Retirement Topic 1 - Political, Social and Legal Aspects of Pensions

Question 1

The gov. is responsible for the pension legislation, but the 2 regulators – FCA and Pensions Regulator – are in charge of

Answer 1

monitoring and implementation

Question 2

Non-state pensions can be separated into 2 categories:

Answer 2

• Defined-benefit – type of occupational scheme, and the benefits are based on an employee’s length of service, scheme rules and salary and should not be affected by anything else.
• Defined-contribution – may be occupational or personal, where benefits are based on amount of money in the fund

Question 3

Pensions Act 2015 introduced 2 important aspects

Answer 3

allowed individuals to access their pension savings without the need for a minimum level of secure income, and where everyone with a defined benefit scheme was offered free impartial guidance on what to do with the money.

Question 4

TPR statutory objectives

Answer 4

• Protect benefits of members of occupational schemes
• Protect benefits of members of personal pension schemes where employees have direct payment arranged
• Promote and improve understanding of good pension administration
• Reduce risk of situations arising that will lead to compensation payable by the pension protection fund
• Maximise employer compliance

Question 5

TPR’s powers fall broadly into 3 categories

Answer 5

• Investigating schemes to identify and monitor risks – all schemes must make regular returns and keep TPR updated with any changes or difficulties in paying into the scheme
• Putting things right – requiring specific actions to be taken, recovering unpaid contributions, assessing trustee and their abilities and imposing fines
• Acting against avoidance – Preventing employers from making contributions, done by sending out notices, financial support and restoration orders

Question 6

Pension protection fund

Answer 6

Protects members of private sector defined benefit schemes whose employers become insolvent.

Question 7

PPF ensures that a pension fund whose company who went insolvent and didn’t have a full funded pension if topped up by the core promises. People receive 100% of the pension in compensation if:

Answer 7

• They have reached the original schemes pension age
• Are below pension age but in receipt of survivor’s benefit
• Below pension age but already in receipt of pension due to ill health

Question 8

Financial Assistance Scheme (FAS)

Answer 8

Administered by the PPF and is for employees whose scheme is not covered by the PPF.

The maximum 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.

Question 9

Prior to 6 April 2006, occupational pension schemes had to be set up via trust, but nowadays this is not the case. Occupational schemes can be set up using different methods:

Answer 9

• Trust
• Contract
• Board resolution (Scotland)
• Deed poll

Question 10

Contract-based schemes

Answer 10

• Between employer and employee
• Either group personal or stakeholder

Question 11

Deed poll:

Answer 11

• Known as ‘board resolution’ in Scotland
• Appoints provider as scheme administrator, meaning no trustees are needed
• This has no significant changes for scheme members
• Benefits paid free from IHT, and member can choose who receives benefits under trust

Question 12

Key duties of a pension scheme trustee - moral duties

Answer 12

• Acting in line with trust deed
• Being aware of their legal duties and responsibilities
• Being familiar with all relevant documents and information
• Acting responsibly, honestly and in the best interest of the beneficiaries
• Not making personal profit at the expense of the scheme

Question 13

Pension scheme trustee responsibilities - what they do as a trustee

Answer 13

• Arranging appropriate training and keeping knowledge up to date
• Making sure benefits are paid on time and correctly
• Ensuring annual report is prepared
• Obtaining auditors statement confirming details of contributions paid
• Ensuring fund is invested in line with schemes investment principles
• Ensuring full and accurate records are kept
• Ensuring members are provided with information about anything
• Registering the scheme and arranging completion

Question 14

Pensions and divorce can be arranged in 3 ways

Answer 14

• Offsetting – splitting assets in such a way that the cash value of the pension is given to either spouse in the form of assets rather than keeping the pension and having to remain in contact
• Earmarking – the court allocates a % of the fund to the other spouse, so upon crystallisation, the other spouse receives some. This has a number of downsides, such as no clean break, scheme member decides when to crystallise, if the scheme member is a higher rate taxpayer, then additional tax is charged which cannot be reclaimed for the other spouse and income benefits may be lost.
• Splitting (sharing) – where the court decides what % the split will be and transfers that amount to a new, separate pension to the ex-spouse. The transfer does not count as the recipient’s annual allowance but counts as part of the lifetime allowance.

Question 15

What happens to a pension in a bankrupt’s estate

Answer 15

it is excluded from the estate