DB Schemes

Question 1

What benefits are available on ill-health and death in a defined benefit scheme?

Answer 1

Answer: In the event of ill-health, defined benefit schemes may provide enhanced benefits or early access to the pension. In the event of death, a spouse or dependents may receive a pension or lump sum payment.

Question 2

What would have an immediate effect on the deficit of a defined benefit scheme?

Answer 2

Answer: Increasing employer contributions, changing investment strategies, transferring company assets into the scheme, and reducing future benefit accrual can all have an immediate effect on the deficit of a defined benefit scheme.

Question 3

How long is the delay in paying contributions by the employer to TPR before trustees are required to report it?

Answer 3

Answer: Trustees are required to report a delay in paying contributions by the employer to TPR once the delay is more than 90 days.

Question 4

What are the current statutory rights and options for an early leaver in a private sector defined benefit scheme?

Answer 4

Answer: An early leaver with less than three months’ qualifying service may have no rights except for a refund of personal contributions. An early leaver with three months to two years of qualifying service must be offered a refund of personal contributions or a cash equivalent transfer value. An early leaver with two or more years of qualifying service must be offered a preserved pension or a cash equivalent transfer value.

Question 5

How is tax relief awarded on employees’ contributions to a defined benefit scheme under the net pay method?

Answer 5

Answer: Under the net pay method, contributions are deducted from the employee’s salary before tax is deducted, allowing for tax relief at the employee’s marginal rate.

Question 6

How is tax relief awarded on employees’ contributions to a defined benefit scheme under the relief at source method?

Answer 6

Answer: Under the relief at source method, contributions are paid net of basic rate tax, and members can reclaim any higher or additional rate relief via self-assessment or adjustment to their tax code.

Question 7

What factors influence the cost of providing benefits under a defined benefit scheme?

Answer 7

Answer: The level of members’ final pensionable remuneration, investment returns, annuity rates, cost of providing guaranteed benefits, number of deaths before normal pension age, and the profile of the scheme membership can all influence the cost of providing benefits in a defined benefit scheme.

Question 8

How is a cash equivalent transfer value (CETV) calculated in a defined benefit scheme?

Answer 8

Answer: A CETV is calculated by revaluing the member’s preserved pension to the scheme’s normal pension age, converting it into a capital lump sum, and discounting it back to the date of calculation.

Question 9

What are the options available to trustees and employers facing pension scheme deficits?

Answer 9

Answer: Options for addressing pension scheme deficits include increasing contributions, reducing benefit accrual, revising investment strategies, transferring assets, extending the normal pension age, and changing the basis for calculating future benefits.

Question 10

What are the general responsibilities of trustees in a defined benefit scheme?

Answer 10

Answer: Trustees are responsible for holding and investing the scheme’s assets, producing a statement of investment principles, appointing auditors and actuaries, and ensuring compliance with regulations.

Question 11

What is the role of a scheme actuary in a defined benefit scheme?

Answer 11

Answer: A scheme actuary is responsible for tasks such as preparing actuarial valuations, certifying the calculation of technical provisions, and advising on funding levels and investment strategies.

Question 12

What is the role of a scheme auditor in a defined benefit scheme?

Answer 12

Answer: A scheme auditor prepares an auditor’s statement, certifying whether contributions have been paid in accordance with the schedule, and ensuring compliance with reporting requirements.

Question 13

What are the duties of a scheme administrator in a defined benefit scheme?

Answer 13

Answer: A scheme administrator is responsible for tasks such as registering the scheme with HMRC, operating tax relief on contributions, and providing member communications.

Question 14

What are the options available to an early leaver in a defined benefit scheme?

Answer 14

Answer: An early leaver may be entitled to a refund of personal contributions, a preserved pension payable at the scheme’s normal retirement age, or a cash equivalent transfer value.

Question 15

What is abridged advice in the context of pension transfers?

Answer 15

Answer: Abridged advice is a short-form advice process that provides limited analysis and recommendations to clients considering a pension transfer. It is an alternative to full advice and is subject to specific requirements and limitations.

