3 - Pension Law & Regulation Flashcards
Scheme administrator within an RPS
- must replace within how many days?
- rules (3)
- do you need to register the admin. with a regulator?
Carries out admin. duties
In order to be classified as an RPS must have a scheme administrator
Must replace within 30days if lose scheme administrator and deregistration charge of 40% would then applicable
Rules:
- Must be UK resi.
- must be appointed
- complete online declaration
Scheme administrator can delegate duties but it ultimately responsible
Scheme adminstrator is known to HMRC but not registered with FCA or The Pension Regulator
Member requirements of an RPS (3)
- If flexibly accessed DC pension funds, then must notify scheme administrator within how many days?
- what must you do if a member of any other scheme?
- what is used for paying taxes?
If flexibly accessed DC pension funds, then must notify scheme administrator within 91 days of accessing funds
If a member of any other pension schemes must notify scheme admin.
Uses self assessment for taxes
RPS scheme trustees
- Non professional trustees have how long to get upto speed?
- Must report contribution payment delays of more than 30 days to who?
Required when pension in trust
Must be:
- age 18+
- have mental capacity
- not be disqualified as per pension act 1995 or The Pensions Regulator
Non-Professional trustees have 6months to get upto speed, post appointment
Duties:
- Must report contribution payment delays of more than 30 days to The Pensions Register
- Obtain accounts
- Draw-up statement of investment principles
- Establish a recovery plan
What would a trustee of a DB scheme have to do that they wouldn’t in a DC scheme?
Draw up scheme documents such as statement of investing and funding principles and must have a recovery plan of how to do this.
Scheme actuary within an RPS are used for what scheme? And how often do they check assets are sufficient?
Must ensure scheme assets are checked atleast every 3yrs to ensure there is no shortfall
Mainly used for DB scheme than DC
Can the same person act as a trustee and an actuary for an RPS?
No, trustees responsible for appointment of actuary
Scheme auditor
Checks all documents completed in line with rules and legislation via ‘sign off’. Duty to report breaches of the law to The Pension Regulator.
Auditor must hold practicing certificate
More for DB scheme than DC
On receipt of documents must accept appointment within 30 days
Investment manager within RPS
manages pension on behalf of scheme and reclaims taxes on investments
Comes under SM&CR rules as a control function
Authorised and regulated by the FCA
Pension dashboard
Gov. initiative for people to be able to access all of their pensions online, securely in one place (including state pension)
Money & Pensions Service (MAPS)
Helps people manage their pensions and offers informstion(not advice)
Pension providers body
Responsible for ensuring providers and scheme have people’s data accurate and upto date
FOS
Help customers resolve complaints against regulated financial businesses. Dealing with complaints against personal pensions and dashboard providers
Pension ombudsman
Help customers resolve complaints against occupational pension schemes and dashboard providers.
What is scheme rules override?
Some RPS do not allow payments under pension freedom options. This scheme overrides this to allow these payments without scheme rules being amended and having tax implications.
How to deal with an RPS in event of divorce - Offsetting (1 of 3 ways)
Offsetting - where member gets to keep pension in full but ex-spouse gets greater share of other assets in leiu and value RPS according to:
How to value for DC:
- fund value less any charges
How to value for DB:
1. Calculate current value
2. Re-value according to scheme normal retirement age
3. Calcite lump sum to provide future pension (using annuity rate assumptions)
4. Discount future lump sum back into todays value (using discounting rates)
Funds taxable to member in full
How to deal with an RPS in event of divorce - earmarking (2 of 3 ways)
Allows ex-spouse to access share % of members PCLS when crystallised either paid periodically or in lump sum
How to value for DC:
- percentage owed is based on % on fund value at date of divorce, plus further fund growth
How to value for DB:
- Entitiled to % of undetermined amount at normal retirement age
Benefit to be received /payments to ex-spouse will stop should either die or ex-spouse remarries
LTA tested and taxable to member only, never on ex-spouse
How to deal with an RPS in event of divorce - pension sharing (3 of 3 ways)
Split % of pension at point of divorce
Ex-spouse can either keep their share of funds in members scheme or transfer the funds to their own scheme
Split % received by ex-spouse is taxable to ex-spouse not the member
Age discrimination directive purpose and what was effected?
