Occupational Pensions

Question 1

Describe the scheme Trustee duties if the scheme is in deficit - 6 points

Answer 1

1. Must take advice from actuary and consult ER
2. Must agree recovery plan
3. Must agree strategy to make up shortfall
4. Or contribution schedule
5. Must inform TPR
6. Must monitor the position

Question 2

What factors could cause a CETV to increase - 6 points

Answer 2

1. Term to NRD
2. Lower equity yields meaning discount rate reduces
3. Scheme annuity rate decreased therefore larger lump sum at capitalisation calc
4. Inflation assumptions may have increased
5. Trustees may offer enhanced TV
6. Method of calculating benefits may have changed

Question 3

Outline the 2 conditions which must apply for PPF to takeover a scheme

Answer 3

1. An insolvency event has occurred

2. There are insufficient assets in the scheme on wind up to pay benefits at PPF compensation level

Question 4

Options to deal with funding deficit - 7

Answer 4

1. Increase contributions
2. Alter future accrual
3. Stop future accrual
4. Change to CARE Scheme
5. Reduce indexation to CPI
6. Remove/reduce spouse’s pension
7. Change investment strategy of the scheme

Question 5

What is the formula for calculating max PCLS from a DB scheme?

Answer 5

3 + (20/CF)

Question 6

When did GMP stop accruing?

Answer 6

06/04/1997

Question 7

Explain IAS19 Scheme Valuations

Answer 7

Scheme assets measured at market value
Scheme liabilities measured using an AA corporate bond discount rate
Past service costs are a scheme liability
Actuarial gains and losses were to be priced into the tech provisions

Note - as bond yields are used for liabilities this has encouraged finance directors to push schemes towards a similar asset mix to match the asset to the liability to minimise swings in the balance sheet.

Question 8

Trustee Role (5)

Answer 8

Obtain audited accounts
Schedule of cont's for ER and EE
Statement of inv principles
Statement of funding principles
Instigate a recovery plan if scheme in deficit

Question 9

Scheme Actuary Role (3)

Answer 9

Prepare periodical actuarial valuation - yearly and triennial
Provide advice about funding principles, calc of tech provisions, schedule of contributions, recover plan etc
Certify the technical prov is made in accordance with scheme funding regs.

Question 10

Scheme Administrator Role (5)

Answer 10

Register the scheme with HMRC
Operate tax relief on contributions under RAS
Report events to HMRC
Making returns of info to HMRC
Provide members with info on LTA limits, AA limits, scheme pays info.

Question 11

Short service refund criteria and tax

Answer 11

At least 3 months but less than 2 years service:
First £20k - tax at 20%
Any excess is taxed at 50%

Question 12

TVAS Assumptions from FCA (4)

Answer 12

AIR
Revaluation Rate
Indexation/Escalation rat
Mortality