Financial Markets & Risks Essay Example | Topics and Well Written Essays - 1750 words

Financial Markets & Risks - Essay ExampleThey can be in the form of a guaranteed annuity or a cash balance that an employee can draw upon at seclusion. A indemnity that is created by an employer for an employee is known as an occupational aid. The government or other organisations may also sponsor subsidys. Pension plans are a form of deferred compensation.The United Kingdom pension system is characterised by triad tiers. The first tier is that of Basic State Pension (BSP) which is provided by the state. There are several pension schemes in the second tier. The state, employers, or private sector financial institutions provide these schemes. These pension schemes may be divided into two broad types Defined Benefit (DB) pension schemes, and Defined Contributions pension scheme (DC). The DB schemes include the State-Earning-Related-Pension Scheme (SERPS), and occupational pension schemes provided by employers. The DC schemes include the contribution pension schemes offered by em ployers, and the personal pension, or a stakeholder pension stock certificate held with a financial institution. The third tier of UKs pension system is voluntary and it takes the form of additional voluntary contributions (AVCs and FSAVCs) into occupational or personal pension schemes.The pension schemes we need to focus on behalf of the company are occupational pension schemes. ... In the DB pension scheme, the retirement pension benefits are related to the members net salary upon retirement, and length of service. This is a funded plan in which both employer and employee contribute towards the pension fund. A DC pension scheme is a scheme that provides an item-by-item account for each employee participant. The benefits are solely on the amount contributed to the account, gains, expenses and losses allocated to the account. The plan contributions, which are fixed for both the employer and employee, are paid into the account for each member. These contributions are invested and the returns are also credited to the individuals account. On retirement, the members account is used to provide retirement benefits. This is usually through the purchase of an annuity that provides regular income beam retirement. The members also have the option to draw a certain lumpsum amount before purchasing annuities. These plans also may offer the facility to members to select the types of investments towards which the pension funds would be allocated. Relative Merits of DB and DC SchemesThe contributions in case of DB schemes are gameer to keep up with the cost of providing the defined retirement benefits. It is even higher(prenominal) for employers relative to employees.DB plans offer less mobility than the DC plans because the transfer costs and difficulty in transfer of funds is very high for the DB Plans. DC plans offer higher portability. Both the DB and DC plans offer tax relief on contributions to employers. Tax relief is usually higher in case of DB plans due to hig her contributions. Unlike the DB schemes, in a DC scheme a member cannot predict his pension at the time of retirement, as it is difficult to predict what capital he will accumulate