Occupational Schemes - Defined Benefits Flashcards
What determines the benefits of a defined benefit scheme?
Benefits determined by accrual rate.
This is years’ service divided by accrual rate and multiplied by salary.
**True or False. **
The risk is with the employer and not the employee with a defined benefit scheme.
True.
Susan is about to retire from her employer’s final salary pension scheme. She has been a member for 28 years, the accrual rate is 1/80th of earnings and her final salary is £35,000. What initial pension can she look forward to?
A. £1,250.
B. £10,000.
C. £12,250.
D. £16,333.
C. £12,250.
What are the three types of members in a defined benefit pension?
- Active members: Still working for the company and continue to build benefits.
- Deferred members: No longer work for the company.
- Retired members: Reached scheme retirement age and have started receiving benefits.
What ‘member type’ does ‘Revaluation’ relate to?
Defered members.
What is ‘Revaluation’?
Your deferred pension is revalued using a method called Revaluation. This is published by the Government each year and aims to stop the value of your pension being reduced by inflation.
What are the minimum standards of ‘Re-valuation’?
Minimum standards:
- CPI 5% brought in - 1997 - 2009
- CPI 2.5% dropped - 2009 - onwards
Unlike ‘Triple Lock’ this is determined by the lower of the two numbers.
What is ‘Escalation’?
Escalation must happen on all ‘Defined Benefit’ schemes from when a member starts to draw benefits. (Retired members)
At what rate statutory rate must defined benefit schemes index / escalate benefits in payment that have been built up after 6 April 2005?
A. The lesser of CPI and 2.5%.
B. The greater of CPI and 2.5%.
C. The lesser of CPI and 5.0%.
D. The greater of CPI and 5.0%.
A. The lesser of CPI and 2.5%.
What is the ‘Pension Protection Fund’?
Pension Protection Fund is in place for defined benefit schemes to compensate members if their employers become insolvent.
True or False?
Defined benefit schemes include a requirement to provide for spouse/dependent in the event of death.
True.
Usually around 50% of benefits.
If a scheme’s trustees are required to prepare a recovery plan, this indicates a failure to;
A. Pay the Pension Protection Fund Levy.
B. Offer an auto-enrolment scheme.
C. Meet the statutory funding objectives.
D. Make suitable winding-up provisions.
C. Meet the statutory funding objectives.
A recovery plan (which needs to be provided to TPR) is drafted on a DB scheme that is in shortfall i.e. there has been a failure to meet the schemes statutory objectives.
