Occupational Schemes - Defined Contribution

Question 1

Joanne is 40 and works part-time with in a small bakery earning £4,000 per annum. How will she be classified under auto-enrolment legislation?

A. An entitled worker.
B. An eligible jobholder.
C. A non-eligible jobholder.
D. An exempt worker.

Answer 1

A. An entitled worker.

Anyone earning lower than £6,240 is an entitled worker

Question 2

What is a ‘Defined Contribution’?

Answer 2

• Contributions invested individually based on % of salary
• Exposed to investment risk
• Risk is with employee not employer

Question 3

What is ‘Auto-enrolment’?

Answer 3

UK employers are legally required to set up a workplace pension, put all their qualifying employees into it and contribute to their pension savings. The government introduced auto enrolment in 2012 to help more people save for their retirement.

Millions of workers weren’t in a scheme and weren’t saving enough for their future.

Question 4

What minimum percentage of salary, if any, must an employer contribute to a staff member who is classified as an entitled worker?

A. 8%
B. 5%
C. 3%
D. 0%

Answer 4

D. 0%

No mandatory employer contribution for an entitled worker.

Question 5

True or False:

Defined contribution schemes are based on accural rates.

Answer 5

False.

No accrual rates, benefits determined by fund value.

Question 6

What are the three ‘member types’ of a defined contribution scheme?

Answer 6

• Eligible jobholders
• Non-eligible jobholders
• Entitled workers

Question 7

What defines an ‘Eligible jobholder’?

Answer 7

• Aged between 22 and state pension age.
• Earn at least £10,000 per annum.

Must be auto-enrolled

Question 8

What defines a ‘Non-eligible jobholder’?

Answer 8

• Aged 16-21 or State Pension age -74
• Earnings between £6,240 and £10,000

Not auto-enrolled but can choose to be enrolled. If you choose to be enrolled, then full enrolment criteria applies.

Question 9

What defines an ‘Entitled Worker’?

Answer 9

Those that are not Eligible nor non-eligible.

Income below £6,240 p.a.

No obligation on employer to contribute even if employee asks to join.

Question 10

If an ‘Elibile jobholders’ opts out of auto enrolment scheme what will happen after 3 years?

Answer 10

They will be auto enrolled again until they opt out.

Question 11

Who would you need to contact to opt out of an auto enrolment scheme?

Answer 11

The scheme administrator.

Question 12

Auto enrolment contributions are based on what level of earnings?

A. All earnings.
B. Only earnings below the qualifying earnings limit of £6,240.
C. Only earnings above £50,270.
D. Qualifying earnings between £6,240 and £50,270.

Answer 12

D. Qualifying earnings between £6,240 and £50,270.

Question 13

What is NEST?

Answer 13

A defined contribution workplace pension scheme in the UK. It was set up to facilitate automatic enrolment as part of the government’s workplace pension reforms.

Question 14

What are NESTs charges?

Answer 14

Incurs 2 sets of charges;
1.8% Paid upfront on every deposit
0.3% Paid annually (Management charge)

Question 15

What are the minimum contribution levels into an auto-enrolment scheme?

A. 1% tax relief, 3% employer and 4% employee
B. 1% tax relief, 4% employer and 3% employee
C. No tax relief, 3% employer and 4% employee
D. No tax relief, 4% employer and 4% employee

Answer 15

A. 1% tax relief, 3% employer and 4% employee

Question 16

An employer offers a defined contribution pension scheme and wishes to be exempt from setting up an auto-enrolment scheme. The defined contribution scheme must:

A. provide benefits of at least 1/80th pensionable earnings per year of service.
B. have total contributions of at least 8% of qualifying employees’ relevant earnings.
C. provide benefits at least equal to a defined benefit scheme.
D. opt-out of auto-enrolment via HMRC.

Answer 16

B. have total contributions of at least 8% of qualifying employees’ relevant earnings.

If you have an existing plan that provides the minimum pension law criteria then there is no need to set up an auto-enrolment scheme

Question 17

Which organisation is responsible for maintaining a register of auto-enrolment schemes?

A. H.M. Revenue and Customs.
B. The Pensions Regulator.
C. The Department for Work and Pensions.
D. The Financial Conduct Authority.

Answer 17

B. The Pensions Regulator.

TPR register, monitor and control all of the UKs auto-enrolment schemes

Question 18

Trustees must make members of defined contribution pension schemes aware of Pension Wise if they are over or whin how many months of normal minimum pension age?

• A. Six
• B. Four
• C. Three
• D. One

Answer 18

B. Four

Trustees must make a member aware of Pension Wise if they are over or within four months of normal minimum pensin age.