Past Paper Questions

Question 1

State the pension transfer report requirements

Answer 1

SAD MAIFI

Suitable advice in writing

Ad & dis of recommendation

Material info and analysis

Of financial implications

Question 2

Keys steps FCA expects when advising insistent client

Answer 2

NARC

Normal advice process

If client wishes to act against

Risks and imp of actions reconfirmed

Clear statement against advice

Question 3

Explain employer covenant

Answer 3

Legal obligation and financial ability to reduce and eliminate any scheme underfunding

Maintain funding over long term basis

Trustees can be confident in future funding and do no need to reduce CETVs

Remaining members are unlikely to be disadvantaged

Question 4

Info needed in respect of EPP

Answer 4

Rate of GAR
Terms of GAR eg death benefits 
Any protected TFC
Any transfer penalties 
Availability of pension flexibility options 
Charges 
Investment fund options 
Plan death benefits

Question 5

EPP transfer £675k state steps must be taken to allow him to transfer

Answer 5

Safeguarded rights and value over £30k
Provide evidence to ceding scheme in writing

Independent advice
Suitably qualified adviser
With relevant regulatory permissions

Question 6

Why doesn’t a nomination form guarantee benefits?

Answer 6

Nomination forms are expression of wish and not legally binding.

The trustees must investigate and they have discretion to pay the death benefit to someone else

Question 7

List 6 benefits on transfer from DB to PPP

Answer 7

Funds available should be able to sustain income need

Income can be varied

Would allow benefits to be left to the children

Death benefits likely to be higher and have flexi ops

Death benefits tax free if death before age 75 and des within 2 year window

PCLS greater subject to 25% of lifetime allowance

(Not all answers will be applicable)

Question 8

List 6 drawbacks of DB to PPP

Answer 8

Loss of guaranteed spouse /deps pension

Loss of guaranteed escalation therefore inflation risk

Exposure to investment risk

Longevity risk ie the fund could run out

Charges and complexity

Potential LTA charge

Question 9

Why is Billy unable to apply for any transitional protection

Answer 9

FP16 is not available as benefits have accrued in the scheme since April 2016

IP16 is not available as the benefits are values at 20 x scheme pension and were therefore less than £1m 5/4/16

Question 10

Safe withdrawal rate

Answer 10

Percentage of the initial investment that can be withdrawn each year over a period of 30 years taking account of inflation that does not lead to complete portfolio failure

Failure being defined as 95% probability or more of total depletion of the fund.

Question 11

State 6 stress tests undertaken on cash flow plan

Answer 11

Future returns are lower
More income is required 
Sudden loss of asset such as stockmarket crash
Large unplanned capital Requirement 
Inflation is greater
Live longer than expected

Question 12

State the flexi income risks

Answer 12

F
I - investment risk
S- sequencing risk

L- longevity risk
I - inflation risk
A - annuity risk
M - mortality risk

Question 13

Confirm the tax treatment of refund of contributions

Answer 13

20% of first £20k

50% above £20k

Question 14

What is the breakeven point

Answer 14

Purchasing power of pension fails to match ongoing inflation

Previous pension outweighed by increases

Question 15

ETV

Answer 15

TOCCI

Trustee consultation

Open and transparent

Conflict of interest

Clear fair not misleading

IFA advice

Question 16

Statutory transfer process

Answer 16

1 month: trustees need to inform advice required

3 months : of req trustees must set guarantee date
plus 10 d: provide SOE of guarantee date
Member must confirm within 3 months of guarantee date
3 months : no later post SOE confirmation that financial advice received

Before trans Trustees must check firm and adviser hold rep reg permissions

Trustees check scheme legitimate arrangement

Trustees must transfer within 6 months

Question 17

Statutory transfer process

Answer 17

1 month: trustees need to inform advice required

3 months : of req trustees must set guarantee date
plus 10 d: provide SOE of guarantee date
Member must confirm within 3 months of guarantee date
3 months : no later post SOE confirmation that financial advice received

Before trans Trustees must check firm and adviser hold rep reg permissions

Trustees check scheme legitimate arrangement

Trustees must transfer within 6 months

Question 18

Impact of higher inflation on cash flow

Answer 18

Inflation reduces spending power
Therefore higher income req
Meaning earlier than expect fund depletion

Increased investment risk higher returns unlikely

Revaluation and escalation will be increased in the scheme

This all makes transfer out less suitable

Question 19

Key documentation from adviser re DB trans

Answer 19

SCDD 
Factfind
DB trans questionnaire 
TVAS inc TVC
SOE
Ceding scheme info
Plan research 
Suitable report APTA

Question 20

Death benefits of DB scheme

Answer 20

Balance of payments under a guarantee period paid as income taxed as earned income

Db lump sum death benefit payment

Question 21

Possible reasons for an increased CETV

Answer 21

Previous trans reduced due to underfunding
Funding has now improved
Annuity rates have fallen
Revaluation and escalation have increased
Life expectancy has increased
Discounting rate has reduced
Discretionary increases have been added