Question 16

What are the deficit reduction options available to trustees and employers in defined benefit schemes?

Answer 16

Answer: Deficit reduction options include increasing contributions, reducing benefit accrual, revising investment strategies, transferring assets, extending the normal pension age, and changing the basis for calculating future benefits.

Question 17

How is a cash equivalent transfer value (CETV) calculated in a defined benefit scheme?

Answer 17

Answer: A CETV is calculated by revaluing the member’s preserved pension to the scheme’s normal pension age, converting it into a capital lump sum, and discounting it back to the date of calculation.

Question 18

What are the options available to trustees and employers facing pension scheme deficits?

Answer 18

Answer: Options for addressing pension scheme deficits include increasing contributions, reducing benefit accrual, revising investment strategies, transferring assets, extending the normal pension age, and changing the basis for calculating future benefits.

Question 19

What are the general responsibilities of trustees in a defined benefit scheme?

Answer 19

Answer: Trustees are responsible for holding and investing the scheme’s assets, producing a statement of investment principles, appointing auditors and actuaries, and ensuring compliance with regulations.

Question 20

What is the role of a scheme actuary in a defined benefit scheme?

Answer 20

Answer: A scheme actuary is responsible for tasks such as preparing actuarial valuations, certifying the calculation of technical provisions, and advising on funding levels and investment strategies.

Question 21

On what factors are the benefits provided by a DB scheme based?

Answer 21

The benefits provided by the scheme are based on pensionable service, pensionable remuneration, and the scheme’s accrual rate.

Question 22

Under what circumstances can benefits be provided before the age of 55?

Answer 22

Benefits may be provided before the age of 55 if the member is in ill-health, and if the member is in serious ill-health, benefits can be commuted for a lump sum.

Question 23

What provision can an employer make to ensure continuation of pension contributions if an employee has no earnings due to ill health?

Answer 23

The employer may choose to take out group Permanent Health Insurance (PHI), which will allow pension contributions to continue even if the employee has no earnings.

Question 24

How often must an actuarial valuation be carried out?

Answer 24

An actuarial valuation must be carried out at least every three years.

Question 25

What is required if the statutory funding objective has not been met for a DB scheme?

Answer 25

A recovery plan must be drawn up.

Question 26

What are some of the general responsibilities of trustees in a pension scheme?

Answer 26

Trustees have a number of general responsibilities including holding and investing the trust assets, and producing a statement of investment principles.

Question 27

What powers do trustees have in a pension scheme?

Answer 27

Trustees have a number of general powers conferred on them by the trust deed.

Question 28

What is the requirement for the composition of trustees in terms of member nomination for a DB scheme?

Answer 28

At least one-third of trustees must be member-nominated.

Question 29

Who must the trustees formally appoint in a pension scheme?

Answer 29

Trustees must formally appoint an auditor, an actuary, and a fund manager.

Question 30

What are some of the responsibilities of a scheme actuary?

Answer 30

A scheme actuary has responsibilities including preparing the periodic actuarial valuation and certifying that the calculation of the technical provisions is made in accordance with the scheme funding regulations.

Question 31

What is the requirement for the scheme auditor’s statement?

Answer 31

The scheme auditor must prepare an auditor’s statement giving an opinion as to whether or not contributions have been paid in accordance with the schedule of contributions.

Question 32

What is the role of a scheme administrator and what are some of their duties?

Answer 32

Every pension scheme must have a scheme administrator, who has duties including registering the scheme with HMRC and operating tax relief on contributions under the relief at source system.

Question 33

What is the entitlement of an employee who leaves a defined benefit scheme after less than two years?

Answer 33

They may be entitled to a refund of their own personal contributions.

Question 34

How is the refund taxed if an employee leaves a defined benefit scheme after less than two years?

Answer 34

The first £20,000 of any refund is taxed at 20%, and any excess above £20,000 is taxed at 50%.

Question 35

What is an early leaver from a defined benefit scheme entitled to after completing two years’ service?

Answer 35

They are entitled to a preserved pension, or earlier if scheme rules permit.

Question 36

How is the preserved pension managed between the date of exit and normal pension age?

