Chapter 5 - Defined Benefit Schemes Flashcards
How could additional voluntary contributions be accrued (2)?
On a defined contribution basis
On an added years basis (buying more years in a DB fund)
What two acts must trustees of a DB scheme adhere to?
The Pension Act 1995 and the Pension Act 2004
What is a bridging pension?
Where a DB schemes normal retirement age is lower than the state pension age (SPA), the scheme will pay a higher pension until SPA is reached
What are the 3 factors DB benefits are based off?
Pensionable service
Pensionable salary
Accrual rate
How do the statutory escalation of benefits for a DB scheme increase?
They escalate in line with CPI up to a max of 2.5%, pre 2005 it could escalate up to a max of 5%
What is a pension increase exchange?
Where a member is offered reduction in their guaranteed pension for a higher initial pension
What does a commutation factor of 12:1 mean for PCLS benefits?
12:1 means for every £12 of PCLS the pension will reduce by £1
What is the formula for calculating the max PCLS payable?
PCLS = 20 x pre commutation pension x C/(20 + (3 x C)
Where C = commutation factor
When a pension scheme is struggling to meet its liability what are 4 options available to them to reduce their deficit?
Increase member conts
Reducing the accrual rate
Revising the investment strategy
Transferring company assets to the scheme
What are 4 activities undertaken by a DB scheme administrator?
Registering the pension scheme with HMRC
Operating tax relief on conts
Returns of information to HMRC
Giving info to members regarding members LTA/transfers
If a member leaves a DB scheme less than 2 years after they join, how do the refunds work?
The first £20,000 of any refund taxed at 20%
Excess taxed at 50%
What is a member of a DB scheme with a preserved pension known as?
A deferred member or deferred pensioner
What is the difference between a preserved pension and a CETV?
A preserved pension provides a guaranteed pension at the schemes pension age, whereas the Cash Equivalent Transfer Value (CETV) is a cash lump sum that is invested into a new pension arrangement
What are safeguarded benefits?
These are benefits in a pension scheme that are neither cash nor DC benefits
Can flexible benefits be transferred?
Yes, as long as they are Uncrystallised
Members with safeguarded benefits have a right to request a CETV how often?
Once a year, though if the CETV is greater than £30,000 they must seek independent advice
The calculation for critical yield uses assumptions for (4):
Annuity rates
Revaluation rates
Indexation rates
Mortality
What is abridged advice?
Adviser can only recommend the client NOT to transfer out of the scheme
What is a “transfer club”?
Where public sector schemes allow members to transfer to other public schemes without loss
Scheme X and scheme Y are both occupational pension schemes but only scheme X is covered by The Pension Protection Fund. This is because
Scheme X is a DB scheme and Y is a DC scheme
The technical provisions of a defined benefit occupational pension scheme are the
Valuation of the schemes liabilities
What is the formula to calculate someone’s residual pension?
Residual pension = Full pension - (PCLS/commutation factor)
The trustees of a defined benefit scheme must report a delay in the payment of contributions to The Pensions Regulator once the delay is more than:
30 days
DB scheme trustees must issue a schedule of contributions within what time period of the schemes valuation effective date?
Within 15 months of the valuation effective date
