PCLS and primary protection - how to work out using £500k as previous PCLS at a day and taking bens now
Previous PCLS x (1.8m/1.5m=1.2)
500k*1.2 = 600k = now entitled to 600k PCLS when drawing benefits in 20/21
Role of the Pensions Regulator - established to, main purposes (2), key responsibilities (5), principle aim and how do they do this
Pensions Regulator established to support aims of DWP. Main purpose is to regulate work based pensions and support employees through auto-enrolment compliance. Key responsibilities are to;
- ensure employers auto-enrol staff
- protect peoples savings in workplace pensions
- improve way that workplace schemes are run
- reduce risk of schemes ending up in PPF
- ensure employers balance need of DB schemes with their growing their business
Principle aim is to prevent problems from developing and takes a risked based and proportionate approach whilst trying to minimise burden on regulated community.
TPR and Gathering Information - why they do this, sources of info for ‘gathering information’ (7) and info sharing
TPR has range of powers to protect workplace pensions and DB schemes with the first being Gathering Information. They gather information to identify and monitor risk and these include;
- employers declarations that they comply with workplace pension duties
- scheme returns
- whistleblowing reports
- funding documents from DB schemes
- notifiable event reports
- research and analysis work
- thematic reviews
When allowed TPR will share info it gathers with other bodies
The Pensions Regulator cont - Regulation and enforcement action (actions, 6),
Acting against avoidance - what is it and acts to… (2), what can they issue (2, what are then and when can start procedure).
Clearance procedure - what is it, TPR will not… and relevant for who
Regulation and enforcement action - range of actions it can take to protect members benefits;
- issue an improvement or third party notice that requires specific action to be taken in specified time.
- take action on behalf of the scheme to recover unpaid contributions from employer if due date has passed.
- stop individuals not deemed as fit and proper from acting as scheme trustee.
- fines for breaches of law.
- prosecute certain offences in criminal courts.
- appoint trustee to scheme for it to run more effectively.
Acting against avoidance - if they believe employer is attempting to avoid pension obligations and get PPF to pick up liabilities, it can act to protect benefits and reduce PPF’s exposure claims for compensation. Can issue;
Contribution Notice - direct employer to pay amount of statutory debt either to the scheme or the PPF. TPR can start procedure for CN up to 6 years after act or failure took place.
Financial Support Directions - require financial support to be put in place for underfunded scheme where TPR concludes that employer is a service company or insufficiently resourced. Can start this process up to 2 years after relevant time (TPR’s own choosing).
A clearance procedure is available to employers who do not want to subject to TPR’s anti-avoidance powers. Does not mean that TPR approves but will not issue contribution notices or FS directions. Relevant for employers considering transactions that are detrimental to DB Pension Scheme.
FOS - refresher card - eligible complainants (7), what complaints cant they deal with (2), complaint to who first and response times, referring to FOS timescales (2) can award (3+ other bits on top)
Eligible complainants
- Consumer
- Charity with income of £6.5m
- trustee of trust with net asset value of £5m
- enterprise with fewer than 10 empl and turnover of £2m
- borrower under consumer buy to let credit agreement
- small business with turnover of less than 6.5m and fewer than 50 empl or balance sheet of less than £5m
- guarantor
Can’t deal with complaint for occ scheme or personal pension set up by employer and complaint is about employer or admin of that scheme.
Must be raised with business first and have to respond in 8 weeks. If unresolved, can refer matter to FOS and must do within
- six months of business issuing final response letter
- six years from the event consumer complained about (if later, 3 years from when consumer knew about it)
If FOS upholds can issue directive or monetary award;
- on or after 04/19 = £350k
- event before 04/19 but complained after - £160k
- before 04/19 - £150k
And interest, cost and interest on costs are awarded separately.
The Pension Ombudsman - what bodies can it consider complaints against (2), maladministration (what is it and includes 7, straightforward), cant deal with complaints about (5), can deal with complaints from (4), what can it also help with and compensation limit
Can consider complaints against the actions or decisions of the PPF and Financial Assistance Scheme.
