defined benefit

Question 1

AVCs

Answer 1

• can be added years
• can do it through defined contribution

Question 2

Bridge

Answer 2

• this allows for higher payments earlier on to bridge to the gap between the normal pension and state pensions

Question 3

Eligibility

Answer 3

• it can not be compulsory and the rules set out who can join

Question 4

Accrual of benefits

Answer 4

• the scheme rules done
• pensionable service - how long the period of membership in the scheme
• pensionable remuneration Am- what they will pay pension on.
• accrural rat - 1/60th of pensionable renumeration for each year of pensionable service.

Question 5

contributions - employer

Answer 5

• usually annually and the acturary calculates how much they need to be every three years

Question 6

contributions - employee

Answer 6

• they are usually a percentage of their pensionable salary

Question 7

escalation rates pre 2016

Answer 7

• pre 1988 only the state pays it evaluating with CPI
• 1988-1997 scheme uk to 3% with state adding
• non GMP prior to 1997 - no escalation.
  -1997 -2005 inline with CPI to 5%
  -After 2005 - inline with CPI to 2.5%

Question 8

statutory escalation of benefits i payment after State pension age on 2016

Answer 8

• Pre1998 GMP the scheme does not have to provide escalation
• GMP accrued between 1988 and 1997 - The scheme is responsible for paying increases to the GMP in line with increases in tbe CPI to a maximum of 3% per annum.
  -Non-GMP accrual prior to 6 April 1997 - no requirement for any statorty increases.
• pension for service after 5 april 1997 but before 6 Apr 2005 - must escalate in payment inline with CPI to a maximum of 5% per annum.
• Pension for service after 5 April 2005 - must escalate in payment in line with CPI to a maximum of 2.5 per annum
• please note used to be RPI

Question 9

TPR - exchange

Answer 9

• should be fair
• open and transparent
• manage conflicts of interest
  -involve trustee consultation
• Financial advice

-TPR has a st story duty to protect members benefits

Question 10

PCLS

Question 11

early retirement

Answer 11

• a member can take benefits before the schemes normal pension age and without retiring
• when they do benefits are accrued up to the date of early retirement then reduced by an early retirement factor
• this can lead to a big reduction ie 30%

Question 12

early leavers

Answer 12

• if less than 2 years will be return of contributions or preserved one
• if they have completed theee months must be offered a CETV
• First £20,000.00 is taxted at 20%
• After this it will be 50%
• the tax responsibility will fall on the administrators

-

Question 13

eatly leaver - preserved

Answer 13

• if they have been there years two
• calculated on accural rate
• need to work out the revalued amount
• between 1881 and 5 April 2009’all preserved benefits must be devalued in line with the CPI to a maximum of 5% a year.
• on or after 6 April preserver benefits must be revalued in line with CPI to a maximum of 5% a year for benefits accrued up to 5 April 2009 and. to a maximum of 2.5% for those accrued after 5 april 2009.

Question 14

Early leavers contracted

Answer 14

• up until 1997 part of a members accrued pension under a contracted out scheme was the guaranteed minimum pension.
• The GMP must hold its value
• The GMP can be revalued in the ways
• un mine with the increase in national average earnings
• at a five state determined bu the gate the member left pensionable service.
• for leavers before 6 April 1997 for the revaluation could be limited to 5% a year in return for a premium and the DWP would pick up the rest

Question 15

CETV

Answer 15

• if they have been at the scheme for 2 years they must be offered this.

-Calculate the memebrs preserved pension at the date of leaving
- revalue the preserved pension jo to the schemes normal pension age.
- convert the revalued pension using a capital sum
- calculate the capital cost at retirement to provide the current capital value.

• the scheme can then value this down if the scheme is underfunded.
• the lower the annuity rate or discount the higher the value

Question 16

Transferring

Answer 16

• to take benefits of over £30,000.00 they must seek advice. Can be restricted but must have pension transfer qualification
• the trustees must see evidence that the advice have been given. But they do not need to see confirmation that the advice has been followed.

Question 17

Adviser advice

Answer 17

• the advisers must confirm if to switch or stay
• need critical yield calculation - the amount required from investment returns to match the benefits being given up.

TVC - this is where you use how much the annuity would cost for the benefits.

• Must use FCA assumptions so RPI is 3% and average earnings is 3.5%
• Continent fees are not allowed - same regardless of decision to transfer or not.

Except when there is a carve out - where they are better off transferring but can’t afford it. this would be missing mortgage or credit card payments consecutively three times or in i’ll health.

• Abridged advice is when they consider the clients objectives and attitudes to investment risk. they can consider accepting the scheme or reduced pension. Can not do APTA or provide transfer analysis.
• Abridged advice and other advice must have a one page summary except where the only benefit is a GMP. Should have recommendation cost and risks and information about any ongoing transfer advice.
• when transferring must confirm the new investment strategy and consider the default explaining why he wouldn’t use the default.

Question 18

Transferring

Answer 18

• if transferring need to consider a new one or an existing occupational scheme
• they also need to consider the default fund and why they didn’t use it

Question 19

PCLS

Answer 19

• they can accumulate separately but usually will say for every 12 they take 1.
• the commutation factor is included in the calculation.
• 25,000 annual pension after 20 years in a 1/60th pension scheme. Final renumeration was £72,000.00
• 72,000.00 x 3/80 = 54,000
• for every £12 his pension would be reduced by £1
• the reduction in his pension is therefore £54,000/12 = £4,500.00
• his annual pension will be deducted to £25,000 - £4,500 is £20,500.00

Question 20

calculate

Answer 20

annual pension is salary x years / accr

Question 21

trustee resposibisbilites

Answer 21

• holding and investing trust assets and producing statement of investment principles
• powers from the trust deed
• 1/3 are nominated
• must solo t an auditor acturary and fund manager

Question 22

what does the actuary do ?

Answer 22

• a scheme actuary has a number of responsibilities including preparing periodic actuaral valuation and certifying ray the calculation of the technical provisions and made in accordance with the scheme funding regulations.

Question 23

what does the scheme auditor do

Answer 23

• auditors statement giving an opinion as to whether or not contributions have been paid in accordance with the schedule of contributions.

Question 24

GMP dates

Answer 24

• between 1978 to 1997

Question 25

CPI changed

Answer 25

• changed in 2011

Question 26

application to defer

Answer 26

• must be before 3 month of the start date