Political, Economic, and Social Environment Factors Which Provide Context For Pension Planning Flashcards
What is the current state pension pension age? And how will this change?
- 66
- Between 2026 to 2028 it will increase to 67
- Between 2037 and 2039 it will increase to 68
Who is responsible for the implementation of pension legislation?
- The pension regulator
- The Financial conduct Authority
What did the pensions act 2004 introduce
A response to the worsening pension crisis.
* The Payment protection Fund
* Regulatory repsonsiblity to newly created Pensions regulator*
*From the Occupational pensions regulatory Authority
What did the pensions act 2015 introduce?
Pension freedom reforms
* Allowed individuals the ability to access their pension savings without the need for a minimum level of secure income
- ‘guidance guarantee’ - free, impartial, retirement advice for DC scheme members
When was A-day?
April 6 2006
This date marked a significant overhaul of the UK’s pension system, introducing simplified rules and new limits on contributions and benefits. The reform aimed to consolidate various pension schemes into a more straightforward system, affecting both personal and occupational pensions.
In relation to Pensions, the FCA…
- Regulates personal pensions and certain small company schemes
- Sets out rules and guidance for the sale and operation of pensions to retail customers, whcih are covered by the conduct of business rules
The pension regulators powers fall broadly into what three categories
- Investigating schemes to identify and montior risks
- Putting things right - requiring specific action be taken by certain deadlines, imposing fines, prosectuting etc.
- Acting against avoidance
The Pension protection fund - what is it? What does it do? What does it apply to?
Established under the pensions act 2004
* Pays out to members of a defined benefit scheme in the event their employer has become insolvent.
* It is funded by an annual protection levy paid by eligible pension schemes, returns on PPF investments, and monies recovered.
People receive 100% of the pension in payment if:
* Have reached the schemes normal pension age
* Below normal pension age but in receipt of** survivor’s benefit**
* Below normal pension age but already in receipt of pension due to ill health
People who have not reached the schemes normal retirement age receive 90%
How does the benefit received from the PPF increase each year?
- Time between insolvency and compensation - in line with inflation up to 5%
- Once in compensation - increased each year by thte CPI or max 2.5%
- those with 21 years of service or more - increased to 3% for each full year above 20 years
DB schemes not protected by the PPF can receive compensation from…
The Financial assitance Scheme (FAS)
* Max claim is 90% of the pension entitlement at the date of wind-up
* Less any pension in payment from the scheme
* subject to a cap
* Accrued pension will increase by the CPI up to 5%
What is the minimum percentage of scheme trustees to be nominated by the scheme members?
One third
In what ways can a scheme be set up?
Under a:
* Trust
* Contract
* A board resolution (scotland)
* A deed poll
How are most occupational schemes set up?
Under trust
How can ‘work-based’ schemes be set up?
- under a master trust or a deed poll
Many personal pension arrangements are set under…
- A deed poll (board resolution)
- The provider is the scheme administrator
- Therefore no trustees are needed
- Not under trust - but death benefits are usually paid free from inheritance tax
Duties of the trustees
- acting in line with the trust deed and rules
- Being aware of their legal duties and responsibilities, and having knowledge and understanding of the law relating to pensions and trusts, the funding of pension schemes and the investment of scheme assets
- Being familiar with pension scheme documents, including the trust deed and rules, and the statements of investment and funding principles
- acting impartially, prudently, responsibly and honestly, and in the best interests of scheme beneficiaries
- acting in a way that a prudent person would in their own affairs
- not making personal profit at the expense of the scheme, other than as a member taking benefits.
List the three ways pensions can be distrubted in a divorce
- Sharing
- Earmarking
- Offsetting
Trustee responsiblities include:
- arranging appropriate training on appointment and then keeping knowledge updated;
- making sure that the correct benefits are paid at the right time; ensuring that an annual report is prepared;
- obtaining an auditor’s statement confirming details of contributions paid, and arranging an audit of the scheme accounts (if required);
- ensuring that the fund is invested in accordance with the scheme’s investment principles and pension legislation;
- ensuring that full and accurate records are kept of past and present members, scheme transactions and trustees’ meetings;
- ensuring that members are provided with information about the scheme and their personal benefits;
- registering the scheme and arranging completion of the scheme.
Divorce: Pension offsetting
- This is where the CETV/transfer value of the individual’s pension is calculated and used to offset the value of other assets within the divorce estate
- The assets are split but the scheme member may retain their pension - their ex-spouse keeps other assets to the same value
- Offers a clean break
Divorce: Pension Earmarking
This is where the ex-spouse retains rights over a court ordained percentage of the member’s pension benefits
- Does not offer a clean break
- Scheme member decides when to crystalllise
- Ex-spouse cannot reclaim higher or additional tax relief
- Income benefits may be lost on death of member
- Benefits may cease on re-marriage
- No control of investments
Divorce: Pension splitting/sharing
CETV is used to assess the value of the fund, the court then splits on a percentage basis between the two parties, taking into account other assets
- Each party will then have their own seperate fund and can take benefits when they wish (within normal rules
- The credit to an ex-spouse is not treated as part of their annual allowance but will count towards their lifetime allowance
Pensions and bankruptcy
- The trustee in bankruptcy (TIB) has no claim on any rights under a registered pension scheme. The rights are excluded from the bankrupt’s estate.
- If the court fdecides that excessive contributions have been made to a pension scheme to avoid the assets being included, it can order the pension provider to make a payment to the trustee in bankruptcy.
- Bankruptcy cases before 2000 - pension part of assets
** TIB can obtain income payments from pension**
