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R04 > 04. Pensions regulation > Flashcards

04. Pensions regulation Flashcards

1
Q

The Pensions Regulator (TPR) was established by the Pensions Act 2004 to support the strategic aims of the DWP & prevent problems from happening.

Name 3 key responsibilities of TPR.

A
  • Make sure employers do auto-enrolment.
  • Protect peoples’ savings in workplace pension schemes.
  • Reduce risk of pension schemes ending up in the Pension Protection Fund (PPF).
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2
Q

What are the 3 broad categories that the TPRs powers fall into?

A
  • Gathering information.
  • Regulation & enforcement action.
  • Acting against avoidance.
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3
Q

The TPR gathers information from a number of sources to help identify and monitor risk.

Name 4 sources.

A
  • Employer declarations.
  • Scheme returns.
  • ‘Whistleblowing’ reports.
  • Other DB schemes sharing info.
  • Other regulators sharing info.
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4
Q

Name 4 options if the TPR decides enforcement action is required.

A
  • Issue improvement notices.
  • Take action to recover unpaid employer contributions.
  • Prohibit involvement in schemes.
  • Issue fines.
  • Prosecute in court.
  • Prohibit trustees from operating.
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5
Q

The TPR can act if it believes an employer is deliberately trying to avoid its pension obligations and is relying on the PPF to pick up its liabilities.

Name 2 things it may issue.

A
  • Contribution notice.
  • Financial support direction.
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6
Q

Under what circumstances is a contribution notice issued?

A

Where there is a deliberate attempt to avoid a statutory debt, this notice requests full payment of that debt.

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7
Q

How long after the act or failure can the TPR issue contribution notices?

A

6 years after an act, or failure, took place.

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8
Q

What does a financial support direction require?

A

Financial support to be put in place for an underfunded scheme where TPR concludes the sponsoring employer is insufficiently resourced at a time chosen by the TPR (“ the relevant time”).

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9
Q

What are the timeframes regarding when the TPR can issue financial support directions?

A

Up to 2 years after the relevant time.

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10
Q

What is a clearance procedure?

A

Something available to employers who wish to confirm that a certain transaction will not be subject to TPR’s anti-avoidance powers.

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11
Q

What is the Financial Ombudsman Service (FOS)?

A

An independent, statutory dispute-resolution scheme.

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12
Q

How is the FOS funded?

A

By levies on authorised firms.

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13
Q

Consumers are eligible complainants to the FOS.

What are the rules regarding the following being eligible complainants?

  • Charities.
  • Trustees.
  • Micro-enterprises.
  • Small businesses.
A
  • Annual income < £6.5m.
  • Trust’s NAV < £5m.
  • Not > 10 employees and turnover or BS total not > 2m euros.
  • Not > 50 employees and turnover not > £6.5m or BS not > £5m.
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14
Q

Name 3 examples of complaints the FOS would deal with.

  • Pensions x2
  • Annuity
A
  • Wrongly advised to transfer pension.
  • Advised to take out unsuitable pension.
  • Excessive delay in setting up annuity, causing financial loss.
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15
Q

When can the FOS not deal with complaints?

A

When they are about an occupational scheme linked to an individual’s employment and the complaint is about the employer/administrator of that scheme. (Pensions Ombudsman).

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16
Q

Before a complaint can be sent to the FOS, it must be raised with the firm in question. How long do they have to resolve the complaint?

A

8 weeks.

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17
Q

Complainant can refer their complaint to FOS within the earliest of:

A
  • 6 months of date of firm’s final response.
  • 6 years from event complained about, or if later…
  • 3 years after complainant knew or should have known they had cause for complaint.
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18
Q

If the FOS upholds the complaint, name 4 awards it has the power to impose.

A
  • Money award.
  • Award for distress & inconvenience.
  • Interest award.
  • Costs award.
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19
Q

What is the maximum money award for complaints dated from 1 April 2023?

A

£415,000.

