Model Scheme Demo

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Welcome to the ModelScheme Demonstrator. We hope
that this presentation will give you an
indication as to how First Actuarials
ModelScheme program can give you essential
guidance in the funding of your pension scheme,
whether you are a trustee, employer or other
interested party. To proceed, please choose one
of the options below
I am new to the ModelScheme Demonstrator, so will
take the full tutorial I have already used the
ModelScheme Demonstrator, and wish to go straight
into the presentation
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ModelScheme
- providing an insight into pension schemes and
their costs
Trustees and sponsoring employers of final salary
schemes both walk a financial tightrope, and need
a thorough understanding of their schemes
finances. However, until now, it has been both
difficult and expensive for employers to build
pension scheme costs into their overall business
plans. ModelScheme, developed by First
Actuarial, is a tool that enables employers and
trustees to model the finances of their pension
schemes under a variety of different scenarios
and thus be better informed about the financial
consequences of any proposed future
strategy. This interactive demonstration will
show you how Model Scheme can help guide you, and
prepare your scheme for the future. If at any
point you feel you want more information or need
assistance, click on the help button at the
bottom of the screen, otherwise choose Next to
continue.
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Why do you need ModelScheme?
ModelScheme gives you an insight into the
interrelations between all the factors working
around your scheme

• Trustee Knowledge Understanding
• The Pensions Act 2004 has made it a requirement
  for Trustees to understand the laws relating to
  pensions and trusts, and especially the
  principles of funding occupational pension
  schemes, and the principles of the investment of
  scheme assets. For more information on this
  subject, click here
• Investment Strategy
• Clearly, it is beneficial to know more about
  your schemes investments than the minimum that
  the law requires. Optimising your investments
  will benefit both scheme members and employers,
  as benefits will be made more secure at a lower
  contribution cost. But, high return investments
  can also entail risks. Will your scheme be able
  to react to market changes? .more
• Financial Planning
• ModelScheme provides What if? analysis in real
  time, which allows you to see the impact of
  different funding strategies on your scheme, and
  whether you will be able to manage your expenses
  if financial conditions changes. .more
• Benefit strategy
• Can you afford to keep your final salary scheme?
  Can you afford not to?
• Is closing your scheme to new entrants or future
  accrual the right thing to do, or is it not the
  fix its painted it to be? .more

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What does ModelScheme do?

• Based on actual scheme information ModelScheme
  projects forward pension costs and funding levels
  based on whatever set of assumptions you wish to
  explore. These include
• Membership changes
• Market conditions
• Modifications to the scheme including changes of
  accrual and closing to new entrants.
• Actuarial Assumptions, such as mortality loadings
• Expenses
• Current scheme funding levels
• ModelScheme produces real time outputs, to
  allow you to make sound business decisions.
• The following example shows how ModelScheme can
  do this.

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Sample Scheme

• When you use ModelScheme for real, your schemes
  actual membership, funding level and status are
  used. For this demonstration, our sample scheme
  has the following features
• Closed to future accrual
• Assets at last valuation 5,500k
• Liabilities at last valuation 8,700k
• Deficit at last valuation 3,200 k
• Asset strategy 50 Equities, 50 Bonds
• Scenario Stable economy
• Rolling deficit spread method
• The graph over the page shows how we expect the
  schemes membership to change over time

