Defined contributions personal stakeholder and group
Personal - these are individual dc arrangements with a with profits or unit linked they can get them at age 55
Group personal and stakeholder - low closer personal pension subject to minimum standards ie investment choose contributions and charges
Grow up personal and stakeholder - may look similar to occupational pension scheme each has their own arrangement that belongs to them
Retirement annuity contract
- some offer a GAR
- can benefits payable on death before retirement spend on the rules the funds may be returned as a lump some can have restrictions ie
- no return
- return of contributions with interst
- return of contributions without interest
Occupational defined contribution schemes
They are not the same as personal ones as the employer selects who is eligible what the contribution rates are and the age to which the company will make contributions.
As well as large defined contribution schemes there are various designs for high employees and directors for transfer purposes
Employee dc schemes - section 32
- section 32 policies were prior to a day designed to accept benefits transferred in from an occupational pension scheme.
The email reasons for transferring to this rather than a personal pension were: ;
- the guaranteed minimum pension liability from a contracted out defined benefit scheme could be secured within the section 32, meaning that the section 32 provider had to gatuntee to provide benefits at least equivalent to the Guaranteed minimum pension at the members state pension age:
- the maximum benefits that could be provided by the section 32 are subject for the occupational pensions scheme rule rather than the undock usual pension shame rules. This meant that in some circumstances the member could achieve a higher tax - free cash and or a lump sum death benefit
- they can still be taken if a contracted out occupational pensions scheme is being wound up. But mostly they are precious ones
Occupation defined contribution - executive and SSASs
EPPs - they are set up to give higher benefits with higher contributions rates.
SSASs - they are small self administered scheme that are set up by directors of a company. They have less than 12 members all of which must be trustees. They offer a separate pension option for directors and senior employees due to their special additional features and in particular the investment options they provide. SIPPs and SSASs have a lot of features on common they have some important differences
Target money purchase
Targeted money purchase schemes are hybrid schemes with features common to both defined benefit and other. An acturary provides an a lint of contributions needed to hit a target benefit. These benefits are not garunteed and are based on the contorbitions sale art and assumed rates.
Unallocated funds of additional employer top ups can fund the target.
The employer has not promised the target so can avoid phoning for these benefits if the assumptions are not met.
Early leavers would only be entitled to the preserved benefit of the defined contribution element.
- when for the employees that stay the employer may chooS to disconnect from the funding target and treat the shame as conventional defined contribution.
- discconetjon would affect the people close to retirement in terms of expectations
SIPP Vs SSAS
- SSAS is an occupational defined contribution and is governed by a Trust.
- A SIPP is an individual pension and is therefore set up under contract.
- SSASs allow employers to define who is eligible and can only include some people whereas SIPPs are for anyone
- SSASs don’t require illustrations
- SSASs require more administration
- SSAS can only invest in what the trustees want and have a collective pot
-SSASs can lend up
Tk 50% of its net sssets
-SSAS are regulated by the pensions regulator
-Ssasas are governed by a trust deed and scheme rules but SIPPs are set up as an individual contract between the member and the provider
SSASs are occupational
Trust based and contract based
Employers can set up a pension through on a trust base or a contract base. The floater is theoufb a provider.
Contract based schemes take the earnings once tax and insurance have been paid and then gross up the contributions automatically. Higher rate tax payers then need to claim this back through adjusting their tax code. trust ones allow for tax relief immediately
Contact based pensions do not have the trustees working with employers. The employers often think that trust based allows the trustees and their expertise to pick the investments and also allows for a close realtionship
Master trust
TPRs definainrjlk of a master trust is that of an occupational shcme that
- provides defined contribution benefits
- not A public sector scheme
However Each employee has its own devision.
There is only one trustee board who pick the investments and one entity and this means they make decisions and provide the governance and structure.
- the benefits are that they don’t need to set up lots of schemes. The employer doesn’t have that cost. The members who are from auto enroll went can use their existing trustees
Benefits :
- only one group of advisers needed for the scheme even though there’s lots of emlpyers.
- there is one board of trustees
Setbacks
- many of the trustees have representation for the insurer parent meaning there is a conflict. The other employers are unlikely to have trustee representation
Master trust requirements TPR
- TPR requires mast trusts to show all individuals being assessed are fit and proper ie integrity
- scheme funder - any scheme founded must have been a corporate entity.
- systems - must have it systems in place to comply with all the schemes
- financial - must have enough money to prove it can operate
On a day to day basis. - continuity - must have plans in place to prove what it will do to wind up the shame if they can’t continue
Each master trust has to prove TOR with all the evidence ro show it meets the criteria
- TPR can withdraw authorisation If if feels like the scheme can no liner meet the necessary rule
Legal
- the TPR and FCA share regulatory responsibilities
- TPR sets o her standards for the occupational schemes to show;
-the core financial transactions have been completed
- explain how the they meet the requirements
- meet the governance requirements for default arrangements ir peroarinf a statement of investment principles did the default arrangements - default funds I imagine that included the amour of financial considerations including environmental social and governance factors. It also includes ensuring that the strategy and performance are reviewed at least every third year at least.
- they also need to explain that they have done this in an annual chair’s statement signed by a selected chair that they need to choose.
