CPC Learner Materials

Everything for the Certificate in Pensions Calculations Exams

General Information


Studying with the PMI

PMI - The Pensions Management Institute

The PMI was formed in 1976 to promote professionalism amongst those involved with pensions. It is an independent, non-political organisation which establishes, maintains and improves professional standards in every aspect of pension scheme management and consultancy.

The PMI is the institute for pensions professionals working in pensions or a related area, like human resources or payroll. 

Contact details:

The Pensions Management Institute, Devonshire House, 60 Goswell Road, London EC1M 7AD.

Lifelong Learning Team: 020 7247 1452


Study Resources offered by PMI

This is the start of your online study programme.

Early preparation and a planned study schedule for the examinations is essential.

Study Resources offered by PMI

This is the start of your on-line study programme.

Early preparation and a planned study schedule for the examinations is essential.  The following key activities are particularly recommended:

  1. Study the on-line material and resources provided.
  2. Become familiar with each of the three fictitious pension schemes on which the CPC examination are based.  See section on Scheme Booklets.
  3. Practice previous calculations and letters and check against the summary answers which can be found in the relevant Examiners’ Reports.  See section on Past Papers & Examiners’ Reports.
  4.  Read copies of past Examiners’ Reports to understand the common problems that are encountered and how to avoid them.  See section on Past Papers & Examiners’ Reports.
  5. Attend a revision course at the PMI (if numbers allow)

Studying using the PMI On-Line Learning Resources

Studying using the PMI On-Line Learning Resources

  • The on-line learning resources are accessible from any computer that provides access to the internet.
  • Learners will have immediate access to any changes in content and material connected with the CPC examinations.

Please be mindful that, although covering numerous scenarios, the on-line examples cannot cover each and every permutation on which learners may be tested in the examinations.


CPC Examination


CPC Examination

Qualification

The CPC comprises seven separate units which must all be completed to achieve the qualification. Details can be found here - Certificate in Pensions Calculations

Specification

The specification for the qualification can be found here - CPC Specification

How the Units are Assessed

Units are assessed by way of examinations designed to demonstrate learners’ competence in the manual calculation and communication of benefits of occupational pension schemes. Assessment is by ‘open book’ case study examinations, which are offered each year in March and September.

Examinations

The case studies for the examinations are based on three (3) fictitious pension schemes.  

Two (2) of these are final salary schemes – one of which is a CARE scheme – and the other is a money purchase scheme. 

The CARE scheme and the money purchase scheme are not contracted out whereas the other final salary scheme was contracted out for category A members until 5 April 2016.

Learners have to be able to carry out manual calculations for all three schemes. Learners also have to write at least one letter to communicate the benefits payable and request any further information required before the scheme can pay the benefits.

Retirements Part 1

Calculate and Quote Pension Scheme Retirement Benefits for Members without Special Circumstances

Retirements Part 2

Calculate and Quote Pension Scheme Retirement Benefits for Members with Special Circumstances

Deaths Part 1

Calculate and Quote Pension Scheme Death Benefits for Members without Special Circumstances

Deaths Part 2

Calculate and Quote Pension Scheme Death Benefits for Members with Special Circumstances

Leavers Part 1

Calculate and Quote Pension Scheme Leaver Benefits for Members without Special Circumstances

Leavers Part 2

Calculate and Quote Pension Scheme Leaver Benefits for Members with Special Circumstances

Transfers In & Transfers Out

Calculate and Quote Pension Scheme Transfer In & Transfer Out Benefits


Useful Weblinks and resource material


Useful Weblinks

Useful Resource Material

Below are links to information which will be helpful in your studies. You will also need to see the individual pages for each topic area to give you the breadth of knowledge necessary to complete the unit(s) you are taking.


General Documentation


Key Regulatory Documentation


Explanation of Terms Commonly Used Across the Units


Latest Scheme Booklets and Tables of Factors

OPQ Retirement and Death Benefits Plan Booklet (reviewed May 2020)

The RST Career Average Earning Scheme Booklet (reviewed May 2020)

The XYZ Pension and Life Assurance Scheme Booklet (reviewed May 2020)

Table of Factors (reviewed May 2020)

Key Features of Scheme Booklets (reviewed May 2020)






Deaths


Deaths Overview

Welcome to the 2020-2021 Version of the online learning programme Determine Pension Scheme Death Benefits, one of the units that make up the Pensions Management Institute's Vocational Qualification examinations.