People treated equally regardless of employment, age, etc.
Only thing effected by this was employer contributions to any scheme
When is discrimination based upon age acceptable?
- health and safety
- economic efficiency
- decreasing employee turnover
- increasing employee loyalty and retention
Direct and indirect discrimination
Direct - employer, trustees or investment manager treats an individual less favourably based upon age
Indirect - A rule, practice or decision is subliminally discriminatory based on age
Financial services and markets act (2000) established what?
Pension is not classified as an investment and therefore not regulated
Is a pension regulated?
No but investment management is which means:
- fund managers are regulated by FCA
- registered under SM&CR or as approved person
- trustees do not have to be authorised by regulator
EU law for pensions key aims (3)
- protect employees when transferring pensions against insolvency
- promote cross border harmony
- promote free employee movement between pension funds
EU legislation that impacted UK the most:
- Equalisation
- The pensions directive
- Equalisation - Ensuring no gender discrimination
- The pensions directive - Ensure freedoms with cross border schemes
Can you contribute to UK scheme if in EU and vice-versa if employee/employer?
Yes
Debtor and creditor
Debtor - person in debt
Creditor - person money owed to
Min. amount of debt for valid bankruptcy?
£5k
(Half number of letters in bankrupt)
What is a income payment order when a person is made bankrupt? And what is max length order can last?
Persons pension income that isn’t required to meets costs of basic needs can be used to repay creditors
Max. length of 3yrs and reviews carried out if goes over 1yr as bankruptcy lasts for 12months typically.
How are pension benefits treated by a trustee in bankruptcy for both crsytalised and Uncrystalised for the below schemes?
- Non-contracted out benefits
- GMP
- Post 1997 contracted out rights
- Contracted in schemes
- Annuities/Section 32 BOB
- Defferred benefits
- State benefits
Uncrystalised:
- All protected by WRPA, except state benefits which do not form part of the estate
Crystallised:
- All can be accessed through an income payment order (Even state benefits) except GMP which cannot access
If pension assets have been moved to protect from bankruptcy claim can the funds then be accessed by the court? And how long can recover from?
Yes
5yrs (easy to remember as min. value is £5k)
If pension contributions have increased to stop them being accessed from bankruptcy claim can they be accessed by the court? And how long can recover payments from?
Yes, with reasonable evidence.
5yrs
The pension regulator (TPR)
Regulates workplace pension schemes is a pro-active regulator that uses a risk based approach:
- investigates schemes by using a reporting system
- put things right
- act against schemes avoiding their pension obligations
What is issued by The Pension Regulator?
- freezing order
- contribution notice
- financial support directions
FO - When a scheme wins-up is on the cards issues the order and activity stops temporarily whilst TPR investigates
CN - employer must pay scheme debt to the scheme they have been trying to avoid
FSD - support package for schemes short on resources or funds
Who has authority to authorise and deauthorise a master trust?
The Pension Regulator
Master Trust and their benefits (2)
Multi-employer occupational scheme where each employee has their own division within the arrangement
+ Cheaper
+ Simpler
The Pension Advisory Service and who is it funded by?
Provide information and guidance (not advice) on all forms on pensions. No longer deals with complaints. Funded by DWP via provision grants
Money and Pensions Service (MaPS)
Offers information and guidance on debt, money, pensions and consumer protection.
The Pensions Ombudsman
Deals with complaints relating to the administration and running of any pension related scheme except state benefits, providing schemes complaints procedure has been followed.
Does not deal with advice side as this would be FOS
Financial Ombudsman
An independent body that deals with complaints relating to finance, providing schemes complaints procedure has been followed.
What are compensation and time frame limits of FOS?
- 6months from firms final response
- 6yrs from event being complained about
- 3yrs from when should be reasonably aware could make complaint
Max. compensation of £415,000 plus interest and costs
Pension compensation scheme:
- Pension protection fund
- Financial assistance scheme
- Fraud compensation fund
- Pension protection fund - Pay compensation to employees in a DB RPS scheme where an employer is made insolvent and has insufficient assets to cover pension. Funds raised through levies or DB scheme assets.