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20
Q

Name 3 ways the FOS can award interest.

A
  • As part of the money award.
  • On top of a financial award.
  • After the financial award has been calculated.
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21
Q

If the FOS made a money award of £420k plus costs of £10k and interest of £15k, what could it enforce?

A

Can enforce payment of the money award up to £415k, plus costs and interest of £25k as treated separate from money award.

But could only recommend payment of £5k balance of money award.

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22
Q

The FOS will only investigate complaints about the sale & marketing of products issued by which type of companies?

A

FCA regulated ones.

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23
Q

What is the Pensions Ombudsman?

A

An independent organisation set up by law that deals with complaints about how pension schemes are run (maladministration).

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24
Q

Name 4 examples of pension maladministration.

  • Time
  • Action
  • Rules
  • Information
A
  • Taking too long to do something without good reason.
  • Failing to do something it should have.
  • Not following its own rules / law.
  • Breaking a promise.
  • Giving incorrect or misleading information.
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25
Q

Name 2 other bodies the Pensions Ombudsman can consider complaints against.

A
  • The Pension Protection Fund (PPF).
  • The Financial Assistance Scheme (FAS).
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26
Q

Name 4 things that the Pensions Ombudsman cannot investigate complaints about.

  • Pensions x3.
  • Past.
A
  • State Pensions.
  • Tracing lost pensions.
  • Mis-selling of pensions.
  • A decision made by a tribunal, court or other Ombudsman.
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27
Q

What is the cost of the Pensions Ombudsman service to the end user?

A

No cost, it is free.

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28
Q

What is the financial limit on the amount of money that the Pensions Ombudsman can instruct a firm to pay?

A

No limit.

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29
Q

The Pensions Ombudsman only investigates complaints from: [4]

A
  • Current or former members of a pension scheme.
  • Widow/widower/surviving cp or dependant of member who has died.
  • Owner of pension credit from current or former pension scheme.
  • Someone nominated by member of their estate to take complaint to PO.
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30
Q

What are the Money and Pensions Service, The Pensions Advisory Service (TAPS) and MoneyHelper?

A

Free services to provide pensions information and impartial advice for everyone.

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31
Q

The Pension Protection Fund (PPF) is designed to protect members of which 2 types of schemes?

A
  • Members of DB schemes.
  • Members of hybrid schemes (only DB section of hybrid schemes).
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32
Q

Name 3 levies which fund the PPF.

A
  • Administration levy.
  • Fraud compensation levy.
  • Pension protection levy (scheme based & risk based levys).
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33
Q

What happens once the PPF assumes responsibility for a scheme?

A

It takes over the scheme’s remaining assets and uses them to help fund the compensation it pays.

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34
Q

Name 2 scenarios where the PPF may pay compensation to an employer with a UK-based DB or hybrid scheme.

A
  • Scheme becomes insolvent and is underfunded.
  • Scheme funds have been misappropriated through fraud.
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35
Q

Name 5 requirements for a PPF to take responsibility for a scheme.

  • Type of scheme.
  • Wind up date.
  • Insolvency.
  • Rescue.
  • Assets.
A
  • Must not be a DC scheme.
  • Must not have commenced wind up before 6 April 2005.
  • Qualifying ‘insolvency event’ must have occurred.
  • Must be no chance scheme can be rescued.
  • Must be insufficient assets vs PPF compensation.
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36
Q

The insolvency event starts what, and why, and for how long?

A
  • An assessment period
  • to ensure PPF entry eligibility is met.
  • Target of within 2 years.
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37
Q

During the PPF assessment period, the trustees remain in day-to-day control of the scheme but… [5]

  • Members
  • Benefits/transfer values
  • Caps
  • Review
  • vs
A
  • No new members.
  • No further benefits or transfer values paid.
  • Benefits capped at PPF limits.
  • PPF will review any ‘moral hazard’ issues.
  • Will value the assets of the fund vs liabilities (Section 143 valuation).
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38
Q

What is an example of a moral hazard?