The Case Studies and Worked Answers that are labelled 2020-2021 have been updated to reflect current practice and are based on the latest Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes and gives guidance on what additional information (if any) is expected to be provided in the Case Studies and Letters.

Please be mindful that, although covering numerous scenarios, the case studies cannot cover each and every permutation on which learners may be tested in the examinations. 

Latest News

For the latest information or guidance on the CPC Examinations please click on the following link.  

This will take you through to the PMI website:

Certificate in Pensions Calculations



Deaths Fact Finding (Final Salary)


Salary Related Schemes 

In a salary related scheme, often referred to as a defined benefit scheme, the scheme rules will describe how a member's benefits should be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of death benefits for a salary related scheme.

The case studies that you will study in the examinations will include two (2) salary related schemes, one of which is a CARE (Career Average Revalued Earnings) scheme:

  • The RST Pension Scheme (which is not contracted out)
  • The XYZ Pension and Life Assurance Scheme (which was contracted out for Category A members until 5 April 2016 but was never contracted out for Category B members)

There are three (3) distinct death calculations and candidates will be tested on each of these in the examinations:

Death in service benefits (for members who are "active" and who die either before or on / after normal pension date)

Death in deferment benefits (for members who have left the scheme and are "preserved" and who die before retirement)

Death in retirement benefits (for members who are "retired" and who die whilst in receipt of a pension)

Fact Finding

1. What happens on death in service?

Death in service benefits are paid in respect of active members of a scheme at the date of death; whether the members die before or on / after normal pension date.

Lump sum death benefits on death in service

On death in service before normal pension date, lump sum death benefits typically comprise a life assurance benefit and a refund of contributions (including AVCs).

If death in service is on / after normal pension date but before age 75, the lump sum death benefit (if applicable in the scheme rules) is typically calculated as 5 years of pension payments (capped to age 75) based on the pension the member would have received had retirement occurred on the date of death.

Life assurance benefits are generally insured. This means that the scheme must pay a premium to an insurance company who will then be responsible for paying out life assurance benefits when they fall due. Alternatively, life assurance benefits may be funded and paid directly from the scheme. In either case, the value of the life assurance benefit is the same.

Refunds and lumps sum death benefits which are based on the pension payments that would have been paid over a specified period are generally paid directly from the scheme.

Pensions on death in service before normal pension date

On death in service before normal pension date, schemes usually provide a pension for the surviving spouse / civil partner. This pension may be based on a percentage of accrued pension up to the member's date of death but, more often, the pension is a percentage of the prospective pension that the member would have received at normal pension date.

TIP: For the XYZ Pension and Life Assurance Scheme, the total member's pension cannot be less than the GMP accrued between 6 April 1978 and 5 April 1997 and any accrued pension before 6 April 1978 and after 5 April 1997.

There may also be provision in the scheme rules to provide pensions to:

  • Any of the member's children provided they are under a specific age (higher for those children who are in full-time education)
  • Any other person who is financially dependent upon the member at the date of death

These additional provisions apply equally to death in service on / after normal pension date, death in deferment (provided a pension is payable, which is NOT the case for the RST Pension Scheme) and death in retirement.

Where a member`s spouse / civil partner is considerably younger than the member (typically more than 10 years younger) some schemes apply a reduction to the spouse`s / civil partner`s pension to reflect the probability that the pension will be payable for a longer period of time. This is the case for the RST Pension Scheme.

Pensions on death in service on / after normal pension date

It is usual practice in the event of death in service on / after normal pension date to treat the member as having retired on the actual date of death. As such, where a lump sum death benefit is payable, it is typically calculated as 5 years of pension payments (capped to age 75) based on the pension that the member would have received had retirement occurred on the date of death. Similarly, where a spouse`s / civil partner`s pension is payable, it is typically based on a percentage of the pension that the member would have received had retirement occurred on the date of death.

2. What happens on death in deferment?

Death in deferment benefits are paid in respect of preserved members (or opted-out members) of a scheme at the date of death.

Lump sum death benefits on death in deferment

Cover for life assurance generally ceases when a member leaves pensionable service. If a member is opted-out (leaves the scheme but not the company), then life cover may continue but sometimes at a lower rate.

