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In performing the financial intermediation function of asset transformation, pension funds provide the public with another kind of protection - income payments on retirement. Employers, unions, or private individuals can set up pension plans, which acquire funds through contributions paid in by the plan’s participants. Although the purpose of all pension plans is the same, they can differ in a number of attributes. First is the vesting of the plan, that is, the length of time that a person must be enrolled in the pension plan (by being a member of a union or an employee of a company) before being entitled to receive benefits. Typically, firms require that an employee work ten years for the company before he or she is vested and can receive pension benefits; if the employee leaves the firm before the ten years are up, either by quitting or being fired, all rights to benefits are lost.

A second characteristic is the method by which payments are made: if the benefits are determined by the contributions into the plan and their earning, the pension is a defined contribution plan; if future income payment (benefits) are set in advance, the pension is a defined benefit’s plan.

A defined benefit’s plan is fully funded if the contributions into the plan and their earnings over the years are sufficient to pay out the defined benefits when they come due. If the contributions and earnings are not sufficient, then the plan is underfunded.


In order to boost his or her income an individual with a sizable amount of capital to invest could take out an annuity with an assurance company. A lump sum payment will provide the annuitant with a regular income of a fixed amount or, possibly, an amount which increases by an agreed percentage each year to allow for inflation, and these payments go on until date of death. A husband and wife may take out a joint annuity which ensures that should one of them die the partner will continue to receive the payments until he or she dies.

The main point about an annuity is that the capital sum becomes the property of the assurance company - the annuity dies with the annuitant. The amount of the annuity payments will therefore be based on the expectation of life of the annuitant and the younger he is at the time that the annuity is taken out the lower will be the annuity payments, because the assurance company can expect that by the law of averages it will be paying out for a longer period of time. For an old person, especially one with no family, an annuity is likely to produce a much better return than most other forms of investment and with some exemption from income tax, but the capital invested will be lost to his or her estate. There are some types of annuity which provide for a return of some of the capital sum invested should the annuitant die within a prescribed short period of time after taking out the annuity.

A deferred annuity is one which does not commence until the annuitant reaches a particular age (may be retirement age) and the assurance company will have the use of the capital sum until that time is reached. Because of this the amount it is willing to pay as an annuity is higher than it would otherwise be.


1. Answer the questions:


1. How does a pension fund operate?

2. Why should pension be planned? What is meant by the term pension plan?

3. Why are employers interested in pension plans? Why are trade unions interested in such plans? Why do they attract individuals?

4. What is an annuity?


2. Complete the text by inserting the following words in the gaps:


annuity contract, annual payments, annuity policies, cover, fixed sum, lump-sum


Annuities also require the insurer to hold «time deposit» type funds. In the simplest type of ...... (1) the insurer agrees to pay a ...... (2) per year, from the starting date of the contract until the death of the person, in return for a single ......(3) premium, paid in advance. Abstracting again from administration costs etc., we can say that the premium set on such a contract must be such that, for the «average» person, the ...... (4) received from the insurer must exactly equal the lump-sum premium paid. The contract boils down to a gradual refunding of the lump-sum premium, and the annuity has served simply as a vehicle for dissaving. With a pool of ......(5), the insurer is providing people with two flows of services: insurance ...... (6) and the management of «dissavings account» funds.



to allocate, capital market, contributions, pension-fund assets, retirement assets, retirement funds


Workers with their own accounts accumulate ......(1) as they add to their ......(2) and as they earn interest and dividends on the fund’s investments. The funds have invested mainly in government bonds, but they will ......(3) more of their assets toward private equities and bonds as the Argentine economy recovers from its current depression. Their investments in private stocks and bonds will expand the Argentine ......(4). High rates of return on these ......(5) should also greatly raise Argentina’s savings rate. To prevent excessive risk, the government regulates the allocation of ......(6).


3. Speak on:

1. How a person can save for a rainy day.

2. Nonbank financial institutions and banks.

3. The role of nonbank institutions in the national economy.

4. The services provided by nonbank institutions.

5. What nonbank institutions have in common and in what way they differ from each other.

6. When we apply for the services provided by nonbank institutions.

7. Nonbank institutions in Russia.

8. The role which insurance business plays in national economy.

4. Translate the text into English:


Как страховые компании, так и пенсионные фонды выпускают своего рода долговые обязательства (пассивы), которые специально предназначены для этих целей. Этот вид обязательств носит название аннуитет. Компании по страхованию жизни обычно предлагают бенефициарам (получателям денег по страховому полису) выбор между аннуитетом и единовременной выплатой.

В качестве вторичной цели некоторые виды страхования жизни обеспечива­ют держателям страховых полисов определенную степень ликвидности. Вла­дельцы полисов могут либо обратить их в наличные деньги на оговоренных условиях, либо занять под них деньги для покрытия, например, затрат на обучение детей в колледже. Клиенты пенсионных фондов такими правами не пользуются.

Вклады (взносы) в пенсионные фонды и оплата страхования жизни сос­тавляют существенный источник денежных средств, поскольку каждый клиент осуществляет выплаты на протяжении целого ряда лет, прежде чем аннуитеты или требования о выплате страхового вознаграждения будут оплачены. Эти финансовые посредники с помощью поступающих к ним в форме взносов денежных средств приобретают самые разнообразные активы. В отличие от банков и ссудо-сберегательных институтов, пенсионные фонды и компании по страхованию жизни покупают значительное количество акций и облигаций корпораций. Помимо этого они покупают краткосрочные государственные и частные ценные бумаги, а также выдают ссуды под залог недвижимости, в особенности корпорациям.


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