ch.17 - 2010 Reed International Books Australia Pty Limited...

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© 2011 LexisNexis Australia 1 Financial Planning in Australia 4ed – by Taylor, Juchau, Houterman Solutions by Sharon Taylor Chapter 17 SOCIAL SECURITY Solutions to Questions Question 1: Explain the difference between funded and unfunded social security programs. A funded social security program is one in which a sponsor, usually the government, sets aside a pool of savings from which social security benefits are paid. An unfunded scheme is one in which benefits are paid from current taxation receipts. The issue with unfunded schemes is whether the government will have sufficient financial resources to satisfy its social security obligations in the future. Researchers argue that future commitments can only be satisfied if the Australian Government increases taxation receipts, which will unfairly burden working people. This explains why the Australian Government is fostering a savings mentality and financial self-reliance amongst Australians so that they can provide their own retirement incomes supplemented with government benefits. Question 2: With respect to retirement incomes policy, explain why researchers are concerned about demographic trends around the world. The concern is that most countries are experiencing an ageing population. This means that the proportion of retired people to working age people is increasing. The implication of an ageing population is that governments will have difficulty raising sufficient financial resources to pay retirement incomes. The unpalatable choice for governments will be to increase the burden of taxation on working people, with potentially serious political overtones. Question 3: List the main characteristics of a lifetime income stream product so that it will be Assets Test exempt for social security purposes. What are some of the risks of using such a product? A non-exhaustive list includes: annual payments must be fixed when entering into the contract; payments must be paid for the lifetime of the annuitant; except in very limited circumstances, the income stream must be non-commutable; the income stream must have a nil residual capital value; and the guarantee period cannot be more than 10 years. © 2011 Reed International Books Australia Pty Limited trading as LexisNexis. Permission to download and make copies for classroom use is granted. Reproducing or distributing any material from this website for any other purpose requires written permission from the Publisher. © 2010 Reed International Books Australia Pty Limited trading as LexisNexis. Ancillary for Financial Planning in Sustralia 4ed - Taylor, Juchau, Houterman
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© 2011 LexisNexis Australia 2 Question 4: Monica, an Age Pensioner, considers purchasing a life expectancy ATE income stream. Determine the lowest and highest terms that can be selected if she is 67 years of age. Use the Australian Life Tables for 2005–07 (Table 17.7).
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This note was uploaded on 01/10/2012 for the course FINS 3616 taught by Professor Curry during the Three '10 term at University of New South Wales.

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ch.17 - 2010 Reed International Books Australia Pty Limited...

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