Chapter 4 - Pensions regulation Flashcards
Pam was a member of her previous employer’s defined benefit scheme between 1992 and 2010. The scheme has recently entered the Pension Protection Fund and Pam should be aware that her deferred benefits will now be revalued in line with increases in CPI to a maximum of:
a.5% p.a. for all service after 5 April 1997 with no revaluation for benefits accrued prior to this date.
b.5% p.a. for service prior to 6 April 2005 and CPI to a maximum of 2.5% p.a. for benefits accrued after this date.
c.5% p.a. for service prior to 6 April 2009 and CPI to a maximum of 2.5% p.a. for benefits accrued after this date.
d.2.5% p.a. for all service after 5 April 1997 with no revaluation for benefits accrued prior to this date.
c.5% p.a. for service prior to 6 April 2009 and CPI to a maximum of 2.5% p.a. for benefits accrued after this date.
Revaluing benefits of deferred members
For service before 6 April 2009 - Increased in line with CPI to a maximum of 5%.
For service after 5 April 2009 - Increased each year in line with CPI to a maximum of 2.5%.
Increases in benefits for those already in payment
For service before 6 April 1997 - No increase
For service after 5 April 1997 - Increased in line with CPI to a maximum of 2.5%.
Chapter reference 4B1B
Which pension CANNOT be made subject to a pension sharing order?
a.State Earnings Related Pension Scheme.
b.New State pension.
c.State second pension.
d.Public sector statutory scheme.
b.New State pension.
The following pension rights cannot be shared:
* new State Pension (also known as the single-tier State Pension);
* Basic State Pension;
* State Graduated Retirement Benefits; and
* a widow(er)s pension in payment.
The following pension rights can be shared:
* protected payments paid in addition to an individual’s entitlement to the new
State Pension;
* SERPS and S2P;
* occupational schemes, including AVCs;
* registered individual schemes (i.e. personal pensions, stakeholder pensions, retirement
annuity contracts and section 32 policies); and
* statutory schemes (i.e. public sector).
Chapter reference 4D3
If a jobholder wishes to opt out of a qualifying workplace pension scheme they must do so by giving an opt-out notice to the employer within the opt-out period. How long is the opt-out period?
a.Six weeks.
b.One month.
c.Two weeks.
d.Three months.
b.One month.
The opt-out notice must be submitted within the opt-out period. This is a period of one month and starts from the later of the date:
- active membership of the scheme was achieved; or
- the worker received the employer’s letter containing the enrolment information
Chapter reference 4C5
In May 1990 a ruling made by the European Court of Justice resulted in legislation being written into the Pensions Act 1995. What impact did this ruling and the subsequent legislation have on UK pension schemes?
a.It ensured that pension schemes cannot discriminate against members or prospective members of a pension scheme on the basis of age.
b.It ensured that discrimination [direct or indirect] can only be lawful if one of the specific exemptions apply or if it can be objectively justified.
c.It introduced protection of employee pension benefits where employees are transferred from one business to another or when their employer becomes insolvent.
d.It brought the equal treatment of men and women with regard to occupational pension schemes into UK law.
d.It brought the equal treatment of men and women with regard to occupational pension schemes into UK law.
The Pensions Act 1995 brought the equal treatment of men and women with regard to occupational pension schemes into UK law. Prior to this legislation it was common for men and women to have different retirement ages,
Chapter reference 4E2A
A member of a defined benefit pension scheme takes a period of unpaid paternity leave. Assuming his employer does the minimum required under legislation the period of unpaid leave will be:
Question Select one:
a.ignored when benefits are calculated, but the employment before and after the unpaid leave will be treated as continuous service.
b.included as continuous service when benefits are calculated.
c.included when benefits are calculated, but the employment after return from the unpaid leave will be treated as a separate period of service.
d.ignored when benefits are calculated, and the employment before and after will be treated as separate periods of service.
a.ignored when benefits are calculated, but the employment before and after the unpaid leave will be treated as continuous service.
Defined benefit schemes
Any paid period of parental leave counts as pensionable service, so:
- benefits must continue to accrue based on the pensionable earnings that the employee
received before they commenced their period of parental leave; and - because employee contributions are based on the actual pay received, the employer
must pick up any shortfall arising from the reduced employee contributions.