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Total Membership
350
300
250
200
Number
150
100
50
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Year
Actives
Deferreds
Pensioners
Widows
The graph above shows how each segment of the
schemes membership will alter over time as a
proportion of the whole. Note that in a closed
scheme such as this, there are no active members,
and the number of deferreds declines over time as
members age and retire. Hover your mouse over
each section of the graph for a brief explanation
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This graph shows how the funding level of the
scheme is expected to vary over time. The left
hand axis shows the monetary amount of the assets
and liabilities The right hand axis and yellow
line show the funding level. Notice how this
trends to 100 over time External forces work on
the financing of pension schemes all the time,
and the graph would look very different if
economic conditions change. On the next page we
show how the funding graph would appear if there
was a recession
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If there is an economic slump, the funding level
of the scheme is reduced considerably. The
depressed stock market restricts investment
growth, and hence the assets of the scheme. Note
also how liabilities are also constrained to a
degree, as increases in prices are also
limited. If this was your pension scheme, would
the sponsoring employer have the financial
strength to bring it back to an acceptable level
of funding in case of recession?
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During a period of economic boom, funding levels
increase beyond 100, thanks to buoyant
investment returns. Would the sponsoring
employer have been able to pay lower
contributions at an earlier stage if her could
have predicted the upturn. If this scheme was
open to accrual, liabilities would have increased
more due to higher wage increases. The rest of
this presentation shows you how to use the
ModelScheme Demonstrator and then allows you to
choose various economic and investment scenarios
to see how the funding of the scheme will be
affected.
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Markets The ModelScheme Demonstrator is very
easy to use. First, you decide how you wish to
model economic changes using the buttons on the
left under the heading Markets. When using the
real ModelScheme, the results from your pension
Schemes last actuarial valuation are entered,
and rolled forward to date using actual market
returns. Then a number of economic assumptions
for future are applied. In this simplified
version, the options are Boom The top button is
economic boom this assumes that the economy with
grow strongly in the future. Stable The middle
button is a reasonable halfway house. Recession C
hoosing the bottom button models recession that
the economy will slow down in the future. For
detailed information on the economic assumptions
used in this example, or assistance click on the
Help button below. Otherwise Choose Stable
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Next, choose the investment strategy that you
wish to explore using the buttons under the
heading Assets. Equities The top button
assumes that the scheme is invested wholly in
equities. Mixed The middle button assumes a
50/50 mix of equities and bonds Bonds The
bottom assumes that bonds are the only investment
medium Again, more information on the
assumptions used can be accessed by clicking on
the Help button below. Otherwise Choose
Mixed
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Once you have made your choices, the ModelScheme
Demonstrator produces a graph showing the
projected funding levels of the scheme. To view
the overall contribution required Click on the
Conts button, left.
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You have now completed the background section of
the ModelScheme Demonstrator. Choose restart to
view again, or Click on the Next button to
try your own combinations of economic conditions.

