It is first necessary to consider why with-profit pensions schemes have been introduced. Three reasons emerge. The first is protection for the office; the second is a desire to be equitable to the policyholder, and the third is competition—from other offices and from private funds.

These reasons are now amplified.

Pension schemes are the longest form of liability undertaken by the office; further, existing benefits can be purchased by level premiums guaranteed to pension age (as in individual contracts) with an underlying rate of interest of the order of 4¼%. It is therefore desirable to have protection against both improvements in mortality and against the office's not earning an average of 4¼% on the premiums and interest which it has to invest each year.