Any unpaid period of parental leave does not have to count towards pensionable service
Chapter reference 4E3A
Which of the following is NOT included when calculating a jobholder’s qualifying earnings?
a.P11D benefits.
b.Commission.
c.Statutory sick pay.
d.Overtime.
a.P11D benefits.
Qualifying earnings (2024/25) are all earnings between £6,240 and £50,270 received by the
worker as:
* salary or wages;
* overtime;
* commission;
* bonuses; and
* Statutory Sick Pay, Mat/Pat Pay
You will notice that P11D benefits are not included in the definition of qualifying earnings.
A P11D form is a document used by an employer to list any expenses or benefits given to directors or employees
Chapter reference 4C3A
An earmarked periodic payment was agreed from Jill’s pension in favour of Jeff as part of their divorce settlement. If Jill were to die in payment, then the periodic payment will:
a.be commuted to a lump sum.
b.continue, but reduce by 50%.
c.be unaffected.
d.cease.
d.cease.
The ex-spouse can have benefits earmarked in the member’s pension scheme allowing them to receive income and/or lump-sum payments in the future. This may be on either the retirement or the death of the member.
Member dies - Earmarked periodic payment order ends and ex-spouse loses the benefit, whether death occurs before or after payment starts.
Chapter reference 4D2
What is the maximum period of postponement a company can apply when assessing a worker for auto-enrolment?
a.Two months.
b.One month.
c.Six months.
d.Three months.
d.Three months.
Choosing postponement allows an employer to defer the date on which it assesses a worker,
as follows:
- the period of postponement can be between one day and three calendar months;
- the date the assessment is carried out after the postponement is known as the deferral
date; and - an employer can choose to use postponement in respect of one worker, some workers or
its entire workforce.
Chapter reference 4C1A
Archie is a deferred member of a defined benefit scheme that recently entered the assessment period for entry into the Pension Protection Fund [PPF]. He has a deferred pension of £42,000 p.a. and would like to take his benefits when he reaches the scheme’s normal pension age in January 2025. He should be aware that:
a.his benefits cannot come into payment until the assessment period has ended.
b.his benefits can be paid, but only to the level of PPF compensation.
c.his benefits can be paid in full.
d.he will receive benefits to the level of PPF compensation initially, but will receive his full entitlement once the assessment period has ended.
b.his benefits can be paid, but only to the level of PPF compensation.
The insolvency event starts an assessment period, during which the scheme is considered to see if it meets the criteria for entry into the PPF.
- no new members can be admitted, no further benefits earned and no transfer values paid;
* benefits can be paid under the scheme but only to the level of PPF compensation - the PPF can intervene in the management of the scheme and give directions to the trustees;
- the PPF will review any ‘moral hazard’ issues;
- the PPF will also review any recent (typically within the three years prior to the assessment date) rule changes, ill-health early retirements and discretionary increases granted, which may lead to an increase in PPF compensation
- the PPF will instruct the scheme actuary to carry out an actuarial valuation as at the day before the assessment period started (a Section 143 valuation).
Chapter reference 4B1A
The Pensions Ombudsman can investigate complaints about:
a.mis-selling of pensions.
b.State pensions.
c.incorrect or misleading information given by a pension scheme.
d.tracing a lost pension.
c.incorrect or misleading information given by a pension scheme.
Pension ombudsman service generally deals with complaints about how pension schemes are run
- taking too long to do something without good reason;
- failing to do something it should have;
- not following its own rules or the law;
- breaking a promise;
- giving incorrect or misleading information; or
- not making a decision in the right way.
It cannot investigate complaints about:
- State Pensions;
- tracing a lost pension;
- sales or marketing (mis-selling) of pensions; or
- a decision made by a tribunal, court or another Ombudsman.
Chapter reference 4A3
The Pensions Regulator has three broad categories of powers to enable it to meet its objectives. What are these categories?
- Gathering information
- regulation
- enforcement and acting against avoidance.
Derek is unhappy about the advice he received from his adviser in December 2022 and he complained to his adviser on 1 May 2024. Unhappy with their response, Derek referred the complaint to the FOS on 1 September 2024. In December 2024, the FOS notified Derek that his complaint was successful. What is the maximum money award FOS can enforce?
The maximum money award that FOS can make if the complaint is made to it on or after 1 April 2024 and the act causing the complaint occurred after 1 April 2019, is
£430,000
The Pensions Ombudsman investigates complaints about occupational pension schemes and individual pension arrangements, provided that the complainant meets certain criteria. List these criteria.
