Chapter 4 - Pensions Regulation Flashcards
PCLS and primary protection - how to work out using £500k as previous PCLS at a day and taking bens now
Previous PCLS x (1.8m/1.5m=1.2)
500k*1.2 = 600k = now entitled to 600k PCLS when drawing benefits in 20/21
Role of the Pensions Regulator - established to, main purposes (2), key responsibilities (5), principle aim and how do they do this
Pensions Regulator established to support aims of DWP. Main purpose is to regulate work based pensions and support employees through auto-enrolment compliance. Key responsibilities are to;
- ensure employers auto-enrol staff
- protect peoples savings in workplace pensions
- improve way that workplace schemes are run
- reduce risk of schemes ending up in PPF
- ensure employers balance need of DB schemes with their growing their business
Principle aim is to prevent problems from developing and takes a risked based and proportionate approach whilst trying to minimise burden on regulated community.
TPR and Gathering Information - why they do this, sources of info for ‘gathering information’ (7) and info sharing
TPR has range of powers to protect workplace pensions and DB schemes with the first being Gathering Information. They gather information to identify and monitor risk and these include;
- employers declarations that they comply with workplace pension duties
- scheme returns
- whistleblowing reports
- funding documents from DB schemes
- notifiable event reports
- research and analysis work
- thematic reviews
When allowed TPR will share info it gathers with other bodies
The Pensions Regulator cont - Regulation and enforcement action (actions, 6),
Acting against avoidance - what is it and acts to… (2), what can they issue (2, what are then and when can start procedure).
Clearance procedure - what is it, TPR will not… and relevant for who
Regulation and enforcement action - range of actions it can take to protect members benefits;
- issue an improvement or third party notice that requires specific action to be taken in specified time.
- take action on behalf of the scheme to recover unpaid contributions from employer if due date has passed.
- stop individuals not deemed as fit and proper from acting as scheme trustee.
- fines for breaches of law.
- prosecute certain offences in criminal courts.
- appoint trustee to scheme for it to run more effectively.
Acting against avoidance - if they believe employer is attempting to avoid pension obligations and get PPF to pick up liabilities, it can act to protect benefits and reduce PPF’s exposure claims for compensation. Can issue;
Contribution Notice - direct employer to pay amount of statutory debt either to the scheme or the PPF. TPR can start procedure for CN up to 6 years after act or failure took place.
Financial Support Directions - require financial support to be put in place for underfunded scheme where TPR concludes that employer is a service company or insufficiently resourced. Can start this process up to 2 years after relevant time (TPR’s own choosing).
A clearance procedure is available to employers who do not want to subject to TPR’s anti-avoidance powers. Does not mean that TPR approves but will not issue contribution notices or FS directions. Relevant for employers considering transactions that are detrimental to DB Pension Scheme.
FOS - refresher card - eligible complainants (7), what complaints cant they deal with (2), complaint to who first and response times, referring to FOS timescales (2) can award (3+ other bits on top)
Eligible complainants
- Consumer
- Charity with income of £6.5m
- trustee of trust with net asset value of £5m
- enterprise with fewer than 10 empl and turnover of £2m
- borrower under consumer buy to let credit agreement
- small business with turnover of less than 6.5m and fewer than 50 empl or balance sheet of less than £5m
- guarantor
Can’t deal with complaint for occ scheme or personal pension set up by employer and complaint is about employer or admin of that scheme.
Must be raised with business first and have to respond in 8 weeks. If unresolved, can refer matter to FOS and must do within
- six months of business issuing final response letter
- six years from the event consumer complained about (if later, 3 years from when consumer knew about it)
If FOS upholds can issue directive or monetary award;
- on or after 04/19 = £350k
- event before 04/19 but complained after - £160k
- before 04/19 - £150k
And interest, cost and interest on costs are awarded separately.
The Pension Ombudsman - what bodies can it consider complaints against (2), maladministration (what is it and includes 7, straightforward), cant deal with complaints about (5), can deal with complaints from (4), what can it also help with and compensation limit
Can consider complaints against the actions or decisions of the PPF and Financial Assistance Scheme.