Answer 36

The preserved pension is revalued between the date of exit and normal pension age, in line with statutory requirements as a minimum.

Question 37

What must be offered to an early leaver from a private sector or funded public sector scheme after completing at least three months’ service in a defined benefit scheme?

Answer 37

They must be offered a Cash Equivalent Transfer Value (CETV), which is the cash equivalent of the value of the guaranteed benefits given up.

Question 38

How is a CETV calculated?

Answer 38

The preserved pension is first revalued to normal pension age. The revalued pension is then capitalized, and this value is discounted back to the date of calculation.

Question 39

What should all advice around a transfer of safeguarded benefits result in?

Answer 39

All advice around a transfer of safeguarded benefits should result in a personal recommendation. The recommendation must demonstrate that a transfer is in the best interests of the client, taking into account the client’s individual circumstances.

Question 40

What must be done in terms of analysis for a transfer of safeguarded benefits?

Answer 40

Appropriate Pension Transfer Analysis (APTA) must be done, which includes a prescribed comparator known as a Transfer Value Comparator (TVC).

Question 41

Can a firm still perform a transfer value analysis (TVA) including calculating the critical yield for a client?

Answer 41

Yes, if a firm decides that a Transfer Value Analysis (TVA), including calculating the critical yield, is valid for the client, it can still take this approach.

Question 42

How are most public sector schemes established and controlled?

Answer 42

Public sector schemes are mainly established by statute and controlled by regulations.

Question 43

Among public sector schemes, how is the Local Government Pension Scheme (LGPS) distinct from the other six schemes?

Answer 43

The Local Government Pension Scheme (LGPS) is funded, whereas the other six schemes are unfunded.

Question 44

How do the benefits of public sector schemes compare to those of private sector schemes, especially regarding inflation protection and early retirement?

Answer 44

The benefits of public sector schemes are fully inflation protected, and the benefits on early retirement are usually superior to those of private sector schemes.

Question 45

How have the basis for benefits in all public sector schemes changed over time?

Answer 45

All public sector schemes have moved from a final salary basis to a Career Average Revalued Earnings (CARE) basis.

Question 46

What is the Transfer Club, and what does it allow for public sector schemes?

Answer 46

The Transfer Club allows pension benefits to be transferred between Club schemes on special terms. Public sector schemes that belong to the Transfer Club are categorized as either ‘Inner’ or ‘Outer’ Club schemes.

Question 47

When advising on a potential transfer out of a defined benefit scheme an adviser must undertake an appropriate pension transfer analysis. On what date did this requirement come into force?

a.
1 October 2018.

b.
6 April 2019.

c.
1 October 2019.

d.
6 April 2018.

Answer 47

a.
1 October 2018.

Question 48

Which public sector scheme allows a deferred member to transfer their benefits to a scheme that offers flexible benefits?

a.
Teachers’ Pension Scheme.

b.
NHS Pension Scheme.

c.
Civil Service Pension Scheme.

d.
Local Government Pension Scheme.

Answer 48

d.
Local Government Pension Scheme.

Question 49

What is the tax treatment of a serious ill-health lump sum paid in 2023/24 by a defined benefit scheme when the member is under the age of 75?

a.
It is taxable as the member’s pension income via PAYE and there is no check against the member’s lifetime allowance.

b.
It is taxable as the member’s pension income via PAYE and the value of the benefits will be tested against the member’s lifetime allowance.

c.
It is tax free as long as the value of the benefits provided does not exceed the member’s lifetime allowance.

d.
It is tax free and there is no check against the member’s lifetime allowance.

Answer 49

c.
It is tax free as long as the value of the benefits provided does not exceed the member’s lifetime allowance.