Deals with how pension schemes are run. Known as maladministration and includes;
- taking too long to do something without good reason
- failing to do something it should have
- not following own rules or law
- breaking a promise
- incorrect or misleading information
- not making decisions right way
Can’t deal with complaints about;
- State Pensions, tracing lost pension, sales or marketing, type of bens scheme offers and decisions made by tribunal, court or other ombudsman.
Only investigates complaints from;
- members of pension scheme
- any relationship to member who has died
- those with pension credit in respect of pension scheme
- nominated by estate to make complaint.
Can also help with settle disputes between trustees, managers, employers from different or same pension schemes. Can look into dispute between trustees of same scheme if at least half of them refer the dispute.
No limit on what guilty party may be subject to pay to a complainant.
Pension Protection Fund - how funded (3 + 2), pay comp when (2), what requirements met for PPF to take over (5)
PPF is funded by administration, fraud compensation and pension protection levy (two components - scheme based and risk based levy). May pay compensation where;
- Employer goes bust and scheme is underfunded.
- funds have been misappropriated through fraud.
Scheme must meet requirements for PPF to take over, such as;
- not DC scheme
- not wound up before 04/05
- qualifying insolvency event must have occurred. I.e. insolvency practitioner has notified board that employer is in administration.
- no chance that scheme can be rescued.
- scheme must have insufficient assets to cover liability that PPF would take.
PPF - Insolvency event - what is it and when aim to complete and during assess period what can/cant happen (6)
Insolvency event occurs - starts an assessment period where scheme sees if it meets criteria for entry into PPF and they aim to complete this within two years. During this period, trustee remains in control but;
- no new members, benefits earned and no transfer values paid.
- benefits can be paid but only to level of PPF compensation.
- PPF can intervene on management and give directions to trustees.
- PPF can review any moral hazard issue. Employer paying someone too much just before liquidation.
- PPF will review any recent rule changes, ill-health retirements and discretionary increases granted which could lead to increase in PPF compensation.
- scheme actuary must carry out actuarial valuation at the day before assessment started.
PPF cont… -exceptions for transferring out (2), trustees may only pay if (2), when PPF assumed resp cannot transfer away unless (2) and Section 143 valuation (what is it and based on)
Usually cannot transfer out during assessment period but exceptions when;
- requested and accepted the transfer value in writing before assessment date. CETV still in date.
- have designated a scheme willing to accept that transfer value (ppw completed and submitted)
In these cases, trustees may only pay transfer value if;
- satisfied can still meet objective of ensuring protected liabilities do not exceed assets (or kept to a minimum)
- reduce the transfer payment to ensure it does not exceed the cost of securing the bens that would be payable if PPF assumed responsibility.
Once PPF assumed resp for scheme, member cannot transfer away unless pensionable service ended before start of assessment period and had less than 3 months of pensionable service in scheme.
Section 143 valuation used to determine if they are insufficient assets within the scheme. Based on theoretical cost of buying out schemes benefits via insurance company and provision of PPF compensation entitled to each member.
PPF cont 2 - Compensation levels - 100% (3), 90% (capped and reduction + 2), other (3 + payments to spouse) and long service cap (what is it, how increased and includes, 2)
100% of benefits when;
- Members have reached normal retirement age on insolvency event.
- members already in receipt of survivors benefit on IE.
- Members in receipt of pension due to ill health (up to 100% and reviewed case by case)
90% capped at £41k at age 65 (reduced in line with age if under) + long service cap members;
- Members who have retired but yet to reach schemes retirement age at IE.
- Deferred members who have not reached schemes retirement age at IE.
Other (all after IE)
- 50% for spouse Survivors benefits
- 25% for qualifying child when above also in payment (max 50% if more than 1)
- 50% for qualifying child (max 100% if more than 1)
Payments for spouse determined by rules of scheme.