Deals with how pension schemes are run. Known as maladministration and includes;
- taking too long to do something without good reason
- failing to do something it should have
- not following own rules or law
- breaking a promise
- incorrect or misleading information
- not making decisions right way
Can’t deal with complaints about;
- State Pensions, tracing lost pension, sales or marketing, type of bens scheme offers and decisions made by tribunal, court or other ombudsman.
Only investigates complaints from;
- members of pension scheme
- any relationship to member who has died
- those with pension credit in respect of pension scheme
- nominated by estate to make complaint.
Can also help with settle disputes between trustees, managers, employers from different or same pension schemes. Can look into dispute between trustees of same scheme if at least half of them refer the dispute.
No limit on what guilty party may be subject to pay to a complainant.
Pension Protection Fund - how funded (3 + 2), pay comp when (2), what requirements met for PPF to take over (5)
PPF is funded by administration, fraud compensation and pension protection levy (two components - scheme based and risk based levy). May pay compensation where;
- Employer goes bust and scheme is underfunded.
- funds have been misappropriated through fraud.
Scheme must meet requirements for PPF to take over, such as;
- not DC scheme
- not wound up before 04/05
- qualifying insolvency event must have occurred. I.e. insolvency practitioner has notified board that employer is in administration.
- no chance that scheme can be rescued.
- scheme must have insufficient assets to cover liability that PPF would take.
PPF - Insolvency event - what is it and when aim to complete and during assess period what can/cant happen (6)
Insolvency event occurs - starts an assessment period where scheme sees if it meets criteria for entry into PPF and they aim to complete this within two years. During this period, trustee remains in control but;
- no new members, benefits earned and no transfer values paid.
- benefits can be paid but only to level of PPF compensation.
- PPF can intervene on management and give directions to trustees.
- PPF can review any moral hazard issue. Employer paying someone too much just before liquidation.
- PPF will review any recent rule changes, ill-health retirements and discretionary increases granted which could lead to increase in PPF compensation.
- scheme actuary must carry out actuarial valuation at the day before assessment started.
PPF cont… -exceptions for transferring out (2), trustees may only pay if (2), when PPF assumed resp cannot transfer away unless (2) and Section 143 valuation (what is it and based on)
Usually cannot transfer out during assessment period but exceptions when;
- requested and accepted the transfer value in writing before assessment date. CETV still in date.
- have designated a scheme willing to accept that transfer value (ppw completed and submitted)
In these cases, trustees may only pay transfer value if;
- satisfied can still meet objective of ensuring protected liabilities do not exceed assets (or kept to a minimum)
- reduce the transfer payment to ensure it does not exceed the cost of securing the bens that would be payable if PPF assumed responsibility.
Once PPF assumed resp for scheme, member cannot transfer away unless pensionable service ended before start of assessment period and had less than 3 months of pensionable service in scheme.
Section 143 valuation used to determine if they are insufficient assets within the scheme. Based on theoretical cost of buying out schemes benefits via insurance company and provision of PPF compensation entitled to each member.
PPF cont 2 - Compensation levels - 100% (3), 90% (capped and reduction + 2), other (3 + payments to spouse) and long service cap (what is it, how increased and includes, 2)
100% of benefits when;
- Members have reached normal retirement age on insolvency event.
- members already in receipt of survivors benefit on IE.
- Members in receipt of pension due to ill health (up to 100% and reviewed case by case)
90% capped at £41k at age 65 (reduced in line with age if under) + long service cap members;
- Members who have retired but yet to reach schemes retirement age at IE.
- Deferred members who have not reached schemes retirement age at IE.
Other (all after IE)
- 50% for spouse Survivors benefits
- 25% for qualifying child when above also in payment (max 50% if more than 1)
- 50% for qualifying child (max 100% if more than 1)
Payments for spouse determined by rules of scheme.
