6 - Defined Contribution Flashcards

1
Q

What can a DC scheme may be?

A

Occupational scheme provided by an employer for benefits of the employees
Individual arrangements funded by the member

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2
Q

What is a personal and stakeholder pension

A

Individual defined contribution arranagements - cont build up in fund (With profits/unit linked).

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3
Q

What is a stakeholder pension

A

Low cost personal pension - subject to min standards

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4
Q

What is a group personal and stakeholder pension

A

A series of individual defined contribution arrangements

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5
Q

What is SIPP

A

Self-invested personal pension - individual defined contribution arrangement. With lots of choice.

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6
Q

What is a retirement annuity contract (RACs)

A

An individual defined contribution arranngement

Similar to personal pension plan, but no new ones since 01/07/1988

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7
Q

What is a executive pension plan

A

Set up as “one man” schemes aimed at director and senior employees.

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8
Q

What is a SSAS

A

Small self-administered scheme - aimed at company director and senior employees. Self- administered scheme has less 12 members (all trustees). Have special additional features for directors/senior employees and investment options.

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9
Q

What are targeted money purchase schemes?

A

Hybrid schemes with both features of DB and DC schemes
Target level of benefit is determined

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10
Q

What is some differences between targeted money purchase schemes and DB

A

Employer has not promised targeted level of benefits - so can avoid benefits if assumptions not met
Only benefit promised is value of DC assets
Early levers of targeted money scheme only entitled to benefits from DC

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11
Q

What is in-specie contributions

A

Form of assets (e.g. shares to a pension)

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12
Q

Where are the tax rules set out in, in-specie contributions?

A

Pensions Tax manual

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13
Q

What must the contribution be in, in-specie contribution
What rules must be satisfied?

A

Monetary amount

  • Clear obligation on the contributing party
  • Separate agreement between scheme trustees and contributing party to sell an asset to scheme for market consdieration
  • Separate agreement under scheme trustees and contributing party agree cash contribution debt may be offset against consideration payable for asset
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14
Q

What must be done if MV of asset is < contribution debt (in specie contribution)

A

balance must be paid in cash to qualify for tax relief

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15
Q

How often must illustrations be sent to members of most DC schemes

A

Annually

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16
Q

What should Statutory money purchase illustrations include

A

Current accumulated fund at illustration debt
Accumulated future contributions
Accumulated charges
Accumulated risk benefit cost

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17
Q

Who provides basis for SMPI illustrations

A

Financial Reporting Council

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18
Q

What are some assumptions used for SMPI

A

Projections based on accumulation rate determined by provider
Projection converted into today term assuming inflation 2.5%
Future cont - 2.5%
Charges taken into account

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19
Q

When is the rate of interest for annuity calculated for SMPI

A

15 feb

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20
Q

Where can individuals view information about pensions inc state pensions online

A

Pension dashboard

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21
Q

What do the new simpler annual statements include

5

A

Member and pension scheme details
How much money in pension plan
How much money you could have when you retire
What you could do to yourself more money
Find out about pension plan and how can you use money

5

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22
Q

How often should simpler annual statements be reviewed

A

after 5 years and at least every 5 years after that

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23
Q

What is a trust-based scheme

A

Employer sponsered pension scheme, governed by trust deed and has board of trustees that oversees scheme

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24
Q

What is contract-based scheme?

A

Outsourced by employer to third party provider which manages all aspect of scheme