Long service cap - for members with 21 years of more service with scheme. Cap is increased by 3% for each year above 20 up to a max of double the standard cap. Includes;
- individuals already in receipt of PPF compensation.
- members whose schemes were in the assessment period.
PPF - qualifying children (how, 2), deferred members valuation (pre & post 04/09), payments increased (pre & post 04/97), trivial commutation (pen flex, when can it be paid, 4)
Qualifying children - child and in qualifying education (full-time ed) or has qualifying disability (incapable of work)
Deferred members valuation - pre 04/09 - increased each year in line with CPI subject to max of 5%. Post 04/09 - as above but 2.5%.
Once receive compensation, payments are increased - accrued pre 04/97 = no increases. Post 04/97 = in line with CPI with max 2.5%.
Total commutation of bens - pension flexibilities do not apply to PPF but PPFTCLS can be paid once scheme transferred and member meets following;
- reached min pension age
- under 75
- £30k max benefits
Financial Assistance Scheme (FAS) - what is it, why does it help (4), compensation amount and what is it, capped compensation and how revalued, benefit increases (2)
Designed to assist those who have lost pension benefits through company insolvency but not covered by PPF. Closed in 2016.
Helps because;
- member of underfunded DB scheme that started to wind up between 01/97 and 04/05.
- scheme wound up and did not have enough money to pay members benefits.
- employer could not pay shortfall due to insolvency, no longer exists or no longer has commitment to pay debts
- scheme wound up post 04/05 but ineligible for PPF due to employer becoming insolvent before this date.
FAS will pay up to 90% of the pension member has accrued before scheme wound up. Compensation is a top up of any pension that scheme will pay subject to max. Capped at £36k this tax year and revalued in line with CPI annually.
From date of scheme wind up to schemes NRA, accrued bens that are entitled to increase under scheme rules will;
- increases in RPI (max 5%) between wind up date and 03/11.
- increases in CPI (max 5%) between 03/11 and NRA.
Pension Scams - what is it, signs to watch out for (6), tips to protect (4) and what could happen if scammed
Practice of luring members into unregistered pension scheme with promise of higher returns and early access to cash.
Signs to watch out for scams are
- Unexpected Contact
- Time pressure - offering bonus or discount before set date or investment only available for short time.
- Social proof - sharing fake reviews or claims other clients want to invest in it.
- Unrealistic returns
- False authority - using convincing literature and websites claiming to be regulated
- Flattery - building friendship.
Four tips from TPR to help individuals protect themselves from scammers
- Reject unexpected offers
- Check who you are dealing with
- Do not be rushed or pressured.
- Get impartial information and advice
Victim loses pension fund and can be subject to significant tax penalty
Workplace Pensions - Pension Act 2008 (employers must, 3), 4 types of job holders and brief description, categorisation of workers (1 + 3 what job holder falls into what £ bracket at what age)
Under Pensions Act 2008, employers must;
- all employers must offer qualifying pension scheme
- all eligible job holders must be auto-enrolled
- employer required to pay min level of contributions
Eligible jobholders - auto enrolled employees
Non EJ - those who have right to opt into scheme
Entitled workers - right to ask to join employees
Postponement - delay of up to three months in employer assessing member of staff for autoenrolment.
Categorisation of workers
- employer must carry out assessment to determine which of these they fall into.
Rights based on earnings:
- Over £10k: 16-21 non eligible, 22 to SPA eligible and SPA above non-eligible
- £6.2k - £10k: all non eligible
- £6.2k and below: entitled worker.
Employers duties for each worker - EJ (5), NEJ (3) and EW (2)
Employer duties for each worker category; Eligible job holder - must auto-enrol onto scheme - make min contribution amount - process any opt-out notice - auto re-enrol every 3 years - keep records of auto-enrol and opt out
Non-eligible job holder
- provide info on right to opt in and if they do;
- arrange scheme membership
- point 2, 3 and 5 above
Entitled workers;
- provide info on right to join scheme and if they decide to join they must keep records of this.