Long service cap - for members with 21 years of more service with scheme. Cap is increased by 3% for each year above 20 up to a max of double the standard cap. Includes;
- individuals already in receipt of PPF compensation.
- members whose schemes were in the assessment period.
PPF - qualifying children (how, 2), deferred members valuation (pre & post 04/09), payments increased (pre & post 04/97), trivial commutation (pen flex, when can it be paid, 4)
Qualifying children - child and in qualifying education (full-time ed) or has qualifying disability (incapable of work)
Deferred members valuation - pre 04/09 - increased each year in line with CPI subject to max of 5%. Post 04/09 - as above but 2.5%.
Once receive compensation, payments are increased - accrued pre 04/97 = no increases. Post 04/97 = in line with CPI with max 2.5%.
Total commutation of bens - pension flexibilities do not apply to PPF but PPFTCLS can be paid once scheme transferred and member meets following;
- reached min pension age
- under 75
- £30k max benefits
Financial Assistance Scheme (FAS) - what is it, why does it help (4), compensation amount and what is it, capped compensation and how revalued, benefit increases (2)
Designed to assist those who have lost pension benefits through company insolvency but not covered by PPF. Closed in 2016.
Helps because;
- member of underfunded DB scheme that started to wind up between 01/97 and 04/05.
- scheme wound up and did not have enough money to pay members benefits.
- employer could not pay shortfall due to insolvency, no longer exists or no longer has commitment to pay debts
- scheme wound up post 04/05 but ineligible for PPF due to employer becoming insolvent before this date.
FAS will pay up to 90% of the pension member has accrued before scheme wound up. Compensation is a top up of any pension that scheme will pay subject to max. Capped at £36k this tax year and revalued in line with CPI annually.
From date of scheme wind up to schemes NRA, accrued bens that are entitled to increase under scheme rules will;
- increases in RPI (max 5%) between wind up date and 03/11.
- increases in CPI (max 5%) between 03/11 and NRA.
Pension Scams - what is it, signs to watch out for (6), tips to protect (4) and what could happen if scammed
Practice of luring members into unregistered pension scheme with promise of higher returns and early access to cash.
Signs to watch out for scams are
- Unexpected Contact
- Time pressure - offering bonus or discount before set date or investment only available for short time.
- Social proof - sharing fake reviews or claims other clients want to invest in it.
- Unrealistic returns
- False authority - using convincing literature and websites claiming to be regulated
- Flattery - building friendship.
Four tips from TPR to help individuals protect themselves from scammers
- Reject unexpected offers
- Check who you are dealing with
- Do not be rushed or pressured.
- Get impartial information and advice
Victim loses pension fund and can be subject to significant tax penalty
Workplace Pensions - Pension Act 2008 (employers must, 3), 4 types of job holders and brief description, categorisation of workers (1 + 3 what job holder falls into what £ bracket at what age)
Under Pensions Act 2008, employers must;
- all employers must offer qualifying pension scheme
- all eligible job holders must be auto-enrolled
- employer required to pay min level of contributions
Eligible jobholders - auto enrolled employees
Non EJ - those who have right to opt into scheme
Entitled workers - right to ask to join employees
Postponement - delay of up to three months in employer assessing member of staff for autoenrolment.
Categorisation of workers
- employer must carry out assessment to determine which of these they fall into.
Rights based on earnings:
- Over £10k: 16-21 non eligible, 22 to SPA eligible and SPA above non-eligible
- £6.2k - £10k: all non eligible
- £6.2k and below: entitled worker.
Employers duties for each worker - EJ (5), NEJ (3) and EW (2)
Employer duties for each worker category; Eligible job holder - must auto-enrol onto scheme - make min contribution amount - process any opt-out notice - auto re-enrol every 3 years - keep records of auto-enrol and opt out
Non-eligible job holder
- provide info on right to opt in and if they do;
- arrange scheme membership
- point 2, 3 and 5 above
Entitled workers;
- provide info on right to join scheme and if they decide to join they must keep records of this.
- no requirement for employer to make contribution in this case.