- Financial assistance scheme - Was the Pension protection fund prior to PPF being established but has one level of 90% compensation and limit of £41,888 annually
- Fraud compensation fund - For individuals who have fallen foul to fraud or dishonesty where employer has suffered insolvency and funded through levies
What is moral hazard?
When an employer provides additional benefits to some employees knowing the PPF will cover the remainder
Section 143 valuation of a pensions scheme
Valuation method that calculates the assets that would be required if each members assets by an insurance company, within the PPF compensation limits
Compensation limits of Pension Protection Fund (PPF)
Compensation limits:
100% accrued benefits
- When employer made insolvent when retiring at scheme NPA
- Retire early due to ill health
- Receive a dependent pension
90% accrued benefits
- When employer made insolvent when retiring before scheme NPA
- Deferred members under scheme NPA
- Active scheme members
50% accrued benefits
- Survivors pension for if member has died can be for partner (doesn’t have to be married) or qualifying dependent
Qualifying dependent
Age under 18
between 18-23 and in qualifying education/disability
Pension liberation schemes
Schemes tempting people to invest in unauthorised pension schemes which can lead to tax penalties
Pension scams industry group
Scam Smart
PSIG - Voluntary group set-up to combat pension scams
SS - FCA website set-up to help people avoid pension liberations
Is cold calling in relation to pensions illegal?
Yes, but not through social media, friends, etc.
Worker categories for a pension (3)
Auto enrolment
Opting-In
Right to join
Auto enrolment
- eligible job holder
- employees age from 22 to SPA earning over £10k
Opting-in
- Non eligible job holders
- not auto enrolled but have right to opt-in
- Age between 16 and 24 or SPA and 74 earning over £10k
Right to join
- Entitled worker
- entitled workers who can choose to join the scheme but are not auto enrolled or opted-in
- age between 16 and 74 earning less than LEL of £6,396
What if you opt out of auto-enrolment employee scheme?
Will be auto enrolled again every 3yrs
How long do employers have to provide auto enrolment information for pension after enrolment?
6 weeks to provide info. after enrolment date
What employee has no right to employer contributions towards pension scheme?
Entitled worker (right to to join pension scheme)
Gov. pension scheme
National Employment Savings Trust (NEST)
If change employment or go self employed can you still contribute to NEST pension?
Yes
Charges for NEST pension:
Annual management charge
Contributions charge
Transfer fee
Annual management charge - 0.3%
Contributions charge - 1.8%
Transfer fee - £0 but must be a min. value of £50
What does default NEST pension do?
Higher risk at the start then switches to bonds and cash when close to retirement
NOW pension
Low cost alternative to NEST pension which one investment element made of 2 components:
Diversified growth - targeting long term growth
Countdown fund - protecting pension savings
NOW pension charges:
Annual management charge
Administration charge
Transfer fee
Annual management charge - 0.3%
Administration charge - £21 per yr
Transfer fee - £0
The People’s pension
Non-profit pension scheme so all profits go to members
The People’s Pension charges:
Annual management charge
Administration charge
Transfer fee
Annual management charge - 0.5%
Administration charge - £2.50 per yr
Transfer fee - £0
What are qualifying band earning? And how do you calculate this?
Earnings between LEL of £6,396 & UEL of £50,270
Earnings of below £50,270 or £50,270 of above - £6,396 = qualifying earnings
Employers must ensure auto-enrolment scheme does not (2)
Contain barriers to enrolment
Require information to become or remain a member from employee or employer
How does an eligible job holder opt out?
Complete an opt out notice and give to employer to provide to scheme. This must be done within 1 month of:
- Jobholder became an active member
- Auto-enrolment information was received from employer
- If gave invalid notice then employer must inform the employee why it’s invalid and give a 6 week extension
When must pension contributions be refunded by once received opt out notice of auto-enrolment?
Either:
- within 1 month of receiving notice
Or
- by the last day of the second pay day following date of receiving notice
What information must an employer send to TPR regarding their pension scheme?
Complete a form regarding how their compliance works for their auto-enrolment pension scheme
All records must be kept for how many years? Other than 1 exclusion which is?
6yrs minimum
4yrs minimum - Exclusion, which is records for opt out