Question 50

When a transfer value comparator [TVC] is calculated, an assumption is needed for a relevant rate of return. Who is responsible for setting this rate?

a.
The scheme actuary.

b.
The Pensions Regulator.

c.
The financial adviser.

d.
The FCA

Answer 50

d.
The FCA

Question 51

Lionel, aged 75, is in serious ill health. He has benefits under a previous employer’s defined benefit scheme that are yet to be drawn. He has been told that it will not be possible to commute these for a serious ill-health lump sum. This is most likely to be because:

a.
it is not possible to commute benefits under a defined benefit scheme for a lump sum payment.

b.
his lifetime allowance check at age 75 has revealed that he has no remaining lifetime allowance.

c.
the scheme is underfunded and so the trustees have decided not to make the payment.

d.
he has passed his 75th birthday and so can no longer commute his benefits for a serious ill-health lump sum.

Answer 51

b.
his lifetime allowance check at age 75 has revealed that he has no remaining lifetime allowance.

Question 52

The trustees of a defined benefit scheme received Harry’s request for a transfer value on 3 August 2023. Since the value of Harry’s safeguarded rights will exceed £30,000 the trustees must notify Harry that he must take independent advice. This notification must be provided no later than:

a.
14 September 2023.

b.
3 September 2023.

c.
3 November 2023.

d.
3 October 2023.

Answer 52

b.
3 September 2023.

Question 53

Julia, aged 29, was a member of her employer’s defined benefit pension scheme for 18 months before leaving their employment. Regarding her benefits under the scheme, Julia must be offered:

a.
a short service refund but the scheme can choose whether to offer her a cash equivalent transfer value or a preserved pension.

b.
a cash equivalent transfer value but the scheme can choose whether to offer her a short service refund or a preserved pension.

c.
the choice between a short service refund and a preserved pension but the scheme can choose whether to offer her a cash equivalent transfer value.

d.
the choice between a cash equivalent transfer value and a short service refund but the scheme can choose whether to offer her a preserved pension.

Answer 53

b.
a cash equivalent transfer value but the scheme can choose whether to offer her a short service refund or a preserved pension.

Question 54

A pension scheme provides benefits at retirement that are the higher of benefits calculated on a defined benefit basis and the benefits arising from a notional defined contribution plan. This is an example of a:

a.
defined contribution scheme with a defined benefit underpin.

b.
defined benefit scheme with a defined contribution underpin.

c.
career average earnings scheme.

d.
defined cash scheme.

Answer 54

b.
defined benefit scheme with a defined contribution underpin.

Question 55

What is NOT likely to be a key factor when determining the structure of a pension scheme deficit recovery plan?

a.
The impact on the employer and its plans for sustainable growth.

b.
The need to eliminate at least 50% of the shortfall by a specified target date.

c.
The impact of the assumptions used when setting the recovery plan not being borne out in practice.

d.
The likely benefits available to members should the employer be subject to an insolvency event in the short term.

Answer 55

b.
The need to eliminate at least 50% of the shortfall by a specified target date.

Question 56

Ben has deferred benefits under a defined benefit scheme. If the transfer value has reduced since it was last quoted three years ago, which factor is LEAST likely to have caused this?

a.
The revaluation rates used have been reduced.

b.
Ben is three years older.

c.
Scheme funding is lower.

d.
Discount rates have risen.

Answer 56

b.
Ben is three years older.

Question 57

A defined benefit pension scheme can pay a defined benefits lump sum death benefit on a member’s death in service. What, if anything, is the maximum that can be?

Answer 57

The amount is unlimited, although it will be subject to a check against the lifetime allowance in the event of the member’s death before the age of 75.

Question 58

A defined benefit scheme offers members the option of a pension increase exchange. Under the Voluntary Code of Good Practice, what is the minimum time period members should be given to make up their minds?

a.
Six weeks.

b.
Three months.

c.
Two months.

d.
One month.

Answer 58

b.
Three months.

Question 59

What would NOT be a benefit for a member of a defined benefit scheme taking up the option of pension increase exchange?

a.
He will be entitled to a higher initial income from the scheme.

b.
He is likely to be entitled to a higher pension commencement lump sum.

c.
He is likely to benefit from this offer if he is in poor health with less than average life expectancy.

d.
The value of his benefits for testing against the annual allowance will be lower.

Answer 59

d.
The value of his benefits for testing against the annual allowance will be lower.