There is no life cover for preserved members of the RST Pension Scheme or XYZ Pension and Life Assurance Scheme. The lump sum death benefit for these schemes is simply a refund of scheme contributions (without interest) and a refund of AVCs (without interest).

Pensions on death in deferment

The scheme rules will determine whether or not a spouse's / civil partner's pension or a child dependant's pension is payable on death in deferment.

  • In the RST Pension Scheme there are NO pensions payable if a preserved member dies before retirement.
  • In the XYZ Pension and Life Assurance Scheme a spouse's / civil partner's pension of 50% of the member's preserved pension at date of leaving is payable but revalued between the member's date of leaving and the date of death.

Further details are included in the relevant scheme booklets.

3. What happens on death in retirement?

Death in retirement benefits are paid in respect of retired members of a scheme at the date of death.

Lump sum death benefits on death in retirement

On death in retirement, a lump sum death benefit is generally payable provided the member dies within a specified period (typically 5 years).

Should the member die within the specified period then the lump sum death benefit is usually equal to the value of the remaining payments to the end of the specified period (capped to age 75).

Should the member die outside the specified period then there is usually no lump sum death benefit payable.

Pensions on death in retirement

On death in retirement it is normal for a spouse's / civil partner's pension to be payable expressed as a percentage of the deceased member's pension in payment at the date of death plus the value of any commuted pension revalued to the date of death. The percentage is typically 50% but can be up to two-thirds depending on the rules of the scheme.

In the XYZ Pension and Life Assurance Scheme the spouse's / civil partner's pension is 50% of the member's pension in payment at the date of death. In the RST Pension Scheme it is 40%. Additionally, if the member took a tax-free cash sum on retirement then, for both schemes, the commuted pension is revalued to the date of death prior to applying the appropriate percentage.

TIP: Depending on the rules of a scheme, the spouse's pensions may cease on remarriage. Also, the rules may prevent payment of a spouse's pension if the deceased member and spouse have been married for less than 6 months.

4. How are communications with beneficiaries / trustees made?

Once the benefits have been calculated they need to be communicated to the beneficiaries and / or trustees of the scheme in the form of a letter. The examinations will expect learners to write letters to include all the facts and figures that are required to be communicated.

For death case studies from the RST Pension Scheme and XYZ Pension and Life Assurance Scheme all letters should include the following (where applicable):

1. Member's date of death

2. Lump sum death benefit (stating actual values for each component) payable either to persons at the Trustee's discretion or to the legal personal representatives

3. pension (stating actual values for pension splits [pre-1988 WGMP, post-1988 WGMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme])

4. Pension increases (stating actual rates for pension splits [pre-1988 WGMP, post-1988 WGMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme])

5. LTA percentage used (stating that it counts against the deceased member)

6. Requirements for payment:

  1. Member’s death certificate
  2. Marriage certificate
  3. Spouse’s birth certificate
  4. Bank details

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Deaths Fact Finding (Money Purchase Scheme)


Money Purchase Schemes

In a money purchase scheme, often referred to as a defined contribution scheme, the scheme rules will describe how a member's benefits are to be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of death benefits for a money purchase scheme.

The case studies that you will be referred to in the examinations will include one (1) money purchase scheme:

  • The OPQ Retirement & Death Benefits Plan (which is not contracted out)

TIP: From 6 April 2012 it was no longer possible for money purchase schemes to be contracted out.

There are three (3) distinct death calculations although candidates will be tested only on the first two (2) scenarios below in the examinations (since, once in payment, annuities will fall outside the scope of the OPQ Retirement & Death Benefits Plan):

  1. Death in service benefits (for members who are "active" and who die either before or on/after normal pension date)
  2. Death in deferment benefits (for members who have left the scheme and are "preserved" and who die before retirement)
  3. Death in retirement benefits (for members who are "retired" and who die whilst in receipt of a pension)


Fact Finding

1. What happens on death in service?

Death in service benefits are paid in respect of active members of a scheme at the date of death; whether the members die before or on / after normal pension date.

Lump sum death benefits on death in service

If a member dies in service before normal pension date, then a lump sum death benefit is generally payable in the form of life assurance.  In addition, the member`s overall policy account (usually comprising member contributions (including AVCs) and employer contributions, plus any investment returns on these contributions) is typically used to provide further lump sum death benefits.

Although protected rights were abolished from 6 April 2012, with any accrued protected rights not already in payment at this date being treated the same as other pension benefits, protected rights pensions already in payment at this date continue to be paid and increased on the same basis that applied at the time they were purchased.