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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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First, please choose the economic assumption that
you wish to base the model on These are the
buttons on the left under the heading Markets
Next, pick the asset allocation strategy Click on
either Equities, Mixed or Bonds
Finally, choose the graph that you wish to
view Note that once you have made your first
illustration, you can navigate directly to any of
the others without restarting from the beginning,
for better comparisons
For full instructions about how to use the
ModelScheme Demonstrator, click on the Tutorial
button
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Best Case Scenario With the economy growing
strongly, returns on the equity investments are
high, and the deficit is amortized by 2008, as
the scheme reaches full funding. From this point
onwards, the rate of increase in the funding
level reduces, as the employer is able to reduce
contributions to the scheme
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Best Case Scenario As can be seen from the
funding graph, the deficit is completely paid off
in 2008, and strong returns on equities mean that
the employer can take a contribution holiday from
2009. In this circumstance, the employer may
consider reopening the scheme to accrual, or
offering some other replacement benefits to the
workforce.
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Steady Increases Over the next decade, the
funding level gradually rises to 80, as assets
grow at a faster rate than liabilities.
Requires contributions to the scheme remain
relatively steady click on Conts for an
illustration.
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Steady Increases The cost of the fund oscillates
slightly, but remains relatively steady at around
350k. This might represent a fairly cautious
approach to investment in times of strong
economic growth
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Missed Opportunity? Despite favourable
conditions, the scheme remains only 50 funded at
the end of the illustration period. Asset growth
is not enough to follow increasing liabilities,
so there is no overall improvement in schemes
health.
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Missed Opportunity? Contributions increase by
around a third over time, as the conservative
investment strategy fails to keep pace with the
economy. Compare this graph with those for
alternative investment strategies.
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Aggressive Investments The funding level of the
scheme increases gently over the whole period due
to the good investment returns, eventually
reaching over 70. Compare this result with both
the Boom and Recession scenarios.
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Aggressive Investments In this scenario, costs
remain relatively stable, although there is a
general increase over time. Compare this with
the costs which would be incurred if other
investment strategies are taken
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Par Funding remains level at around 65, not as
impressive as the returns generated by equities,
but possibly safer in the event that the economy
takes a downturn
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Par The contributions required grow slowly over
the period illustrated. Compare these numbers
with those found under different market
assumptions
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Too Cautious? By the end of the illustration
period, the funding level of the scheme is nearly
20 lower than if equities were the chosen
investments, despite additional contributions
being made by the employer. This situation may be
reversed should a recession strike however.
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Too Cautious? In this scenario, the employer
costs rise steadily as the return on bonds is not
enough to defray the scheme costs. Compare this
graph with the one illustrating equity
investments. Bonds are however the safe
investments should the market take a downturn.
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Worst Case Scenario As the recession bites, the
funding level of the scheme remains stuck below
60, despite enormous employer contributions.
(See the contribution graph!) Meanwhile, the
liabilities continue to grow, leaving both
employer and scheme in serious financial trouble.
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Worst Case Scenario As the markets slow, returns
on investments shrink, and costs grow steadily,
to over 1m annually in the coming decade.
Could your company survive this? Remember, this
example scheme is already closed to accrual, so
it will be difficult to control costs once they
start to grow out of control. ModelScheme allows
the risks to be assessed and prepared for before
they become realities.
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Hard Times Not surprisingly, the asset mix has
provided a degree of protection from the
volatility of the equity market during the
recession, but with a stronger performance by
equities in times of economic stability, is the
safe middle ground of a 50/50 mix the correct
strategy for your scheme
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Hard Times As can be expected, investing in mixed
assets produces a middle of the road graph part
way between equities and bonds. Remember, the
Demonstrator is a much simplified version of
ModelScheme. Your scheme may react differently
to various economic circumstances.
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Weathering the Storm The funding level of the
scheme depressed by the struggling economy, but
investing in bonds has offered a degree of
protection from the worst of the markets
trouble.
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Weathering the Storm Employer contributions rise
steadily, but investing in bonds means that the
company avoids the full cost of the recession
which it would have had to bear had it chosen a
more equity based strategy.
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Help
Click on the Tutorial button for full
instructions on how to use the ModelScheme
Demonstrator Please note that the
Back and Next buttons at the bottom of the
screen have been disabled for this section of the
presentation. Use the assumptions buttons on the
left of the screen to navigate directly through
the demonstration. To return to the
presentation, click on the Restart button
Return to Tutorial
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Help
Please choose either of the two options
available Tutorial If you are new to the
ModelScheme Demonstrator, we suggest that you
should click on this choice. This provides
background information on ModelScheme, plus
instructions about how to use the
Demonstrator. Demo If you have already enjoyed
the demonstration, and do not wish to follow the
instructions again, pick this option to go
directly to the scheme illustrations. Please
note that the assumption buttons on the left of
the screen have been disabled for the tutorial
section of the presentation To return to the
presentation, click on the Back button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this page.
For further details regarding the information on
the page, click on the links within the
text Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation To
return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
The main economic assumptions used in the
ModelScheme Demonstrator are as
follows To return to the
presentation, click on the Back button
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Help
Risk v Reward The level of return from various
assets represent only one consideration in
investments the other main one being risk.
Risk is the degree of uncertainty on the return
of a particular investment. Equity returns for
example, are expected to fluctuate with the
markets, whereas bonds tend to be more stable.
The main assumptions used in this presentation
are Please note that the assumption
buttons on the left of the screen have been
disabled for the tutorial section of the
presentation To return to the presentation,
click on the Back button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Help
There is no help topic associated with this
page Please note that the assumption buttons on
the left of the screen have been disabled for the
tutorial section of the presentation T
o return to the presentation, click on the Back
button
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Trustee Knowledge Understanding

