Chapter 5 Flashcards
What is a DB with a DC underpin hybrid
Higher from DB or notional DC on retirement or death
AVC Features
Do not have to salary sacrifice
Can still provide TFC
Scheme normally offering option of AVC
Why can it be beneficial to take AVC’s at PCLS
Less of DB scheme needs to be commuted for PCLS so higher scheme pension & escalations will apply to this higher amount
What do the actuaries assume when calculating Added years AVC’s
Salary increases & growth of investment
How is an employee DB contribution expressed?`
as a percentage of salary
How do you calculate income based on service
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
Between 1978 - 05/04/1997 what benefits accrued
GMP - if FV insufficient for GMP then current provider liable for shortfall
What are the escalation rates for SPA before 06/04/2006
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)
What are the escalation rates for SPA after 06/04/2006
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)
What are differences & similarities of escalation rates pre & post A-day
No esc for pre 06/04/1997 in excess of GMP.
Pre 1988 GMP has to have CPI if before A-Day
Pension Increase Options Benefits & Drawbacks
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
Formula to calculate PCLS
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
Illhealth DB requirements
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)
What is the max DB lump sum death benefit
Max lump sum is unlimited before 75 but if in excess of LTA then 55% tax
What is a funding rate?
The actuaries calculation of contributions
What are the technical provisions
Liability value compared to assets
Way might a funding rate increase
Most likely if higher salary increases (NOT NRA change, Inv or marital status)
What does IAS 19 valuation do
Put Surplus or deficit/assets & liabilities on balance sheet and scheme cost on profit & loss account
Cost/Lost
What does a recovery plan need to take into account
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
What is not needed if fund wholly in insurance policy that is insured & earmarked
if in insurance then NO fund manager
& if insured/earmarked then NO auditor or actuary
What does an actuary do?
gives advice about funding
calculates technical provisions
What requirements are needed to be an auditor?
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
What options are available if someone leaves after 18 months
only CETV & scheme can chose whether to offer refund or preserved pension
DB Refund of employee conts
Less than 2 years service - not obligatory
First £20k at 20% tax & excess at 50%
Employer conts stay in fund
DB Preserved Pension
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
CETV requirements & calculation
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.
What factors affect CETV
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
Which members should not take up enhanced TV
If cautious investor with no other savings - giving up guarantee & taking on investment/annuity risk
What are the safeguarded statutory right to tsfr
If uncrystallised & apply to tsfr at least 1 year before NRA
When must the scheme notify member to take advice if tsfr’ing
within 1 month of tsfr value request
TVC info
Compares TV to est value needed today to purchase annuity
Assumption on rate of return by FCA
How much is max PCLS from public sector scheme
120/80 of pensionable salary
Which public sector scheme is funded by conts
Local gov’t
which public sector schemes are notionally funded
Teachers & NHS
What are the tsfr options for unfunded (NHS) public sector schem
Not able to tsfr to access flexible benefits no matter the value as cost to exchequer would go up
Which action will NOT help reduce an existing deficit in a defined benefit scheme?
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.
Registering a pension scheme with HMRC is the responsibility of the:
Scheme admin
In what year was the index used to calculate the statutory rate of revaluation changed from RPI to CPI?
2011
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?
Three