A

Employer agreeing senior member of board can retire due to ill-health on generous pension shortly before company goes into liquidation.

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39
Q

When might transfers out during an assessment period be authorised?

A

Where the member requested and accepted the transfer value in writing before the assessment date.

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40
Q

What does a Section 143 valuation determine?

A

Whether there are insufficient assets within the scheme.

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41
Q

For whom are the PPF compensation limits 50% of the member’s PPF entitlement?

A

Survivors’ benefits for any spouses/cp/relevant partner/ dependants coming into payment after an employer suffers an insolvency event.

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42
Q

For whom are the PPF compensation limits 90% of the member’s PPF entitlement?

A

Members/deferred members who have not yet reached the scheme’s NRA when the employer suffers an insolvency event.

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43
Q

For whom are the PPF compensation limits 100% of the member’s PPF entitlement? (2)

A

Members who have already reached NRA or are receiving a survivor’s pension when the employer suffers an insolvency event.

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44
Q

What are survivors’ benefits for qualifying children (where a spouse’s pension is also paid) coming into payment after the employer suffers an insolvency event? [2]

A
  • 25% for 1 qualifying child.
  • 50% if more than 1 qualifying child.
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45
Q

What are survivors’ benefits for qualifying children (where there is no spouse’s pension paid) coming into payment after the employer suffers an insolvency event? [2]

A
  • 50% for 1 qualifying child.
  • Increasing to max 100% if more than 1 qualifying child.
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46
Q

Members already in receipt of a pension on grounds of ill-health when employer suffers an insolvency event?

A

Up to 100% but on a case-by-case basis.

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47
Q

What is a qualifying child?

  • Circumstances (3)
  • Age/health
A
  • A natural child, adopted or dependant of family at time of death.
  • <18 or between 18-23 and in education or having a disability.
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48
Q

Regarding PPF compensation , what is escalation?

A

The increase in payment once members start to receive their compensation from the PPF.

49
Q

Revaluing PPF compensation benefits of deferred members for service, what are the maximum increases in relation to inflation?

  • before 6 April 2009
  • after 6 April 2009
A

Increased in line with:

  • CPI to max. 5%.
  • CPI to max. 2.5%.
50
Q

Regarding PPF compensation, what are the Escalation (max. increases) in benefits in payment in relation to inflation?

  • before 6 April 1997
  • after 6 April 1997
A
  • No increase.
  • CPI to max. 2.5%.
51
Q

A PPF trivial commutation lump sum can be paid once a scheme has been transferred and where a member:

  • age range
  • max. overall benefits
A
  • between normal min. pension age (currently 55) to 75
  • has £30,000 max. overall benefits.
52
Q

What is the Financial Assistance Scheme (FAS)?

A

It assists those who have lost pension benefits through company insolvency but were not covered by the PPF.

53
Q

Since when has the FAS been closed to new members?

A

1 Sep 2016.

54
Q

The FAS will pay up to ~ of the pension with a cap of ~ a year for those whose entitlement begins 1 Apr 2023.

A
  • 90%
  • £41,888 p.a.
55
Q

How do payments from FAS increase each year?

A

In line with increases to CPI, max. 2.5% for service from 6 Apr 1997.

56
Q

How much FAS payments is a surviving spouse/cp entitled to?

A

50%.

57
Q

Name 5 signs of a pension scam.

A
  • Unexpected contact.
  • Time pressure.
  • Social pressure, e.g. fake reviews.
  • Unrealistic returns.
  • Offering free pension reviews.
58
Q

What are the 3 categorisations of worker under workplace pensions and briefly describe them.

A
  • Eligible jobholder: must be automatically enrolled
  • Non-eligible jobholder: not automatically enrolled but has a right to opt-in.
  • Entitled worker: not automatically enrolled but has a right to ask to join scheme.
59
Q

For an eligible jobholder, name 2 qualifying criteria?

