Which funding approach uses accumulated assets to pay post-employment benefits?

• A. PAYG uses current revenues to pay benefits.
• B. Actuarial funding uses accumulated assets.
• C. Grant funding uses restricted funds.
• D. Direct lending funds benefits.

Answer: (B)

Actuarial funding uses accumulated assets to pay post-employment benefits. In this approach, contributions are determined by actuarial valuations and set aside into a funded reserve that grows over time through ongoing contributions and investment returns. The key idea is to build a pool of assets specifically to cover future liabilities, so benefit payments come from the fund rather than relying on current revenues each year. This contrasts with pay-as-you-go, which uses current tax or payroll revenues to pay benefits as they come due, without building a substantial asset base. Grant funding and direct lending aren’t standard mechanisms for pre-funding ongoing post-employment obligations with dedicated assets.