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25
What is Defined benefit scheme set up as? Trust based or contract-based?
Trust based
26
How can DC schemes be set up
Trust-based scheme : Occupational defined contribution pension scheme Contract-based scheme (via group personal pension/stakeholder pension scheme)
27
What are some differences between trust-based scheme and contract-based scheme
Trust-based: Net-pay arrangement Protection of trustees in selecting funds Contract-based: Contributions after tax Less costly for employer
28
What is TPR definition of a master trust scheme
Occupational pension scheme that - Provides DC benefits - Used by 2 or more employers - Not used only by employers that are connected with each other - Not a public service pension scheme
29
What are some benefits/ drawbacks of Master trust schemes
Benefits: Offers a governance function for employers with lower cost and simple Members benefit from oversighht of investment Only one group of professional advisors rather than a group for each division One boad of trustees for whole scheme Drawbacks: If trustees are appointed by provider of master trust, employer unlikely to have trustee representation - disengaged from pension arrangements Many trustee boards established by insurance companies have representation of insurer parent - conflict of interest
30
How many criteria does master trust have from TPR and what are they
5 Fit and Proper System and processes Continuity and strategy Scheme funder Financial sustainability
31
What framework insures tht mastertrusts demonstarte to employers scheme is maintained to high standard
Voluntary assurance framework
32
What is the limit of charges for members funds in occupational DC schemes
0.75%
33
What is the minimum pot size for charges for a flat fee to be charged on a occupation DC scheme
£100
34
What are some charges relating to the cap on occupation DC scheme
IM fees Ongoing cost (it and office) cost of statements payment to lawyers
35
What are relevant multi-employer schemes
Those in which some or all of employers using scheme are not connected to each other
36
What are some additional governance standards that relevant multi-employer schemes/master trust must follow
At leat three trustees/ three directors that are not affilated with any company that provides services to scheme non-affiliated trustees must be appointed in open and transparent fashion Trustees must have process in place to encourage scheme members to make their views known on matters that affect them
37
What do the government require contract-based workplace pension schemes to have? ## Footnote Hint committee
Indepedendent Governance Committees (IGC)
38
What must IGC have?
Independent Governance committees must have - Min 5 members - Majority independent (applies to any workplace schemes/ not just automatic enrolment)
39
What are the duties of IGC ## Footnote 4
* Act solely in interest of relevant scheme members * Assess ongoing value for money of workplace personal pension schemes * Escalate concernss to FCA if dissatistfed with actions taken * publish annual report of findings
40
What can providers who hae smaller and less complex pension schemes can establish
Governance Advisory Arrangement
41
Who are the GAA and what do they do
Third party like IGC but cost less to operate, with the aim to ensure that relevant schemes deliver money to members.
42
What type of drawdown must have IGC or GAA
non-advised (SIPP or other Personal pension policy) - contract-based personal pension agreement
43
What are collective money purchase schemes?
Risk sharing/target pension plans. Like DC pensions but assets are pooled between members rather than each member having money earmarked for their benefits
44
What advantage can collective money pension schemes have compared to DC schemes
Advantages to cost for employers Offer members better income Provide members better idea of income
45
What are some differences between SIPP and SSAS ## Footnote 7 (what type of scheme, regulated by etc.
SSAS: Occupational Defined contribution scheme Governed by trust deed and rules Regulated by The Pension Regulator Scheme can lend up to 50% of net to sponsoring employer Investments chosen by trustees and benefits are not earmarked for individual members Greater levels of admin No need SMPI as all members are trustees SIPP: Individual defined contribution scheme Set up as individual contract between member and pension provider Regulated by FCA Can not lend as no sponsoring employer Investment chosen by individual and earmarked for individual basis Less admin Need SMPI annually
46
When are some conditions a PCLS cannot be taken out
No scope in scheme rules for lump sum to be taken out Member used up all PCLS allowance
47
What are the methods to draw income out of pension
Scheme pension: pension paid directly out scheme assets/ paid by an insurance company by scheme admin Lifetime annuity: paid by an insurance company member chose Drawdown pension : member draws income from pension fund direcly
48
What are the only methods to draw income under Ill health
Income Income + PCLS Small pots payment UFPLS
49
What is PCI
Pension contribution insurance - allows indiv/er contribution to continue due to ill health
50
What type of pension schemes can PCI be used in
personal/stakeholder pension
51
What is the general deferred period of PCI ## Footnote who is responsible
26 WEEKS, individual/er is responsible for maintaining cont in meantime
52
What is the limit to PCI generally
3600 gross
53
Are PCI premiums elgible for tax relief
NO
54
What is Income protection Insurance
AKA: Permanent health insurance - Purchased by company: pays income to employee due to ill heealth and counts towrads releavant UK earnings - allowing more than 3600 gross for tax relief - Purchased by individual - does not count as releavnt uk earnings, so no more than 3600 gross for tax relief
55
What are the options for when indivduals leave occupational DC pension schemes
Early leaver Refund of EE cont (if leavie with less than 30 days of service) Preserved benefit Transfer Value: - transfering to another pension (at least 3 months)
56
How long do members have of a occupational defined contribution scheme have the right to transfer pension
Up to date of crystallisation of benefits even if they have reached scheme normal pension age
57
What should an adviser take into account when determining whether a transfer is appropriate for client
Charges Past performance Analysis of existing with-profit funds Transfer penalties Guaranteed annuity rates Life cover?
58
What is the template that advisors must follow for DC -> personal pension or SIPP
Question: 4 sections 1. Infomation gathered about firm,client and pension arrangements 2. Customer needs analysis, objectivesm consolidation of pension 3. Unsuitable outcomes? if client has been switched to anything that is not good for them 4. Can identify where advice is suitable - advisor Data: 1. Record information about ceding scheme 2. Section to record information relating to scheme 3. Section on fund specific data for receiving scheme
59
What are the min standards of stakeholder pensions
Accept contributions at any frequency Not set min permitted contribution at rate higher than £20 No place restrictions in which cont is piad Accept transfer payments from another pension source Not impose additional charges on transfers in/out scheme
60
What are max charges of stakeholder scheme
Before 06/04/05 - 1% of fund After 06/04/05 - 1.5% pa for first 10 years then 1%
61
What is the charge for stakeholder pension to meet automatic enrolment
0.75%