• The Pensions Act 2004 introduced for the first
  time a "knowledge and understanding requirement"
  for trustees of occupational pension schemes, be
  they individual trustees or directors of a
  corporate trustee company.
• A draft Code of Practice along with draft
  guidance on the standards of knowledge and
  understanding that the Pensions Regulator expects
  of trustees have been issued, as have two scope
  documents setting out the specific areas about
  which trustees are required to have knowledge and
  understanding. In particular, the Regulator
  expects all trustees to carry out a "training
  needs analysis" based on the scoping documents so
  that gaps in knowledge and understanding can be
  identified and addressed.
• First Actuarial's approach to enabling trustees
  to meet the knowledge and understanding
  requirement is to address the needs analysis
  stage through a self assessment questionnaire and
  then to prepare an individual learning plan for
  each trustee based on the responses to the
  questionnaire. Each learning plan is likely to
  include a mixture of face to face training, self
  study and perhaps even use of the e-learning
  modules being developed by the Pensions
  Regulator. The self assessment questionnaire is
  available in paper format or online. To access
  them, visit www.firstactuarial.co.uk, or contact
  Peter Shellswell on 0870 879 3102.
• Trustees are now expected to have a far greater
  understanding of the issues affecting their
  pension schemes than ever. To help trustees
  satisfy their legal obligations we offer a number
  of different courses for trustees regarding
  pensions and trusteeship. The courses cover a
  wide range of topics, at all levels, for both
  final salary and money purchase schemes. Existing
  courses are geared towards individual client
  needs and range in duration from a few hours to a
  number of days. We do feel that, in order to
  allow an efficient use of time, courses should be
  tailored to the specific details of a scheme.
  This promotes a thorough understanding of the
  issues facing the scheme in question.
• Click on the Back button to return to the
  demonstration

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Investment Strategy

• Developing and adopting a coherent investment
  strategy is integral to managing the risks of
  your scheme and to decisions relating to funding.
  First Actuarial can examine the relationship
  between the profiles of the assets and the
  liabilities of your scheme in order to comment on
  whether a fundamental review of the schemes
  investment strategy is required.
• ModelScheme is an extremely effective interactive
  tool that will help trustees and employers to
  understand fully the investment decisions that
  they need to make.
• Determination of Appropriate Asset
  Allocation  We can assist in decisions as to how
  to allocate the schemes assets between the key
  asset classes (equities, gilts, bonds etc).
• Click on the Back button to return to the
  demonstration

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Financial Planning

• 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?

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Benefit strategy

• Can your scheme afford to pay for its current
  level of benefits?
• What will be the effect of closing it to new
  entrants or further accrual. Model Scheme shows
  you how!
• 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
• ModelScheme can answer these questions with
  real-time illustrations.
• Click on the Back button to return to the
  demonstration

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Exit ModelScheme Demonstrator

• Thank you for using the ModelScheme Demonstrator.
• We hope that it has provided an insight into how
  ModelScheme will be able to help you to make
  managing your pension scheme easier and protect
  you from unforseen circumstances.
• Free Trial Service
• We offer a free trial service of ModelScheme
  using the information and data contained in the
  last actuarial valuation report of.  We will then
  meet with you to discuss the results and show how
  different factors will affect your scheme and
  your company.
• Then if you wish to proceed further, First
  Actuarial can follow this up with a full, up to
  date analysis of your scheme and your needs, and
  demonstrate the effects of differing strategies
  in real time.
• Contacts
• For more information concerning ModelScheme, or
  any of the other services provided by First
  Actuarial, please contact Peter Shellswell on
  0870 879 3102. Alternatively visit our website
  at www.firstactuarial.co.uk
• Click on Exit to leave, or Restart to
  continue using the Demonstrator

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