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R04 2023 > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

What is a DB with a DC underpin hybrid

A

Higher from DB or notional DC on retirement or death

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2
Q

AVC Features

A

Do not have to salary sacrifice
Can still provide TFC
Scheme normally offering option of AVC

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3
Q

Why can it be beneficial to take AVC’s at PCLS

A

Less of DB scheme needs to be commuted for PCLS so higher scheme pension & escalations will apply to this higher amount

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4
Q

What do the actuaries assume when calculating Added years AVC’s

A

Salary increases & growth of investment

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5
Q

How is an employee DB contribution expressed?`

A

as a percentage of salary

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6
Q

How do you calculate income based on service

A

20 years service at £72k with 1/60
20/60 x 72,000 = 24,000
REVERSE by 24000/72000 then divide four options to get same result

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7
Q

Between 1978 - 05/04/1997 what benefits accrued

A

GMP - if FV insufficient for GMP then current provider liable for shortfall

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8
Q

What are the escalation rates for SPA before 06/04/2006

A

Pre 1988 GMP - Full CPI but state responsible
GMP 1988 - 1997 - scheme CPI 3%, over 3% then state (GM3)
Non-GMP Pre 06/04/1997 - 0%
05/04/1997 - 06/04/2005 - CPI max 5%
05/05/2005 - CPI max 2.5% (2005 - 2.5)

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9
Q

What are the escalation rates for SPA after 06/04/2006

A

Pre 1988 GMP -0%
GMP 1988 - 1997 - scheme CPI 3%, over 3% then state (GM3)
Non-GMP Pre 06/04/1997 - 0%
05/04/1997 - 06/04/2005 - CPI max 5%
05/05/2005 - CPI max 2.5% (2005 - 2.5)

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10
Q

What are differences & similarities of escalation rates pre & post A-day

A

No esc for pre 06/04/1997 in excess of GMP.
Pre 1988 GMP has to have CPI if before A-Day

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11
Q

Pension Increase Options Benefits & Drawbacks

A

Benefits - likely to get higher PCLS, if poor health then may not get benefit of esc. pension
Drawbacks - Value of LTA is higher as 20:1 factor used

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12
Q

Formula to calculate PCLS

A

20 x (pre comm pension x C)/20 + (3 x C) = Z
Pre comm pension MINUS (Z/C) = residual pension
C is commutation factor
If asked for residual & given TFC figure then
Income MINUS PCLS/C

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13
Q

Illhealth DB requirements

A

Rules define if it’s allowed and trustees must agree
Less than 1 year life expectancy then MAY be commuted as lump sum
If over 75 then must have some LTA remaining (most likely reason why it would not be commuted)

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14
Q

What is the max DB lump sum death benefit

A

Max lump sum is unlimited before 75 but if in excess of LTA then 55% tax

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15
Q

What is a funding rate?

A

The actuaries calculation of contributions

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16
Q

What are the technical provisions

A

Liability value compared to assets

17
Q

Way might a funding rate increase

A

Most likely if higher salary increases (NOT NRA change, Inv or marital status)

18
Q

What does IAS 19 valuation do

A

Put Surplus or deficit/assets & liabilities on balance sheet and scheme cost on profit & loss account
Cost/Lost

19
Q

What does a recovery plan need to take into account

A

Benefits if insolvency in short term
Impact on employment growth
Impact if assumptions not met
DO NOT need to reduce shortfall within a certain time

20
Q

What is not needed if fund wholly in insurance policy that is insured & earmarked

A

if in insurance then NO fund manager
& if insured/earmarked then NO auditor or actuary

21
Q

What does an actuary do?

A

gives advice about funding
calculates technical provisions

22
Q

What requirements are needed to be an auditor?

A

must be registered
CANNOT be member, employee of trustee, employer of scheme or connected to trustees (i.e. married). OK to be brother of deferred member

23
Q

What options are available if someone leaves after 18 months

A

only CETV & scheme can chose whether to offer refund or preserved pension

24
Q

DB Refund of employee conts

A

Less than 2 years service - not obligatory
First £20k at 20% tax & excess at 50%
Employer conts stay in fund

25
Q

DB Preserved Pension

A

At least 2 years of service
Not contracted out revaluation
01/01/1986 - 05/04/2009 - CPI max 5%
06/04/2009 - CPI max 2.5% (deferred, fer 9, fine)
Pre 2011 RPI
Contracted out then
1) S148 in line with NAE
2) fixed rate - 3.25% for 2022
After 06/04/1997 same as non contracted out

26
Q

CETV requirements & calculation

A

Must have 3 months of service
Calculate the preserved pension at date of leaving (my have pcls in addition)
Revalue to NRA
Calculate the capital cost of buying revalued pension at NRA (amount for an immediate annuity)
Discount the capital cost at retirement to present.

27
Q

What factors affect CETV

A

If scheme underfunded then trustees may reduce TV
CETV very sensitive to assumptions - lower the annuity rate or discount factor then higher the TV (& visa versa
Lower the revaluation rate then lower the TV

28
Q

Which members should not take up enhanced TV

A

If cautious investor with no other savings - giving up guarantee & taking on investment/annuity risk

29
Q

What are the safeguarded statutory right to tsfr

A

If uncrystallised & apply to tsfr at least 1 year before NRA

30
Q

When must the scheme notify member to take advice if tsfr’ing

A

within 1 month of tsfr value request

31
Q

TVC info

A

Compares TV to est value needed today to purchase annuity
Assumption on rate of return by FCA

32
Q

How much is max PCLS from public sector scheme

A

120/80 of pensionable salary

33
Q

Which public sector scheme is funded by conts

A

Local gov’t

34
Q

which public sector schemes are notionally funded

A

Teachers & NHS

35
Q

What are the tsfr options for unfunded (NHS) public sector schem

A

Not able to tsfr to access flexible benefits no matter the value as cost to exchequer would go up

36
Q

Which action will NOT help reduce an existing deficit in a defined benefit scheme?

A

NOT - Changing the accrual rate from 1/80th to 1/60th.

Extending the scheme’s normal pension age.
Ceasing future benefit accrual.
Changing the definition of pensionable salary from ‘final salary’ to ‘career average earnings’ for future benefit accrual.

37
Q

Registering a pension scheme with HMRC is the responsibility of the:

A

Scheme admin

38
Q

In what year was the index used to calculate the statutory rate of revaluation changed from RPI to CPI?

A

2011

39
Q

Within how many months of the guarantee date must a member wishing to transfer safeguarded rights provide the trustees with confirmation that they have obtained independent advice?

A

Three

R04 2023 (8 decks)

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