  • age range
  • earnings
A
  • Aged between 22 to SPA.
  • Annual earnings over £10,000.
60
Q

For an eligible jobholder, what is the duty of the employee?

A

To make the min. employee contributions unless they wish to opt-out.

61
Q

For an eligible jobholder, what are the employer requirements regarding:

  • Enrolment.
  • Contributions.
  • Opting out.
  • Re-enrolment.
  • Compliance.
  • Onboarding.
A
  • Must automatically enrol to scheme.
  • Must make at least min. contributions.
  • Must process any opt-out notices.
  • Must re-enrol every 3 years.
  • Must register compliance with TPR.
  • Must provide info to members within their 6 week joining window.
62
Q

What is the qualifying criteria for non-eligible jobholders?

  • age range, or
  • earnings range
A
  • Not aged between 22 - SPA
  • earns between £6,240 (LEL) & £10,000.
63
Q

If a non-jobholder opts-in, what is it then their duty to do?

A

Make the min. contributions, but can opt-out again if they wish.

64
Q

For non-eligible jobholders what are the employer requirements regarding:

  • Pension scheme info.
  • Enrolment.
  • Contributions.
  • Opt-outs.
A
  • Must provide pension scheme info about right to opt in.
  • Must enrol those who opt into the scheme.
  • Must make at least min. contributions.
  • Must process any opt-out notices if the employee wishes.
65
Q

What are the qualifying criteria for entitled workers?

A

They do not meet the criteria of either eligible or non-eligible jobholders and earn below £6,240.

66
Q

For entitled workers, what are the employer requirements regarding:

  • The scheme.
  • Contributions.
A
  • Provide scheme information.
  • Not required to make contributions.
67
Q

An employer can postpone, i.e. defer the date on which it assesses a worker, for how long?

A

3 months, to the ‘deferral date’.

68
Q

Name 4 exceptions where employer duties in relation to an eligible / non-eligible jobholder & entitled worker do not apply.

A
  • Worker has opted-out.
  • Worker has given/been given notice.
  • Worker has reasonable grounds to believe they have HMRC protection from tax charges on their pension savings.
  • Worker has been paid a winding up lump-sum payment.
69
Q

The auto-enrolment process consists of a number of steps that must be completed (non-sequentially) in the ‘joining window’. What is the joining window?

A

A 6 week period that starts from the eligible jobholder’s automatic enrolment date.

70
Q

Who’s responsibility is it to ensure the eligible jobholder’s info is provided to the pension scheme?

A

The employer’s.

71
Q

What are ‘qualifying earnings’ (range) and name 4 places they could come from (and 1 they couldn’t).

A

All earnings between £6,240 and £50,270 which could come from:

  • Salary or wages.
  • Overtime.
  • Commission.
  • Bonuses.
  • Benefits (exc. P11Ds).
72
Q

What are the minimum contribution limits for the:

  • Employer.
  • Employee.
A
  • 3%.
  • 5% (4% + 1% BRT relief rebated by HMRC).
73
Q

What are 2 alternatives to basing min. contributions on qualifying earnings and using alternative definitions of earnings?

A
  • Basic pay.
  • Pound zero approach.
74
Q

What are the 3 sets of min. contributions for auto-enrolment published by TPR?

A
  • Set 1: Basic pay only, min. 9% (employer at least 4%).
  • Set 2: Pensionable pay, min. 8% (employer at least 3%). Definition of pensionable pay must be 85%+ of earnings.
  • Set 3: All earnings, min. 7% (employer at least 3%).
75
Q

Which 2 types of workers do not have the right to opt-out and if they wished to leave the scheme, would have to cease membership under scheme rules.

A
  • Workers who enrolled under contractual enrolment.
  • Entitled workers who asked to join the scheme.
76
Q

What is the opt-out period?

