IFoA SP4 flashcards
IFoA SP4 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Defined benefit formula
- Pension equals accrual rate multiplied by pensionable service and pensionable salary; the employer bears investment and longevity risk and the member receives a promised income.
- CARE scheme
- Career average revalued earnings scheme: each year's pension credit is based on that year's earnings and revalued by a prescribed index such as CPI until retirement.
- Collective defined contribution
- A pooled scheme where contributions are fixed and benefits are adjusted rather than guaranteed, sharing investment and longevity risk across members and sometimes the employer.
- Hybrid cash balance scheme
- A design promising a lump sum built from contributions plus a guaranteed interest credit, giving members certainty of accumulation while the employer carries investment risk.
- Technical provisions
- The scheme-specific present value of future benefits less future contributions, calculated on assumptions agreed between trustees and the employer for funding purposes.
- Recovery plan
- A documented schedule showing how a funding deficit will be eliminated over an agreed period, including the level and timing of employer contributions.
- Normal cost
- The actuarial value of benefits accruing in one year of service, excluding any deficit repair contributions needed to restore the funding level.
- Contingent asset
- Security such as a parent company guarantee, escrow account or letter of credit that can be called upon if the employer fails to meet funding obligations.
- Liability-driven investment
- An approach that uses bonds and derivatives to hedge the interest rate and inflation sensitivity of a scheme's liabilities, reducing funding-level volatility.
- Interest rate hedge ratio
- The proportion of a scheme's liability interest-rate sensitivity matched by assets, measured on a consistent basis such as present value per basis point.
- De-risking trigger ladder
- Pre-agreed funding-level thresholds at which a scheme automatically shifts from growth assets to matching assets, locking in improvements in funding position.
- Lifestyle glidepath
- A DC default investment strategy that gradually switches a member's assets from growth to lower-risk funds as the target retirement date approaches.
- Statement of investment principles
- A governance document setting out a scheme's investment objectives, asset allocation ranges, risk appetite, and policies on stewardship and ESG factors.
- Sponsor covenant
- An assessment of an employer's financial ability and willingness to support the scheme, covering profitability, cash flow, sector outlook and contingent support.
- Integrated risk management
- A framework combining covenant, funding and investment risks into one view, with agreed risk appetite, monitoring metrics and escalation triggers.
- Trustee knowledge and understanding
- A regulatory requirement that trustees possess sufficient knowledge of pensions, investment and trust law to exercise their duties properly.
- Pension protection levy
- A charge on eligible schemes funding a compensation scheme, typically risk-based and linked to the employer's insolvency probability and the scheme's funding level.
- Projected unit credit method
- An actuarial method accruing benefits for each year of service and measuring the obligation as the present value of benefits attributed to service to date.
- IAS 19 discount rate
- The market yield on high-quality corporate bonds with terms matching the benefit payment profile, used to discount the defined benefit obligation.
- Remeasurements in OCI
- Actuarial gains and losses from changes in assumptions and asset returns above the discount rate, recognised in other comprehensive income rather than profit or loss.
- Asset ceiling
- A limit on recognising a defined benefit surplus to the present value of economic benefits available through refunds or reduced future contributions.
- Net interest cost
- The discount rate applied to the net defined benefit liability or asset, recognised in profit or loss as part of the pension expense.
- Triple lock
- A rule increasing the state pension each year by the highest of earnings growth, price inflation and a fixed minimum percentage.
- Flexi-access drawdown
- A decumulation option allowing members to take income or lump sums from invested pension funds, with the pot remaining exposed to investment and longevity risk.
- Annuity pricing factors
- Interest rates, mortality assumptions, expense loadings and any guarantees determine the income an insurer will pay for a given lump sum.
- Sequence-of-returns risk
- The risk that poor investment returns early in drawdown, combined with withdrawals, permanently reduce the pot's ability to sustain later income.
- Section 67 protection
- A statutory safeguard requiring member consent or actuarial certification before certain changes to accrued pension rights can be made.
- Buy-in versus buy-out
- A buy-in is an insurance policy held by the trustee as a scheme asset; a buy-out transfers the liabilities and assets to an insurer, ending scheme responsibility.
- Wind-up priority order
- Statutory rules determining how limited scheme assets are allocated among member groups, often favouring pensioners and accrued rights over future increases.
- Employer debt on exit
- The amount an employer must pay when leaving a multi-employer scheme, calculated on a prescribed basis reflecting its share of the shortfall.
- Actuaries' Code principles
- Professional obligations of integrity, competence and care, impartiality, compliance and speaking up, applied with documented professional judgement.
- Conflict of interest management
- Identifying, disclosing and managing situations where an actuary's duties to trustees, employers or members may diverge, ensuring member interests prevail.