Question 60

Four members of different defined benefit pension schemes are approaching retirement. Who will have the largest pre-commutation pension?

a.
Alwyn, who has 18 years’ service in a 1/80th scheme and a final pensionable salary of £59,000.

b.
Bethan, who has 17 years’ service in a 1/60th scheme and a final pensionable salary of £48,000.

c.
Alan, who has 21 years’ service in a 1/80th scheme and a final pensionable salary of £51,000.

d.
Ross, who has 21 years’ service in a 1/60th scheme and a final pensionable salary of £39,000.

Answer 60

d.
Ross, who has 21 years’ service in a 1/60th scheme and a final pensionable salary of £39,000.

Question 61

Registering a pension scheme with HMRC is the responsibility of the:

a.
sponsoring employer.

b.
scheme auditor.

c.
scheme administrator.

d.
scheme actuary.

Answer 61

c.
scheme administrator.

Question 62

Public sector schemes have moved from a final salary basis to a career average revalued earnings basis. This change did NOT apply to members of public service schemes who were within:

a.
10 years of their scheme’s normal pension age on 1 April 2015.

b.
15 years of their scheme’s normal pension age on 1 April 2012.

c.
15 years of their scheme’s normal pension age on 1 April 2015.

d.
10 years of their scheme’s normal pension age on 1 April 2012.

Answer 62

d.
10 years of their scheme’s normal pension age on 1 April 2012.

Question 63

Vihaan’s scheme pension commenced six years ago and it has just been reduced. This is most likely to be because Vihaan:

a.
has recently got married and so the scheme pension has been reduced so that his new wife will be entitled to a spouse’s pension.

b.
didn’t take his pension commencement lump sum when he retired, but has now decided to do so.

c.
has just accepted the scheme’s offer of a pension increase exchange.

d.
has just reached his State Pension Age and the scheme has been paying a bridging pension.

Answer 63

d.
has just reached his State Pension Age and the scheme has been paying a bridging pension.

Question 64

Yosuke is a practicing auditor but he has been informed that he cannot act as the auditor for a particular defined benefit pension scheme. This is most likely to be because:

a.
he acts on a self-employed basis.

b.
he is married to one of the scheme trustees.

c.
he was appointed by the scheme trustees rather than the sponsoring employer.

d.
his sister is a deferred member of the scheme.

Answer 64

b.
he is married to one of the scheme trustees.

Question 65

Additional voluntary contributions may be used to buy added years of service in a defined benefit scheme. What are the two main assumptions that the actuary will take into account when calculating the cost of buying one added year of service?

a.
Assumed salary increases and assumed future annuity rates.

b.
Expected longevity and assumed future annuity rates.

c.
Assumed salary increases and assumed investment growth.

d.
Assumed investment growth and expected longevity.

Answer 65

d.
Assumed investment growth and expected longevity.

Question 66

Oliver is about to reach the normal pension age of his defined benefit scheme. He is entitled to a scheme pension of £48,000 p.a., which will escalate in payment each year in line with RPI. Alternatively, he has been offered pension increase exchange whereby he would receive a pension of £54,000 p.a. that only escalates in line with statutory requirements. In assessing this offer Oliver should be aware that:

a.
this offer is only likely to be of benefit to him if he is in good health with a family history of longevity.

b.
his PCLS entitlement will be lower if the £54,000 pension is selected.

c.
all dependants’ benefits associated with the scheme pension will be removed.

d.
if he accepts the offer the value of his benefits will be in excess of the lifetime allowance.

Answer 66

d.
if he accepts the offer the value of his benefits will be in excess of the lifetime allowance.

Question 67

A pension scheme actuary is responsible for:

a.
registering the scheme with HMRC.

b.
making returns of information to HMRC.

c.
providing advice about funding principles and the calculation of technical provisions.

d.
providing information to scheme members regarding transfers and benefits.

Answer 67

c.
providing advice about funding principles and the calculation of technical provisions.