A

One month starting from the later of the date:

  • active membership was achieved.
  • worker received the employer’s letter containing enrolment info.
77
Q

If the employer receives an invalid opt-out notice, they must explain why it is invalid, and what is the 1 month opt-out period extended to?

A

6 weeks.

78
Q

When must an employer refund contributions after an opt-out? [2]

A
  • Either 1 month after receiving the valid opt-out notice
  • or by last day of 2nd pay reference period (so ideally next available payroll run after receiving the opt-out notice).
79
Q

Many employers will have their own occupational schemes whereas smaller schemes often use ___.

A

multi-employer master trust schemes, e.g. NEST (govt.) or the People’s Pension (originally construction industry).

80
Q

What are the 3 ways of making pension rights the subject of a claim?

A
  • Offsetting.
  • Earmarking.
  • Pension sharing.
81
Q

What is offsetting?

A

The value of the pension is ‘offset’ against the other assets of the marriage. i.e. pension is left with the member and other assets are used to split the wealth.

82
Q

How does offsetting work?

A

The ex-spouse receives a greater share of the non-pension assets in return for the loss of their ‘share’ of the member’s pension.

The pension is given a lump-sum value in today’s terms (CETV on DB schemes), then the ‘offset’ could be either capital or income.

83
Q

With offsetting, what is the impact on both parties’ lifetime allowances?

A

No impact on either parties as there has been no change in ownership of the pension.

84
Q

What is an advantage of offsetting for both parties?

A

It provides a clean break with no long term implications.

85
Q

What is earmarking?

A

Benefits in the member’s pension scheme (could be income and/or lump-sum) are earmarked for the ex-spouse when the member crystallises their benefits in the future (may be on retirement or death).

An I.O.U effectively.

86
Q

Who retains ownership when pension rights are earmarked?

A

The member.

87
Q

What are the 2 types of earmarking order?

And what must earmarking orders be expressed as?

A
  • Earmarked periodic payments orders.
  • Earmarked lump-sum orders.

Earmarking orders must be expressed as %’s.

88
Q

Under a DB scheme, what method of valuation is used to establish the benefits to be earmarked for the ex-spouse?

A

The cash equivalent transfer value (CETV) method.

89
Q

How are the 2 types of earmarking orders taxed?

A
  • Earmarked periodic payments orders: income taxed at member’s marginal rate.
  • Earmarked lump-sum orders: tax-free.
90
Q

Name 5 disadvantages for the ex-spouse of earmarking.

A
  • Benefits earmarked to spouse not payable until member secures them.
  • Ex-spouse has no control as to whether pension benefits are transferred between schemes.
  • Ex-spouse has no control over member’s investment decisions.
  • Easy for ex-spouse to lose track of earmarking order (last known address).
  • Issues on death or re-marriage.
91
Q

What happens to an earmarking award if the member dies?

A
  • Earmarked periodic payment order ends & ex-spouse loses benefit.
  • If death in service benefits are earmarked, paid out if member dies before taking their benefits.
92
Q

What happens to an earmarking award if the ex-spouse dies?

A
  • Order for periodic payment order ceases.
  • Lump-sum order may remain & will be payable to ex-spouse’s estate, but only when member draws benefits.
93
Q

What happens to an earmarking award if the member remarries?

A

Earmarking order continues.

94
Q

What happens to an earmarking award if the ex-spouse remarries?

A
  • Any earmarked periodic payment orders no longer have legal standing.
  • Lump-sum orders remain in place.
  • Co-habitation can lead to member seeking and possibly gaining a varying order in the courts.
95
Q

Name 5 advantages for the member of earmarking.

A
  • No money/assets change hands at point of divorce.
  • If member remarries, new spouse and/or other dependants may benefit on their death as periodic payment orders to ex-spouse will cease.
  • If ex-spouse remarries, periodic payment order will lapse.
  • If ex-spouse dies before or soon after benefits commence, member will receive their full pension benefits.
  • Member has full control over timing of benefits, where funds are invested and any decision to transfer benefits.
96
Q

What is pension sharing?

