Technical questions Flashcards
What is the Virgin Media case known for?
It is a significant pensions law decision affecting DB schemes contracted out of the additional state pension between 1997 and 2016.
What ruling did the CoA make regarding amendments to DB schemes during 1997-2016?
Any amendments made during that period are void unless the scheme actuary provided confirmation through a Section 37 certificate.
What are the implications of the Virgin Media case for trustees and employers?
- Past amendments may be invalid - potentially leading to higher benefits for members than previously assumed.
- Possible significant funding shortfalls - as employers may need to cover unexpected liabilities.
- Legal and regulatory uncertainty - schemes now having to assess whether they have valid actuarial confirmation for past amendments.
What is the presumption of regularity? Is it considered safe under English law?
Presumption that assumes that required formalities were followed unless proven otherwise. No, it is not considered safe under English law - it is considered risky.
What is the current status of regulations concerning the Virgin Media case?
The DWP is considering whether to introduce regulations to retrospectively validate scheme amendments.
What do DB pension schemes provide?
A guaranteed pension based on salary and service. The employer bears the investment and longevity risk in DB schemes.
Who bears the investment and longevity risk in DB schemes?
The employer.
How do pension contributions work in DC schemes?
Both employer and employee contribute a fixed percentage of salary, and the final pension value depends on investment performance. The employee bears the investment risk.
What can be done with a surplus in a DB pension scheme?
- Improve member benefits
- Reduce employer contributions
- Refund to the employer (subject to scheme rules)
What are key considerations for employers regarding DB scheme surpluses?
- Whether scheme rules allow a refund
- Potential tax charges (refunds are taxed at 35%)
- Trustee approval and member impact
What are the key risks a pensions lawyer would need to assess during due diligence in a corporate transaction?
Pensions lawyers will need to review:
* Legal structure and governance of the pension scheme (they’ll need to check the scheme governing docs such as the trust deed and rules, and any agreements related to the pension schemes - eg funding agreements and insurance contracts - for any legal issues.
Is there any DB?
Would virgin media be a concern?
* Compliance with pension regulations - for example is it AE compliant
* Rights of employees and obligations of the employer
What does TUPE stand for?
Transfer of Undertakings (Protection of Employment) Regulations.
How does TUPE affect pension rights in DB schemes vs DC schemes?
DB pension benefits do not have to transfer. With DC schemes, the new employer must provide a minimum level of pension contributions.
What are the biggest challenges pension schemes face in delivering value?
- Establishing a clear framework for assessing value for money
- Balancing investment decisions
- Compliance with multiple regulatory requirements
What recent changes could affect trustee discretion over lump sum death benefits?
Recent IHT changes may broaden the scope of IHT, making some lump sum payments taxable.
What are superfunds?
New pension funds designed to take over DB pension schemes from their original sponsors.
What is the purpose of superfunds? Give me an example of one
To consolidate pension schemes for more efficient and sustainable management. It offers an alternative to traditional insurance buyouts by providing a secure environment for pension schemes that may not be able to afford a full buyout.
EG: Clara-Pensions which operated by accepting transfers of pension schemes from employers, thereby relieving them of their pension liabilities. The superfund then manages these schemes with the goal of achieving a buyout with an insurer over time.
What are the key options for decumulating a DC pension?
- Annuities - provides a guaranteed income for life, offers security but less flexibility. Offers a traditional option for those seeking stable, predictable income in retirement
- Income drawdown - allows retirees to withdraw funds flexibly from their pension pot, with income depending on investment performance.
- Blended solutions - combines annuities and drawdown products offering both guaranteed income and flexible access to funds.
- CDC schemes - these pool members’ pension pots and provide income based on collective investment strategies.
- Target-Date Funds - automatically adjust asset allocation based on the members age, facilitating a seamless transition from accumulation to decumulation.
What do annuities provide?
A guaranteed income for life.
What is the role of TPR in the UK pension industry?
Oversees work-based pension schemes and ensures compliance with regulatory standards.
What are Barber rights?
Rights stemming from a 1990 ECJ case requiring equal retirement ages for men and women in occupational pension schemes.
What are auto-enrolment obligations for employers?
Employers are required to:
* Automatically enrol employees
* Contribute a minimum of 3% of qualifying earnings
* Provide information on pension options
What is the total minimum contribution required for auto-enrolment?
8%.
Buy in vs buy out pension schemes
Both are risk transfer solutions. Buy outs represent the ultimate end game for DB pension schemes, while buy ins are often an interim step.
- A pension buy-in involves an insurance company taking on responsibility for paying some or all of a pension scheme’s liabilities, while the scheme retains ultimate responsibility. The insurance policy becomes an asset of the scheme.
- A pension buy-out is more comprehensive, with the insurance company taking on full legal responsibility for the pension liabilities, completely removing them from the scheme sponsor’s balance sheet. Members’ benefits become direct obligations of the insurer, effectively ending the employer’s involvement with those pension obligations.
