelScheme Demonstration can be accessed by clicking this link]