A

Part of the member’s pension is transferred to the ex-spouse who then holds those assets in their own pension plan.

97
Q

What 4 types of pension cannot be shared?

A
  • NSP
  • BSP
  • GRB
  • Widow(er) pension in payment.
98
Q

Under pension sharing for a DC scheme, what 2 options are available to the ex-spouse once a % share is awarded to them?

A
  • They can transfer it to their own occupational/personal scheme.
  • Or original scheme may offer membership to ex-spouse.
99
Q

Under pension sharing for a DB scheme, what must be offered to the ex-spouse and what does not have to be offered?

A
  • The option of a transfer value.
  • Scheme membership.

Nb. opposite for unfunded schemes.

100
Q

What are:

  • Pension credits.
  • Pension debits.
A
  • Benefits awarded to ex-spouse.
  • Value deducted from member.
101
Q

How are pension credits & debits expressed for:

  • DC schemes.
  • DB schemes.
A
  • As a %.
  • As a number of ‘years’.
102
Q

Name 3 advantages of pension sharing to the member.

A
  • They potentially lose less value vs. offset or earmarking orders.
  • Immediate settlement & clean break.
  • No income tax implications.
103
Q

Name 3 advantages of pension sharing to the ex-spouse.

A
  • Benefits cannot be forfeited in event of either party’s death.
  • No risk on remarriage or cohabitation.
  • Immediate settlement & clean break.
104
Q

What was an ex-spouse able to do on a pension sharing order prior to A-day?

A

Apply for an increase in their lifetime allowance to offset the pension credit.

105
Q

Name 2 aims of the Age discrimination directive?

A
  • To ensure the same scheme retirement ages irrespective of gender.
  • No discrimination on membership of grounds of age.
106
Q

What is direct discrimination?

A

When a worker is treated less favourably than other workers on the grounds of that worker’s age.

107
Q

What is indirect discrimination?

A

When a rule, practise, action or decision, which is apparently age neutral, is in fact disadvantaging workers of a particular age.

108
Q

For either a direct or indirect discrimination to be objectively justified, what must be allowed?

A

It must allow the business to achieve a business need, e.g. meeting H&S requirements or economic efficiency.

109
Q

Under DB schemes, what paid periods of parental leave count as pensionable service?

A

Any of them.

110
Q

Under DC schemes, during paid periods of parental leave, the employer must do what regarding contributions?

A

Continue contributions based on employee’s pensionable earnings before starting the parental leave.

111
Q

Under DC schemes, what are the contributions requirements for employers and employees during periods of unpaid leave?

A

No requirements for employee and employer can cease to unless employment contract states otherwise.

112
Q

A creditor can only petition for a bankruptcy in what 2 circumstances?

A
  • if the debtor owes them £5,000 (can be pooled).
  • And if all possible means of getting the debt repaid have been exhausted.
113
Q

Once a bankruptcy order has been made, who is appointed and what will happen to the assets?

A
  • A Trustee in Bankruptcy (TIB).
  • Assets liquidised to provide cash.
114
Q

Name 2 main exclusions to what cannot be used to repay creditors.

A
  • Tools of the trade.
  • Clothing, bedding, furniture etc.
115
Q

The TIB can apply to the court to recover ‘excessive’ pension scheme contributions going back how far before the bankruptcy?

A

5 years.

116
Q

Under bankruptcy, what are income payment orders?

And what types of pension do they normally not include?

A
  • Claims on any income the bankrupt does not need to meet the reasonable domestic needs of them and their family.
  • State pension.
117
Q

Under bankruptcy, what is the maximum length of an income payment order?

A

3 years.

118
Q

TIB only has access to a bankrupt’s pension when?

A

Once they have chosen to take an income.

119
Q

How long do bankruptcies usually last and name 2 consequences.

A
  • 12 months.
  • Cannot act as a company director.
  • Unable to receive credit over £500.

R04 (6 decks)

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