They must be one of the following:
- the current or former member of a pension scheme;
- the widow, widower, surviving civil partner or dependant of a member who has died;
- a person with a pension credit in respect of a current or former member of a pension scheme; or
- someone nominated by a member or their estate to take the complaint to the Pensions Ombudsman.
Under what circumstances will the Pension Protection Fund pay compensation?
The PPF will pay compensation where the employer becomes insolvent and the scheme is underfunded or where the funds of defined benefit and hybrid schemes have been misappropriated through fraud.
Which schemes qualify for protection under the Financial Assistance Scheme?
FAS covers occupational pension schemes that started to wind up between 1 January 1997 and 5 April 2005, where the schemes did not have sufficient money to pay member’s benefits and the employer cannot pay the shortfall or where a scheme started to wind up after 5 April 2005 but is ineligible for help from the PPF as the employer became insolvent before this date
Outline five of the common tactics used by pension scammers to trick members out of their pension savings
Any five of the following:
- Unexpected contact: the scammer makes contact unexpectedly by way of a phone call or an email.
- Time pressure: offering a bonus or discount if the investment takes place before a set date, or say that the investment is only available for a short time.
- Social proof: sharing fake reviews or claims that other clients have invested or want in on the deal.
- Unrealistic returns: promise of returns that sound too good to be true, such as interest rates that are higher than those available elsewhere.
- False authority: using convincing literature and websites, claiming to be regulated and speaking with authority on investment products.
- Emotion: scammer manipulates emotions (for example, worry or excitement) to prompt an action.
- Flattery: building a friendship to lull the investor into a false sense of security.
- Remote access: the scammer suggests they can help but asks the investor to download software or an app to access the investor’s computer or device. They then use this to access their bank accounts or credit/debit cards
Gavin, aged 21, has recently started a new job with a basic salary of £9,000 p.a. and guaranteed overtime payments of £200 per month. What category of worker will Gavin be assessed as on his automatic enrolment date and what duties must his employer undertake on his behalf, both now and in the future?
Gavin is assessed as a non-eligible jobholder. His employer must therefore provide information about his right to opt in to the scheme and, if he does decide to opt in, it must arrange pension scheme membership and pay the minimum required contribution. If he subsequently decides to opt out, it must process the opt out.
Whether he decides not to opt in or decides to opt out, the employer must assess his status again when he reaches age 22 and, if his earnings are above the earnings trigger, it must automatically enrol him in an automatic enrolment scheme. If he decides to opt out of the scheme, it must automatically re-enrol him after three years.
In the UK, you’re automatically enrolled into a workplace pension if you meet the following criteria:
- You’re between 22 and State Pension age
- You earn at least £10,000 per year, or £833 per month, or £192 per week
- You’re classed as a “worker”
- You usually work in the UK
Why, with the offset method, does the subsequent death of the member have no effect on the position of either the member or the ex-spouse?
Under offset the subsequent death of the member or the ex-spouse will have no effect on the pension. This is because the pension benefits remain with the member and the ex-spouse will already have received a larger share of the remaining assets
The pension under an earmarking order has just come into payment. The member is a higher rate taxpayer and the ex-spouse is a basic rate taxpayer. Explain the tax treatment of the earmarked pension paid to the ex-spouse
The payment to the ex-spouse is deemed to be part of the member’s pension and is therefore subject to tax at the higher rate.
List four drawbacks of a periodic payment earmarking award for the ex-spouse.
A periodic Payment order is where the court makes an order against the pension scheme requiring the scheme to pay part of the member’s pension to the member’s former spouse.
As a result:
- the payment to the ex-spouse will start when the member starts to take their own benefits;
- the payment to the member is reduced accordingly;
- the order is expressed as a percentage of the member’s pension
- a separate order is required for each pension arrangement held by the member.
DRAWBACKS Any four from:
- The benefits do not become payable until the member retires.
- The ex-spouse has no control over the funds the pension monies are invested in.
- The member may transfer benefits between schemes and the ex-spouse cannot stop them.
- If the member dies first, the ex-spouse will not receive any further payments under a periodic payment order.
- If the ex-spouse dies first, the income being received will cease and not form part of their estate.
- If the ex-spouse re-marries, periodic payments will cease.
