Pension Transfers Flashcards
What are the 4 steps in calculating a CETV?
Step 1. Calculate preserved pension at date of leaving.
Step 2. Revalue preserved pension to the schemes NRA.
Step 3. Calculate the capital cost of buying the revalued pension at schemes NRA.
Step 4. Discount the cost back to date of calculation, ie now.
What 3 factors could affect the CETV?
- An increase in revaluation rates means larger pension therefore a larger capital lump sum needed, therefore it will increase the TV.
- An increase in annuity rates will mean lower lump sum needed therefore reduce the TV.
- An increase in the discount rate assumes fund will grow faster therefore reduce the TV.
What are the 4 steps in calculating a TVAS?
- Obtain members preserved benefits in the scheme.
- Revalue these to the schemes NRA or members SRA.
- Calculate the capital value of the benefits payable using FCA specific annuity rates.
- Calculate the investment return requires AFTER CHARGES to allow the CETV to equal the fund required to match benefits of ceding scheme.
What are the 2 key differences in calculating a CETV & a TVAS?
A CETV calculates to the schemes NRA whereas a TVAS could be the scheme NRA or the members SRA.
A TVAS uses FCA specified annuity rates.
What are the 4 reasons why the CY may be achieved but the pension paid may be less than that of the ceding scheme?
- Inflation may have been higher than assumed.
- Annuity rates may be lower than assumed.
- The schemes funding position may have improved therefore paid discretionary increases.
- Charges in the new scheme may have been higher than expected.
State at least 8 pieces of information a TVAS must include.
Transfer quote (inc. guarantee period, pre/post 88 GMP, revaluation rates, PLCS arrangements).
Spouse, dependants & childrens pensions.
Early retirement provisions, inc. ill health.
Lump sum death benefits.
Relevant earnings.
Period of service.
Scheme details, inc. future plans.
Funding status of scheme.
Financial strength of employer.
Any discretionary increases & whether included in TV.
Schemes can reduce members TVs. But what two conditions must they meet to do this?
- They must notify members.
2. They must justify the reductions.
Explain the process of a transfer out of a DB scheme?
Member: Request CETV.
Scheme: STATEMENT OF ENTITLEMENT issued, which includes £scheme benefits, CETV, date by when un reduces CETV possible, guarantee date, state need for advice.
Member: Written confirmation that TV required. Advice evidence supplied.
Scheme: Check advice received & check with FCA register. Written confirmation if member has CO benefits. Check receiving scheme will accept TV. Due diligence on receiving scheme. Pay out TV.
Explain the auto-transfer process.
- Pot Flagging (member info input- Name, NI, Employer etc)
- Pot Matching (member joins new scheme, exact match needed of personal info)
- Contact Member (explains process- phase 1 opt in, phase 2 opt out)
- Pot Transfer (receiving scheme contacts ceding scheme, electronic transfer)
What 4 criteria must be met for the auto-transfer process to be used?
- MP workplace pension.
- 1st contribution on or after 1st July 2012.
- £10,000 max fund value.
- In default charge-capped fund.
What 9 factors should be considered when advising on transfers between DC schemes?
- Loss of any guarantees (eg GARs)
- Loss of any protected PCLS in excess of 25%
- Charges comparison & if new scheme higher, justification needed
- Why stakeholder not appropriate
- Any MVR on WP funds
- Clients ATR
- Are additional fund choices in new scheme going to be used?
- Can the existing scheme offer sufficient fund choice?
- Ensure client knows there’s no guarantee that funds will perform better