- if the scheme js being used for auto enrolment it has to
Follow charge controls to be a qualifying scheme
Charge control
- they must be kept within 0.75 if simply for funds. They are mainly the default fund.
- one member schemes are excempt from the cap.
- if a fund is below 100,000 they should not pay for communications, it costs, investment managers, professional services such as actuaries and lawyers - active members receiving a discount in auto enrolment is banned
Multi employer schemes - including master trusts
- relevant multi employer scheme law are those in which all of the employers using the scheme are not connected to one another.
- these have to have 3 trustees ie where there is a corporate trustee in place that is not a professional body there must be 3 directors. The majority of the trustees and the chair must not be affiliated with any company that provides advice ir investment to the scheme.
Non affiliated trustees must be appointed to the scheme in an open and transparent way
- trustees need to encourage scheme members or representatives to make their views known on matters that affect them. The trustee roles must also be advertised.
I’ll health
- schemes can set rules for I’ll health.
- if someone only has. A year to live they can apply for a serious I’ll health lump sum.
- Only uncrystallised can swap for UFPlUS PCLS or a small po
Pension contributions - I’ll health
Instead of paying contributions during a period of incapacity or unemployment an individual may take out pension contribution insurance.
This means that they will review contributions when they can not work but are not I’ll enough to claim I’ll health retirement.
The contribution is usually £3,600 pa gross to ensure that the full amount is eligible for tax relief. Payments will begin after a specified date usually 26 weeks
Waiver of contribution
- the contributions are lid directly into the personal pension plan.
- in the event of a claim no further contributions will fall due during the waiver claim period.
- the pension provider undertakes a commitment to pay the value of the pension benefits on retirement transfer or death as if pension contributions has continued through to the period of the claim. They can continue after post 2001.
Income protection insurance or permanent health insurance
An alternative is PCI or waiver of contribution an individual or employer may choose to take out income protection insurance also called permanent health insurance.
- purchased bu the individu is not a relevant earning so a £3,600 limit applies for tax relief. Employers are classed as income so can claim tax relief over £3,600 - helps to allow the member to have a pension when they fall I’ll
Group death in service schemes
- an employer may chose to contribute to a spectate insured death in advice while to provide a defined and reasonable level of benefits ie two times pensionable salary.
They can also allow a spouse’s civil partner or survivors pension. The cost of pricing any spouses civil printer or survivors pension is expressed as a lump sum. The lump sum then is used to buy an annuity
To keep costs low employers may offset the fund with the insurance ie when they fund is bigger they decrease the assured sum
Preserved benefit
- more than 30 days they have short service benefit and is classed as a preserve benefits.
- they may have to pay specific fees that reflects the absence of contributions.
Early cobitions can be invested in initial units which bear higher charges than units purchases by later contributions that will now not be received. These and other Addison’s l charges would mostly feature on older policies as modern contracts generally have stakeholder - type charges. - convertmg the defined contribution preserved entitlement into retirement benefits are essentially the same as for someone who remains an active member up to retirement.
Transfer value
An employee who has 3 months service earns the option of taking the transfer value to another scheme.
The often go to stakeholder pensions because other types do not accept the potentially small payments involved.
Preserved benefits must be offered l; the member may at any time choose to transfer this to an individual arrangement or to another employer. To do this the member usually needs to provide a discharge to the trustees of the old occupational scheme. Giving up the right to the old benefit for the transfer value the statutory discharge and the trustees must be satisfied that the transfer is going fo another pension scheme.
The transfer value if the value of preserved benefit less and disinvestment.
In an insured scheme the transfer value is the surrender value. The sling may differ depending on whether it is an insicual transaction or one element from a full or partial scheme discountenance or winding up.
- surrender charges may be avoided if the policy itself can be assigned to the member of the member’s new scheme
Pension switching
- advisers shouldn’t switch to do it.
- there are two types of flexible and safeguarded. If the transfer occurs it is called a transfer of flexible benefit
- FCA has a pension switching template in it the adviser can look at any outcomes and explain why they are continuing with the outcome. They need to do a customer needs analysis recording the clients objectives relating to a transfer such as consolidation of pension arrangements the potential use of a drawdown pension
They also need to confirm the need for the investment.
Information needs to be gathered about the firm the client and the pension arrangements involved - know the clien
Stakeholder pensions
- low cost pension
- they differ from personal pensions because they have minimum standards
- members can pay in a minimum of £20
- there is no restriction on how contributions are paid
- it can reject payments by debit and credit card
- it can accept transfers from other pensions
- it can not impose additional fees
- joined before 2005 maximum fee is 1% o d the value of the fund.
- joined after 2005 the then it is is 1.5%. If the employer is hung one for auto enrollement then there is a cap at 0.75%.
- lifestulinf must be offered to old members and new members whith lifetyijng being a default
Those without advice
- the Financial conduct authority has developed decsiskson trees to help people decide what they should do.
- they are Color coded and contain diedderent scenarios for people.
They also include spouse pensions with 50% being paid to a spouse
Those without advice
- the Financial conduct authority has developed decsiskson trees to help people decide what they should do.
- they are Color coded and contain diedderent scenarios for people.
They also include spouse pensions with 50% being paid to a spouse