Question 68

An individual was a member of a defined benefit scheme between 1 January 2000 and 1 May 2010. The scheme provides escalation in line with statutory requirements. Once in payment, the pension will escalate each year in line with the increases in the CPI capped at:

a.
5% for pre 6 April 2007 benefits and 2.5% for benefits accrued after this date.

b.
5% for pre 6 April 2009 benefits and 2.5% for benefits accrued after this date.

c.
5% for pre 6 April 2005 benefits and 2.5% for benefits accrued after this date.

d.
2.5%.

Answer 68

c.
5% for pre 6 April 2005 benefits and 2.5% for benefits accrued after this date.

Question 69

What is the name of the valuation that must be carried out when an employer suffers an insolvency event and the Pension Protection Fund [PPF] wish to establish whether the scheme has sufficient assets to pay benefits to at least the PPF level of compensation?

a.
FRS 17.

b.
Section 179.

c.
IAS 19.

d.
Section 143.

Answer 69

d.
Section 143.

Question 70

Under the Code of Good Practice that addresses the incentives offered by defined benefit schemes, it is NOT possible to run an incentive exercise on an opt out basis for scheme members once they reach:

a.
age 80.

b.
the scheme’s normal retirement age.

c.
age 70.

d.
age 65.

Answer 70

a.
age 80.

Question 71

Sarah is about to retire and take her benefits from her defined benefit pension scheme. She is entitled to a maximum pension of £10,000 p.a. or a reduced pension plus a pension commencement lump sum [PCLS] of £22,500. The commutation factor used by the scheme is 12:1. If Sarah takes the PCLS she will receive a reduced annual pension of:

a.
£7,750.

b.
£8,125.

c.
£5,556.

d.
£9,167.

Answer 71

b.
£8,125.

Question 72

In what year was the index used to calculate the statutory rate of revaluation changed from RPI to CPI?

Answer 72

2011.

Question 73

Between what dates could a member of a contracted out defined benefit scheme accrue a guaranteed minimum pension?

a.
6 April 1988 and 5 April 1997.

b.
6 April 1988 and 5 April 2016.

c.
6 April 1978 and 5 April 2016.

d.
6 April 1978 and 5 April 1997.

Answer 73

d.
6 April 1978 and 5 April 1997.

Question 74

Which action will NOT help reduce an existing deficit in a defined benefit scheme?

a.
Extending the scheme’s normal pension age.

b.
Ceasing future benefit accrual.

c.
Changing the definition of pensionable salary from ‘final salary’ to ‘career average earnings’ for future benefit accrual.

d.
Changing the accrual rate from 1/80th to 1/60th.

Answer 74

d.
Changing the accrual rate from 1/80th to 1/60th.

Question 75

A member of a defined benefit scheme is entitled to an annual pension of £14,000, or he can commute part of his pension for a pension commencement lump sum [PCLS]. If he takes a PCLS of £60,000 and the scheme’s commutation rate is 15:1, how much annual pension will he receive?

a.
£10,000.

b.
£13,790.

c.
£13,067.

d.
£11,900.

Answer 75

a.
£10,000.

Question 76

What effect does changing a defined benefit scheme to a career average scheme generally have on the benefits provided to the member and the cost to the employer of operating the scheme?

a.
Both benefits provided to the member and the cost to the employer will usually increase.

b.
Both benefits provided to the member and the cost to the employer will usually reduce.

c.
Benefits provided to the member will usually reduce and the cost to the employer will usually increase.

d.
Benefits provided to the member will usually increase and the cost to the employer will usually reduce.

Answer 76

b.
Both benefits provided to the member and the cost to the employer will usually reduce.

Question 77

When undertaking appropriate pension transfer analysis, what period of life expectancy should the analysis plan for?

a.
Average life expectancy for the client as prescribed by the FCA.

b.
Age 100 in all cases.

c.
A reasonable period beyond the client’s average life expectancy.

d.
Average life expectancy for the client taken from mortality tables, taking into account the client’s health.

Answer 77

c.
A reasonable period beyond the client’s average life expectancy.

Question 78

Which two of the public sector schemes are notionally funded?

a.
The Fire-fighters Pension Scheme and the Armed Forces Pension Scheme.

b.
The Armed Forces Pension Scheme and the Police Pension Scheme.

c.
The Local Government Pension Scheme and the Civil Service Pension Scheme.

d.
The Teachers’ Pension Scheme and the NHS Pension Scheme.

