DC Schemes Flashcards
What are the main types of defined contribution schemes?
Answer: The main types of defined contribution schemes are trust-based schemes and contract-based schemes.
What are the legal bases of defined contribution schemes?
Answer: Defined contribution schemes can be trust-based or contract-based. Trust-based schemes are governed by a trust deed and have a board of trustees, while contract-based schemes are outsourced to a third-party provider.
What are the factors to consider and benefits of defined contribution schemes?
Answer: The factors to consider and benefits of defined contribution schemes include the types of schemes, legal bases, factors to consider, benefits on leaving and transfer, and stakeholder pensions.
What information should be included in Section 1 of a pension plan summary?
Answer: Section 1 should include information about the member, their employer(s), and the pension provider.
What information should be included in Section 2 of a pension plan summary?
Answer: Section 2 should include information about the contributions credited to the member, the total amount saved, and any monies transferred into the pension scheme.
What information should be included in Section 3 of a pension plan summary?
Answer: Section 3 should provide an illustration of how much the member’s pension could be worth at retirement and the estimated retirement income.
What information should be included in Section 4 of a pension plan summary?
Answer: Section 4 should prompt the member to think about their retirement income and lifestyle, including actions to increase their pension pot.
What are the legal bases of defined contribution schemes?
Answer: Defined contribution schemes can be trust-based or contract-based. Trust-based schemes are governed by a trust deed and have a board of trustees, while contract-based schemes are outsourced to a third-party provider.
What are the factors to consider and benefits of defined contribution schemes?
Answer: The factors to consider and benefits of defined contribution schemes include the types of schemes, legal bases, factors to consider, benefits on leaving and transfer, and stakeholder pensions.
Q: What is a targeted money purchase scheme and what is its primary aim?
A: A targeted money purchase scheme is a hybrid scheme with features common to both defined benefit and defined contribution schemes. Its primary aim is to provide a targeted level of pension that is a proportion of final salary at or close to retirement.
Q: Who sets the eligibility requirements for a group personal/stakeholder pension, and where are these usually outlined?
A: The eligibility requirements of a group personal/stakeholder pension are set by the employer and are usually outlined in the scheme rules.
Q: What is the maximum contribution that may be paid to a defined contribution scheme?
A: The maximum contribution that may be paid to a defined contribution scheme is unlimited.
Q: Who decides the level of contributions to a personal or stakeholder pension, and what conditions might exist if the arrangement is offered by an employer?
A: An individual decides their own level of contributions to a personal or stakeholder pension. If the arrangement is offered by an employer, a defined level of contribution may need to be paid as a condition of membership.
Q: Who determines the level of contribution made into a defined contribution scheme by an employer, and how is it usually defined?
A: The employer decides on the level of contribution they are prepared to make into a defined contribution scheme; this is often defined as a percentage of pensionable salary.
Q: What do Statutory Money Purchase Illustrations (SMPIs) represent, and in what terms are they shown?
A: Statutory Money Purchase Illustrations (SMPIs) represent the amount of future pension that might become available under the scheme, shown in ‘real terms’.
Q: What characterizes a trust-based pension scheme, and who sponsors it?
A: A trust-based scheme is characterized by being governed by a trust deed and is typically sponsored by an employer.
Q: What defines a contract-based pension scheme, and who manages it?
A: A contract-based scheme is defined as being ‘outsourced’ to a third-party provider, such as an insurance company, who will manage all aspects of the scheme.
Q: Why are Master trusts becoming more popular?
A: Master trusts are growing in popularity as they are cost-effective, simple, and convenient for employers.
Q: How are occupational and individual defined contribution schemes generally categorized in terms of their basis?
A: Occupational defined contribution schemes are generally trust-based schemes, and individual defined contribution schemes are generally contract-based schemes.
Q: What protections does a trust-based scheme offer to its members, and how does a contract-based scheme compare in terms of cost and time for employers?
A: A trust-based scheme offers members the protection of the trustees. Compared to this, a contract-based scheme is less costly and time-consuming for employers.
Q: What responsibilities do the trustees and managers of an occupational defined contribution scheme have in terms of governance standards and compliance?
A: The trustees and managers of an occupational defined contribution scheme must ensure that it meets governance standards and, where it is a qualifying scheme, that it is compliant with charge controls.
Q: Do parallel rules apply to any other types of pension schemes, and if so, which ones?
A: Yes, parallel rules apply to workplace personal pension schemes.
Q: What is required of contract-based workplace pension schemes in terms of governance, and what is the role of the Independent Governance Committee (IGC)?
A: Contract-based workplace pension schemes must establish an Independent Governance Committee (IGC), which must ensure that all aspects of value for money in workplace pension schemes are independently reviewed.
Q: What characterizes collective money purchase schemes, and how are the assets managed in these schemes?
A: Collective money purchase schemes are characterized as risk-sharing or target pension plans under which the assets are pooled between members.
Q: What provision is made for membership in an occupational defined contribution pension scheme if an employee works beyond the normal pension age?
A: If the employee continues to work beyond the normal pension age, membership of the pension scheme must also be able to continue.
Q: What provisions are made for selected pension age in an individual defined contribution scheme, especially regarding benefits and employer contributions?
A: A selected pension age may be set for an individual defined contribution scheme, but benefits may be taken at any age once the normal minimum pension age has been reached. If the employer contributes, contributions must continue while the member remains in employment, even if this is beyond the selected pension age.
Q: What are the possible forms of lump sums in DC pension schemes?
A: The lump sum may be a Pension Commencement Lump Sum (PCLS) or an Uncrystallised Funds Pension Lump Sum (UFPLS).
Q: What are the options for receiving pension income in DC schemes?
A: Pension income may be provided via a scheme pension, lifetime annuity, or drawdown pension.
Q: How is the pension income determined if a lifetime annuity is selected?
A: If a lifetime annuity is selected, the pension income will depend upon the size of the fund and annuity rates available at retirement.
Q: Under what conditions can benefits be taken before the normal minimum pension age?
A: Benefits may be taken before the normal minimum pension age on the grounds of ill health, subject to certain conditions.
Q: What provision exists for members with a life expectancy of less than one year?
A: If life expectancy is less than one year, it is possible to commute benefits for a ‘serious ill-health lump sum’.