Read the information below about pension funds. A pension fund collects monthly contributions from workers and invests in company shares, government bonds a...
Question 1 Report
Read the information below about pension funds. A pension fund collects monthly contributions from workers and invests in company shares, government bonds and property. It aims to provide income when members retire.
(a) What is the main purpose of a pension fund? [1]
(b) Explain why the fund may invest in more than one type of asset. [2]
(c) Show how a fall in share prices could affect the future income of pension members. [2]
Answer Details
(a) The main purpose of a pension fund is to save and invest members' contributions so that it can provide pensions or retirement income. [1]
(b) Investing in shares, government bonds and property spreads risk. [1] If the value or return on one type of asset falls, returns from another type may offset some of that loss. [1] This is diversification.
(c) A fall in share prices reduces the value of the fund's investments in shares. [1] The fund may then have less money available to pay pensions, so members' future retirement income may decrease. [1]
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