Regulation Of Pension Funds Flashcards
The Pensions Act 2004 introduced a number of developments in relation to occupational pensions.
What are these?
PART 1
- Creating The Pensions Regulator (TPR) with objectives, these are:
A. Protecting benefits of members of occupational schemes and personal pension schemes - whether there is a direct payment agreement (ensuring they receive the pension they should)
B. Reducing the risk of situations arising that could lead to calls for compensation from the Pension Protection Fund (PPF) I.e. making sure the schemes don’t fail
C. Promoting good administration in the schemes that regulates. (Well run and follow all the rules)
A Pension Regulator is an organisation that oversees pension schemes to ensure they’re running properly.
The Pensions Act 2004 introduced a number of developments in relation to occupational pensions.
What are these?
PART 2
- Introducing the PPF:
A. to provide compensation where the sponsoring employer of a defined benefit (DB) pension scheme becomes insolvent and the scheme is unable to pay its liabilities.
B. The PPF covers up to 100% of benefits for existing pensioners and up to 90% of benefits to those who have not yet retired.
C. The PPF is funded by a levy (small fee) that all DB pension schemes must pay.
The Pensions Act 2004 introduced a number of developments in relation to occupational pensions.
What are these?
PART 3
- Introduction of a scheme-specific funding requirement. These are rules for how pension schemes should manage their money to make sure they can pay pensions in the future.
For Defined Benefit (DB) pension schemes, trustees (the people in charge) need to do the following:
A. Prepare a statement of funding principle specific to each scheme. Set out how the statutory funding objective is going to be met. (Plan to pay pensions)
B. The statement of funding principle should be reviewed every three years.
C. Obtain periodic actuarial evaluations and actuarial reports. (Reports to check if the scheme’s money is enough to meet its future pension payments)
D. Prepare a schedule of contributions. (How much money employees should receive)
E. Put in place or recovery plan with the statutory funding objective is not met
What are the some of the enhancements in Pension Schemes Act 2021?
- Enhanced enforcement powers for the TPR:
A. includes new criminal offences
B. additional DB scheme funding requirements (how pension funds are managed by companies)
C. Change to transfer rights/ moving pension
D. New climate change risk governance requirements. (How this affects pension)
E. Legislative framework for collective money purchase pension schemes.
With regards to criminal offences, what are some of the enhancements in the Pensions Schemes Act 2021?
- Gives the Pension Regulator the ability to issue civil penalties of up to £1million in certain circumstances.
- Imposes additional obligations to notify certain corporate activity to the regulator and trustees.
These changes largely affect DB schemes
With regards to climate risk-related governance and reporting requirements, what are the regulations under the Pensions Schemes Act 2021 that trustees will have to follow?
- Trustees must monitor and manage climate risks and opportunities relevant to their pension scheme.
- They need to assess how these climate risks could affect the scheme’s investments and funding strategy in the short, medium, and long term.
- Trustees must carry out a triennial scenario analysis considering climate factors, including at least two scenarios with different global temperature increases.
- They must have processes in place for identifying, assessing, and managing climate-related risks.
- Trustees must set targets for at least two emission-based metrics and one additional climate metric, and measure performance against these target(s) annually.
- Trustees need to publish an annual report detailing their climate risk strategy, signed by the trustee chair and posted on the scheme’s website.
- The regulator can fine trustees for non-compliance, up to £5,000 for individuals and £50,000 for corporate trustees.
These requirements apply to:
A. Schemes with £5 billion or more in assets, all authorised Master Trusts, and authorised collective money purchase schemes from 1 October 2021.
B. Schemes with £1 billion to £5 billion in assets from 1 October 2022.
The UK government established MoneyHelper. What is this?
- A pension and financial advice scheme.
- Aimed at consumers as well as a Pension Ombudsman Service
- It was set up to investigate complaints about pension administration
What is a Pension Ombudsman Service?
- The Pension Ombudsman Service helps resolve complaints about pension schemes.
- If you’re unhappy with how your pension is being managed, you can ask them to look into it.
- They offer a free and fair way to settle issues, like problems with pension benefits or decisions made by pension providers.
Occupational pension vs personal pension schemes. What are they?
- An occupational pension is a pension scheme set up by an employer for their employees. The employer and employee both contribute to the pension, and the pension is usually based on the employee’s salary and years of service.
- A personal pension is a pension plan that an individual sets up and manages themselves. It’s not tied to an employer, and the person makes their own contributions, often with the option to choose where the money is invested.
What is a DB Pension Scheme?
- Comes under Occupational Pension Scheme
- A DB scheme is a Defined Benefit scheme
- They are usually set up by employers for their employees as part of an occupational pension plan.
- The employer contributes to the pension fund and usually guarantees a certain retirement income based on salary and years of service
What are collective money purchase pension schemes?
- Many people’s pension savings are pooled together.
- Instead of each person managing their own individual pension pot, the money is invested as a group, and the aim is to provide a steady income for everyone in retirement.
- The contributions are set by the employer and/or employee, but the actual retirement income depends on how well the investments perform.
- The key difference from other pension schemes is that the risk is shared by everyone in the group, rather than being the responsibility of one person or the employer alone.