- no requirement for employer to make contribution in this case.
Workplace Pens cont…
- Postponement - what is it and features (3)
- Exceptions - when do duties not apply (5), when does auto enrol not apply (explain + 2 examples)
Postponement - choosing this allows employer to defer date as to when it assesses a worker as follows;
- period can be within 1-3 months
- date assessment carried out after ppt is known as deferral date
- can choose to use it for one, some or all workers.
Exceptions - sometimes duties do not apply or are changed for each worker type. May be the case when;
- worker who has opted out or ceased membership of scheme
- worker who has given or been given their notice
- employee believes worker has transitional protection (HMRC certificate need)
- worker who has been paid a winding up lump sum and ceased employment after this and then re-employed.
- worker who meets definition of qualifying person.
Auto-enrol does not apply when person or company not considered an employer e.g.;
- sole trader with no other staff
- directors and only one or none have employment contract
Automatically enrol all eligible jobholders - autoenrolled unless (2), joining window (how long and when starts), steps to joining window (3 with exp) and sal sac + auto enrol (3)
Must be auto-enrolled unless;
- already active member of qualifying scheme or meet any of the 5 exceptions.
Joining window is six week period that starts from EJ auto-enrol date. Various steps;
- Provide info on EJ to scheme - employers responsibility to gain membership for employee and does so by providing info on EJ in writing before joining windows ends.
- Give enrolment info to EJ - employer must provide info within joining window that tells them; confirmation of auto-enrolment, right to opt out and opt back in. This must be in writing and provided by someone other than the employer.
Last step is to make arrangements to achieve active membership for EJ
Sal Sac;
- Separate to auto-enrolment process by can be run alongside
- if declined must still place them in auto-enrolment and contributions paid alternative method.
- If using DC scheme, qualifying earnings used to meet min requirement are post-sac level of salary
Minimum contributions - options available to employer (2), qualifying earnings (how much and sources, 5), min contribution level.
Alternative definitions (min contribution levels and pensionable earnings (3)) and what can min it be based on?
Two options available to employer;
- base contributions on qualifying earnings
- use alternative definition (such as basic pay) and pay conts from pound zero.
Qualifying earnings are earning between £6.2k and £50k which are from the following - salary/wages, overtime, commission, bonuses and stat sick pay etc.
Min employer contribution is 3% and overall is 8%.
For alternative definitions of earnings, TPR has published 3 sets of min contributions;
- Min contribution is 9% of pensionable pay and employer pays at least 4%. Use this for pp lower than 85% otherwise set 2.
- Min cont 8% of pp and employer at least 3%. Pp must include 85% of earnings.
- Min cont of 7% of earnings at employer pays at least 3%. All earnings must be pensionable.
Min amount it can be based on is basic pay excluding all other payments (bonus, overtime etc) but this is dependant on employer definition.
Paying below min contributions - why may choose this?, characteristics (6)
Opting in - NEJ, EJ and EW (rights)
Some employees may wish to have a lower contribution level and this may be the case if employer offers flexible benefits plan. Characteristics are;
- these employees may opt out within opt out period and would get a refund of any contributions deducted.
- employers would make whatever arrangements to make emp become active member at a reduced rate if allowed.
- if not opting out, can complete docs to continue membership at lower rate.
- if above, job holders only entitled to refund of deductions if scheme rules allow.
- if choosing to drop cont levels below min level then scheme no longer qualifying for them.
- record kept of these employers as they will be autoenrolled into qualifying auto-enrol scheme.
Opting in
- NEJ has right to and done by giving notice to employer.
- EJ can opt back in if previously opted out
- EW has right to join pension scheme and does not have to be auto-enrol scheme or qualifying scheme but does have to be UK reg. Employer not required to contribute.
Opting Out - can only occur when (2), contractual enrol and EW rights, before opting out must (2, simple), when does notice period start (2),
Where member active membership of scheme is undone. Can only occur when;
- EJ may choose to opt out after auto-enrolment
- NEJ after opted in may choose to opt out.