Answer 78

d.
The Teachers’ Pension Scheme and the NHS Pension Scheme.

Question 79

Karl left his employer’s defined benefit scheme after 22 months membership. During this time he paid personal contributions totalling £16,000 and his employer paid contributions totalling £28,000. If Karl elects to receive a refund of contributions he will receive a net payment of:

a.
£35,200.

b.
£12,800.

c.
£26,800.

d.
£28,000.

Answer 79

b.
£12,800.

Question 80

A defined benefit scheme has recently undertaken an enhanced transfer value exercise. Which deferred member of the scheme would be least likely to accept this offer?

a.
Mikko, who is married with two young children and who has a cautious attitude to investment risk and no other private pension savings.

b.
James, who is married and who has a self-invested personal pension and an adventurous attitude to investment risk.

c.
Molly, who is single and contributing £500 per month into her personal pension and who has a balanced attitude to investment risk.

d.
Caroline, who is divorced and who has a cautious to balanced attitude to risk and is a member of her new employer’s defined benefit scheme.

Answer 80

a.
Mikko, who is married with two young children and who has a cautious attitude to investment risk and no other private pension savings.

Question 81

A higher rate taxpayer left her employer’s defined benefit scheme after 20 months of membership. If she had made £30,000 in personal contributions, what net payment would she receive if she takes a return of her personal contributions?

a.
£24,000.

b.
£30,000.

c.
£21,000.

d.
£18,000.

Answer 81

c.
£21,000.

Question 82

Harriet is about take the benefits from her company’s defined benefit scheme. She also has a defined contribution additional voluntary contribution [AVC] fund and she has been offered the option of taking the entire AVC fund as a tax free pension commencement lump sum [PCLS]. The benefits of this course of action are that:

a.
less of the defined benefit scheme pension will need to be commuted for a PCLS and she will receive a higher initial pension from the defined benefit scheme because it will be level rather than escalating.

b.
she can still take the maximum PCLS from the defined benefit scheme as well as the entire AVC fund giving her a higher overall PCLS entitlement and she will receive a higher initial pension from the defined benefit scheme because it will be level rather than escalating.

c.
she can still take the maximum PCLS from the defined benefit scheme as well as the entire AVC fund giving her a higher overall PCLS entitlement and she will receive a higher initial escalating pension from the defined benefit scheme.

d.
less of the defined benefit scheme pension will need to be commuted for a PCLS and she will receive a higher initial escalating pension from the defined benefit scheme.

Answer 82

d.
less of the defined benefit scheme pension will need to be commuted for a PCLS and she will receive a higher initial escalating pension from the defined benefit scheme.

Question 83

How are employees’ contributions to a defined benefit scheme usually expressed?

a.
As a fixed monetary amount, although the amount may vary if the funding rate changes.

b.
As a percentage of pensionable salary that usually remains constant.

c.
As a percentage of pensionable salary, although the rate may vary if the funding rate changes.

d.
As a fixed monetary amount that usually remains constant.

Answer 83

b.
As a percentage of pensionable salary that usually remains constant.

Question 84

Which public sector scheme is funded, rather than notionally funded?

a.
The Police Pension Scheme.

b.
The Local Government Pension Scheme.

c.
The Teachers’ Pension Scheme.

d.
The Armed Forces Pension Scheme.

Answer 84

b.
The Local Government Pension Scheme.

Question 85

Brian, who is 59, has deferred benefits in a defined benefit scheme and wishes to transfer these benefits to a defined contribution scheme. The scheme trustees have told him that he has no statutory right to a transfer value. This is most likely to be because:

a.
he was only a member of the scheme for 18 months.

b.
the scheme has a normal pension age of 60.

c.
the cash equivalent transfer value is in excess of £30,000.

d.
the benefits are held in a scheme that was contracted out prior to 6 April 2016.

Answer 85

b.
the scheme has a normal pension age of 60.

