DB & DC Basics

Question 1

DB scheme benefits are based on what 3 things?

Answer 1

1. Pension remuneration
2. Pensionable service
3. Accrual rates e.g 1/60th

Question 2

What does a commutation factor of 12:1 mean under a DB scheme?

Answer 2

for every £12 of PCLS the pension income is reduced by £1

Question 3

Do all DB schemes build up income and PCLS separately?

Answer 3

Not all, some have pension benefits which can be commute over to a PCLS.

Question 4

DC Group and Individual schemes are arranged differently, describe how?

Answer 4

A group scheme is arranged via a Trust and Trustees hold the fund assets.
An individual scheme is arranged by issuing contracts

Question 5

Name 5 types of DC pensions?

Answer 5

1. Personal pension
2. Stakeholder pension
3. SIPP
4. SSAS
5. Executive PP

Question 6

What does a Hybrid DC scheme set out to do?

Answer 6

Target the benefits they wish to provide members, but they offer no guarantees.

Question 7

What 2 main criteria determine the size of benefits under a DC scheme?

Answer 7

1. Size of the fund

2. Annuity rates