If a member was contracted out and died in service before 6 April 2012, the protected rights element of the fund had to be used to provide for a spouse`s / civil partner`s pension rather than to provide for an additional lump sum death benefit. In the absence of a spouse / civil partner, the protected rights element of the fund generally had to be paid to persons at the Trustees` Discretion as a lump sum death benefit, normally in accordance with the member`s nomination form or, alternatively, to the deceased member`s estate.

If death in service occurs on / after normal pension date, the life assurance benefit may no longer be payable depending on the rules of the scheme. However, the member`s policy account is generally still used to provide a lump sum death benefit as described above.

With money purchase schemes, life assurance benefits are generally insured. This means that the scheme must pay a premium to an insurance company who will then be responsible for paying out life assurance benefits when they fall due.

Pensions on death in service

From 6 April 2012, it was no longer possible for defined contribution schemes to be contracted out on a protected rights basis. If a member was contracted out and died in service before this date, the protected rights element of the fund had to be used to purchase a spouse`s / civil partner`s pension. However, in the absence of a spouse / civil partner, the protected rights could have been refunded as a lump sum death benefit as described in the previous section (‘Lump sum death benefits on death in service`).

Prior to 6 April 2006, the pension purchased by pre 6 April 1997 protected rights had to escalate in payment in line with the increase in the Retail Prices Index (RPI) to a maximum of 3% per annum. The pension purchased by post 5 April 1997 protected rights had to escalate by RPI to a maximum of 5% per annum.

From 6 April 2006, the compulsion to increase pensions in respect of protected rights was removed. Although protected rights were abolished from 6 April 2012, with any accrued protected rights not already in payment at this date being treated the same as other pension benefits, protected rights pensions already in payment at this date continue to be paid and increased on the same basis that applied at the time they were purchased.

It should be noted that in cases where the total lump sum death benefit exceeds the deceased member`s remaining Individual Lifetime Allowance, the balance of the fund can be used to purchase additional pension for the deceased member`s dependants to avoid a tax charge.

2. What happens on death in deferment?

Death in deferment benefits are paid in respect of preserved members (or opted-out members) of a scheme at the date of death.

Lump sum death benefits on death in deferment

Cover for life assurance ceases when a member leaves pensionable service. If a member is opted-out (leaves the scheme but not the company) then life cover may continue but sometimes at a lower rate.

There is no life assurance benefit for preserved members of the OPQ Retirement & Death Benefits Plan. As such, the lump sum death benefit for death in deferment is simply a refund of the value of the member`s overall fund, including any investment returns between the date of leaving and the date of death.

Please refer to the previous section (‘Lump sum death benefits on death in service`) to see under what circumstances protected rights can be refunded (provided death in deferment occurred before 6 April 2012).

Pensions on death in deferment

A member`s fund will continue to be invested after the member becomes preserved. Should the member die before retirement, the accumulated fund will generally be treated in the same way as that of an active member who dies in service (see previous section on ‘Pensions on death in service`).

3. What happens on death in retirement?

Death in retirement benefits are paid in respect of retired members of a scheme at the date of death.

Lump sum death benefits on death in retirement

On death in retirement, a lump sum death benefit will typically be paid provided the member dies within a specified period (usually if death occurs within 5 years from the date of the first pension payment, although the period can be longer). However, there will be no lump sum death benefit at all should this option not be made available to the member at the time the benefits are taken - or if this option is made available to the member at the time the benefits are taken but is not chosen by the member.

Should the member die outside the specified period, there is usually no lump sum death benefit payable.

Pensions on death in retirement

The payment of a death in retirement spouse's / civil partner's pension will be dependent upon whether the pension purchased by the member at retirement provided for this contingency.

If a contracted-out member was married and retired prior to 6 April 2012, there had to be a provision for a 50% spouse`s / civil partner`s pension for the protected rights (this requirement ceased for members retiring from 6 April 2012 when it was no longer possible to contract out on a protected rights basis). Where a protected rights pension exists, then on the member`s death the spouse`s / civil partner`s protected rights pension will come into payment and will increase each year in the same way as the member`s protected rights pension.

Members will normally decide when taking their benefits whether they want to use the value of their policy account to purchase a single life pension or a pension with an attaching spouse`s / civil partner`s pension to be paid in the event of their death. The member will typically opt for a 50% or a two-thirds spouse`s / civil partner`s pension, with the rate of escalation being at the same rate as that of the member.