Question 86

If the funding rate of a defined benefit scheme is increased at a triennial review, this is most likely to be because:

a.
investment returns have been higher than expected.

b.
fewer of the scheme’s members than expected are married.

c.
employees’ salaries have increased by more than expected.

d.
the scheme’s normal pension age has been changed from 60 to 65.

Answer 86

c.
employees’ salaries have increased by more than expected.

Question 87

Most defined benefit schemes are required to formally appoint an auditor, an actuary and a fund manager. Which of these parties, if any, must be appointed by a scheme that is wholly invested in insurance policies and is earmarked?

a.
An actuary only.

b.
An actuary and fund manager only.

c.
An auditor and fund manager only.

d.
None of them.

Answer 87

d.
None of them.

Question 88

A member has recently received a cash equivalent transfer value [CETV] from his defined benefit scheme, which is lower than the CETV he received five years ago when he decided not to transfer. What is the most likely reason for this reduction?

a.
The member is five years’ closer to the scheme’s normal pension age.

b.
The discount rate assumptions used by the scheme have increased.

c.
The revaluation rate assumptions used by the scheme have increased.

d.
The annuity rate assumed by the scheme has reduced.

Answer 88

b.
The discount rate assumptions used by the scheme have increased.

Question 89

Kyle was a member of his employer’s defined benefit scheme from 1 May 1997 to 30 June 2012. The scheme revalues benefits at the statutory minimum rates. Kyle’s benefits will be revalued in deferment in line with increases in the CPI capped at 5% for benefits accrued prior to 6 April:

a.
2003 and 2.5% for benefits accrued after this date.

b.
2009 and 2.5% for benefits accrued after this date.

c.
2005 and 2.5% for benefits accrued after this date.

d.
2007 and 2.5% for benefits accrued after this date.

Answer 89

b.
2009 and 2.5% for benefits accrued after this date.

Question 90

Members of a private sector defined benefit scheme have the statutory right to transfer their safeguarded benefits as long as they are:

a.
under the scheme’s normal pension age.

b.
under the age of 55.

c.
under the age of 75.

d.
more than one year away from the scheme’s normal pension age.

Answer 90

d.
more than one year away from the scheme’s normal pension age.

Question 91

Within how many months of the guarantee date must a member wishing to transfer safeguarded rights provide the trustees with an application confirming that they wish to proceed with the transfer?

a.
Two.

b.
Four.

c.
Three.

d.
One.

Answer 91

c.
Three.

Question 92

Nigel has reached the normal pension age under his employer’s defined benefit scheme and now intends to crystallise his benefits. His pre-commutation pension is £35,000 and the commutation rate is 13:1. The maximum pension commencement lump sum that Nigel can receive under HMRC rules will be:

a.
£175,000.

b.
£140,000.

c.
£154,237.

d.
£138,462.

Answer 92

c.
£154,237.

Question 93

The purpose of IAS 19 is to make the cost to a company of running its pension scheme transparent and, to achieve this, the:

a.
costs associated with the scheme and any surplus or deficit should be shown on the balance sheet.

b.
pension scheme surplus or deficit must be brought onto the balance sheet and the pension scheme costs must be brought onto the profit and loss account.

c.
costs associated with the scheme and any surplus or deficit should be shown on the profit and loss account.

d.
pension scheme surplus or deficit must be brought onto the profit and loss account and the pension scheme costs must be brought onto the balance sheet.

Answer 93

b.
pension scheme surplus or deficit must be brought onto the balance sheet and the pension scheme costs must be brought onto the profit and loss account.

Question 94

A member of a defined benefit pension scheme, which has a normal pension age of 65, would like to retire early at age 55. Typically, they would:

a.
be able to do so and will receive a pension based on the normal accrual basis and service up to the date they left the scheme, with no penalties.

b.
not be able to retire before the normal retirement age for the scheme.

c.
not be able to retire before age 60 unless they qualify on the grounds of ill health.

d.
be able to do so but their pension will be subject to an early retirement factor.

Answer 94

d.
be able to do so but their pension will be subject to an early retirement factor.