Those under contractual enrolment and EW who ask to join do not have right to opt out and must cease membership if they want to leave.
Before opting out, jobholder must;
- have become a member under opt in or auto-enrolment
- have received enrolment info from employer
Must submit opt-out notice within one month and starts from latter of;
- date active membership of the scheme was achieved
- date received enrolment information.
Opting out - opt out valid (3), extension if invalid, once received valid opt out notice (2) and what must they do plus date (2) and leaving outside notice period
In order for opt-out to be valid it must;
- give information about job holder
- include statements and warnings
- what you need to know section with further info.
If invalid, notice period extended to 6 weeks. Once received opt-out notice, employer must undo membership and jobholder treated as though they were never a member.
Employer must refund any contributions that have been deducted from pay by the refund date which is either;
- within one month of opt-out notice
- next available pay roll if closed before opt-out notice.
If want to leave but outside opt-out period, they cant and must cease membership.
Automatic enrolment pension scheme - how might large employers set up scheme and best way for smaller employers.
Comparison of NEST & People’s Pension - nest obligations and why and PP rebate
Larger employers can set up individual scheme for workforce and possible as level of contributions will allow provider to offer attractive charging structure and allow provider to cover costs. For smaller employers, multi-employer scheme under master trust is best way ton go.
Two most popular multi-employer schemes are NEST (Gov run) and PP (non profit for construction pensions). NEST has obligation to accept all business no matter what size as Gov needs to ensure one scheme available that meets auto-enrolment requirements.
PP can receive rebate on AMC based on pension value;
- <6k = nothing
- 6-10k - 0.1%
- 10k-25k - 0.2%
- 25k - 50k - 0.25%
- 50k above - 0.3%
Pensions and divorce - what is offsetting and who receives greater share, of what, how does it work (3), what does it account for, LTA,
Offsetting - value of pension is offset against other assets of marriage. Ex-spouse therefore receives greater share of balance of assets for lose of their share of members pension. Offsetting works as follows;
- pension bens valued as immediate asset i.e. given lump sum value
- value then taken into account when the assets and liabilities of each spouse are considered.
- offset could be accounted for by physical asset or providing income i.e. can receive additional maintenance or income.
When pension being offset against other income or capital, higher figure may be used as offset figure to account for tax liability. No impact on LTA.
Pensions and divorce - Valuation of bens
DB - how valued, what taken into account (3) and trustees
DC - how shared, as above (3)
Valuation depends on type of scheme;
DB - CETV used to esta gross value of bens. Following taken into account when determining amount of offset;
- ex-spouse will no longer gain benefit or TFC once it comes into payment
- ex-spouse no longer receives spouse’s pension if member predeceases them
- loss of death in service benefit
Benefits are paid are trustees discretion.
DC - loss to ES is done by agreeing % or division of fund value which takes into account;
- Loss of pen bens - value to ES based on cost of buying bens accrued to date and takes into account may die before retirement.
- Loss of spouse’s pen - mortality tables are used to determine life exp of each.
- Loss of death in service LS - only paid if die before bens taken and not certain that bens paid to ES as at discretion of trustee.
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Chapter 1 - Context Of Pensions Planning14
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Exam Extras17
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Chapter 10 - Retirement Planning Considerations16
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Chapter 9 - State Schemes11
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Chapter 8 - Flexible Income Options13
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Chapter 7 - Secured Pension Options16
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Chapter 6 - Defined Contribution Schemes18
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Chapter 5 - Defined Benefit Schemes38
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Chapter 4 - Pensions Regulation36
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Chapter 2 - HMRC Tax Regime: Contributions & Annual and Lifetime Allowances34
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Chapter 3 - HMRC Tax Regime: Benefits, Reliefs & Overseas Schemes35
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Chapter 2&3 Quick Rerun13
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Chapter 5 Rerun14
