APT·GOVERNANCE · Module 5: Scheme Documentation and Governance in Practice·UnitGOVERNANCE · Unit 03Access: Premium
Unit 5.3: Actuarial, Contribution and Financial Reporting Documents
Unit 5.3 covers the reporting documents a trustee board receives. It runs through the principal contents of an actuarial valuation report and its annual updates, the schedule of contributions used in a defined benefit scheme and the payment schedule used in a defined contribution scheme, the annual report and accounts including the audited financial statements and the auditor’s statement about contributions, and the principal terms of any significant contract covering scheme assets. The syllabus asks for the contents of each document, so learning which item belongs in which report is the work here.
What’s in it.
4 topics- Topic 01
The Principal Contents of an Actuarial Valuation Report and Any Annual Updates
43 questions - Topic 02
A Schedule of Contributions (DB) and Any Payment Schedule (DC)
35 questions - Topic 03
The Principal Contents of an Annual Report and Accounts
38 questions - Topic 04
The Principal Terms of Any Significant Contract in Respect of Scheme Assets
40 questions
Sample questions
3 of manyA few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.
A trustee board is choosing between a purely ad valorem fee and a purely performance-related fee for a new manager appointment. Which consideration should most influence this choice, based on how each structure operates?
- A purely performance-related fee removes the need for a benchmark within the mandate
- An ad valorem fee gives predictable, asset-linked pay; a performance fee ties pay to outcomesCorrect answer
- A purely ad valorem fee is only available to DC schemes, not DB schemes
- There is no material difference between the two structures in how they affect manager incentives
ExplanationThe two structures create different incentives: an ad valorem fee rewards the manager for assets under management regardless of outcome, while a performance-related fee ties reward to returns achieved, which can sharpen focus on performance but may also encourage additional risk-taking to reach the target, a trade-off trustees should weigh when negotiating fee terms. Key takeaway: fee structure choice shapes manager incentives, not just the cost to the scheme.
Two DB schemes with identical membership and discount rate assumptions report different technical provisions. One assumes higher future price inflation than the other. Which outcome is most consistent with this difference?
- The difference must be explained by different actuarial methods rather than inflation
- The scheme assuming higher future price inflation must also assume a higher discount rate by regulation
- The scheme assuming higher future price inflation reports lower technical provisions, since higher inflation erodes real liability values
- The scheme assuming higher inflation reports higher technical provisions, since increases are largerCorrect answer
ExplanationHigher assumed price inflation projects larger future increases to pensions in payment and deferment, since those increases are typically linked to the inflation assumption itself, raising the present value of those benefits and therefore technical provisions, all else equal. Key takeaway: higher assumed inflation increases technical provisions through larger projected pension increases.
With whom must trustees agree a DB schedule of contributions?
- The sponsoring employerCorrect answer
- The scheme's investment manager
- The scheme's custodian
- The scheme actuary
ExplanationOnce trustees have prepared a DB schedule of contributions on actuarial advice, it must be agreed with the sponsoring employer before it takes effect. Key takeaway: employer agreement, not sign-off from other advisers, is required for the schedule itself.