Exam Extras

Question 1

Stat money purchase illustrations - schemes that don’t get these (2), how is projected benefit calc’d (4 parts)

Main assumptions;

• acc rate and provider and takes into account what before what
• todays terms and inflation assumption
• future contributions and earnings related + AE
• what must be taken into account (2)
• interest and annuity rates + increases and guaranteed
• PCLS
• expenses %
• spouse pension
• mortality

Answer 1

Schemes that don’t receive these - retirement annuity contracts and SSASs.

Projected benefit calc’d - current fund + contributions - charges - risk bens (pension term assurance).

Main Assumptions;
— Projections are based on acc rate determined by provider which takes into account;
- expected returns to retirement before the deduction of expenses and charges.
— Projection converted into todays terms assuming for inflation of 2.5%
— future contributions taken into account and if earning related increase in line with inflation at 2.5%
- if AE conts, can choose to include future increases to min conts and if ignored, must made clear on SMPI.
— future charges and expenses must be taken into account
— rate of interest in calcing annuity rates must be determined each year on Feb 15th. Can assume annuity rate does or does not increase and provider can choose to take into account guaranteed annuity terms.
— Can assume PCLS taken and must be expressed in todays terms.
— Expenses assumed at 4% of value of annuity
— inclusion of spouse’s pension at providers discretion.
— no allowance for mortality before retirement & mortality after based on mortality tables.

Question 2

Working out income to establish Pension Credit entitlement

Answer 2

Income calculated and includes;
- state pension, private pension, earnings, social security bens and savings over £10k.

Savings are deemed to provide income of £1 for every £500 e.g. (16,650-10k/)500= 13.30 then rounded up to nearest pound.

Question 3

Short service refund - charges and length of service to be entitled

Answer 3

• First 20k charged at 20%
• everything above charged at 50%

DB - 2 years
DC - 30 days

Question 4

Formula to check LTA remaining

Answer 4

Value of existing benefits as per BCE/LTA for that tax year (previous BCE) = %

Question 5

Purchase of Lifetime Annuity - not a BCE when..

Answer 5

Purchase of lifetime annuity is not a BCE if purchased using crystallised funds in drawdown.

BCE 1 & therefore already tested.

Question 6

Employer conts and tax relief - how to work out if spreading and accounting periods

Answer 6

210% x previous pens cont = if higher than new contribution then need to work out how spread.

Spreading - new contribution amount - (previous cont amount x 110%)

Excess over £500k spread;

• 500k-999k = 2
• 1m - 1.9m = 3
• 2m+ = 4

Question 7

How to work out increased in deferred BSP pre and post 04/16

Answer 7

Pre - 134.25 x 10.4% = y*years deferred = increase amount

Post - 134.255.8% = yyears deferred

Question 8

How to work out residual pension - formula

Answer 8

Will need to work out PCLS via PTM first

Precomm pen - (PCLS/factor)

Question 9

Enhanced LTA post 04/06 and in payment formula (pension credit received)

Answer 9

Pension credit/LTA when received pension credit = %

LTA + (1.8m*%) = enhanced LTA at time they take their bens

Question 10

Enhanced LTA for pension credit pre 04/06 formula

Answer 10

Pension credit/1.5m = % applied to LTA

Question 11

Total Pension Input - DB schemes - how to work out TPI

Answer 11

Accrued bens16 = ACPI increase (1.CPI) = B

Accrued bens*16 = C

C-B = TPI

Question 12

Pension sharing - can (5) and cant be shared (4), death and marriage effects and tax implications

Answer 12

Can - protected payment on NSP, SERPS & S2P, occ schemes, privates pens and statutory schemes.

Can’t - NSP, BSP, Graduated Retirement benefits and widowers pension

Death and remarriage no effect as immediate and no tax implications for member.

Question 13

PPF & Pension Debit - formula + how does pension debit effect PPF

Answer 13

Bens at a day - pension debit = X

(X - 1.5m)/1.5m = new PPF - if minus amount then lost

Question 14

Recovery plan should include/consider

• security, insolvent, membership, growth, assumptions and PPF

Answer 14

• value, terms and enforceability of security from employers
• likely bens available if insolvent
• any changes to membership profile that may effect funding
• impact on employees and plans for sustainable growth
• impact of assumptions not realised
• risk-based element of PPF levy

Question 15

PPF -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)

Answer 15

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.

Question 16

PPF - what requirements met for PPF to take over (5)

Answer 16

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.

Question 17

PPF - what is assessment period and how long can it last and during this period

• no new (3), bens paid, intervene, moral hazard, review what and why and actuary

Answer 17

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.