Since 6 April 2015 and the introduction of the Pension Freedoms, there are additional options available to members of money purchase schemes other than the requirement to purchase a pension.

Please note that, for the OPQ Retirement & Death Benefits Plan, the pension is paid by an external provider rather than from the scheme. As such, learners will not be tested on death in retirements in the examinations.

4. How are communications with beneficiaries / trustees made?

Once the benefits have been calculated they need to be communicated to the beneficiaries and / or trustees of the scheme in the form of a letter. The examinations will expect learners to write letters to include all the facts and figures that are required to be communicated.

For death case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1. Member's date of death

2. Lump sum death benefit (stating actual values for each component) payable to either persons at the Trustee's discretion or to the legal personal representatives

3. LTA percentage used (stating that it counts against the deceased member)

4. Requirements for payment:

a) Member’s death certificate

b) Marriage certificate

c) Spouse's birth certificate

d) Bank details

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Deaths Special Circumstances


Special Circumstances

Fact Finding

For the purposes of the CPC examinations, learners will need to take into account a variety of special circumstances and show how they affect the benefits payable:

  • Split rates of accrual
  • Part-time service
  • Transferred-in benefits
  • Additional voluntary contributions
  • Augmentations
  • Retained benefits

Although Retained Benefits (i.e. additional pension benefits, which are not held within the scheme) are not specifically tested in the CPC examinations, they will have an impact on the available Lifetime Allowance.

Details of special circumstances should always be included when an associated letter is required to be written.

1. How are split rates of accrual handled?

Typically, changes in accrual rate will occur in a salary related scheme whereby members have either changed their category of membership to one that accrues pension at a different rate or because the scheme rules have been amended to provide a higher / lower accrual rate.

If a member dies in active service, pensionable service will need to be determined for each change in accrual rate to enable the overall pension to be calculated. For death in service before normal pension date, prospective service will be calculated using the prevailing accrual rate at the date of death.

Depending on the special circumstances quoted, a different accrual rate might provide for a different percentage to be applied in determining the spouse's / civil partner's pension for the period for which the changed accrual rate applies.

2. How is part-time service handled?

Where a member has worked (or is working) on a part-time basis, pensionable service for a salary related scheme will need to be adjusted to reflect the reduced hours that the member has worked (or is working).  For a money purchase scheme, working reduced hours will mean contributions are based on a lower salary (i.e. actual salary rather than the full-time equivalent salary).

For salary related schemes, if a member dies in active service, pensionable service will need to be determined for each change in part-time service to enable the overall pension to be calculated. For death in service before normal pension date, prospective service will be calculated using the prevailing part-time basis at the date of death.

For both salary related schemes and money purchase schemes, the salary to be used in determining any life assurance benefit payable should be based on the actual salary being paid at the date of death rather than the full-time equivalent salary.

3. How are transferred-in benefits handled?

Benefits transferred in to a salary-related scheme may take the form of either a fixed additional pension (often revalued to normal pension date) or a number of added years/months (or days) of pensionable service. For a money purchase scheme, the transfer in will normally be in the form of a single payment to be added to the member`s individual policy account.

In the event of the death of a member, any transferred-in benefits will be subject to the rules of the receiving scheme.

4. How are AVCs handled?

Schemes are obliged to keep Additional Voluntary Contributions (AVCs) separate from the main fund. For salary-related schemes and money purchase schemes, the actual value of the AVCs are generally used to provide additional benefits. However, for some salary-related schemes it is possible to pay AVCs to provide added years of service.

From 6 April 2006 it has not been compulsory for occupational pension schemes to offer the facility for members to pay AVCs.

5. How are augmentations handled?

An augmentation is an enhancement to a member`s benefits over and above those that would normally be provided under the scheme rules.

If an augmentation has been granted prior to a member`s death, it is important that the augmentation has been properly authorised and documented by the trustees.

6. How are retained benefits handled?

Retained benefits are pension rights derived from membership of other employers' registered schemes.

Retained benefits must be taken into account when checking against a deceased member's Individual Lifetime Allowance

Deaths Revision Pages


Number Crunching and Taking Action


For Number Crunching:

Take a look at an individual Case Study from the Number Crunching column.

Calculate the DEATH benefits payable (using the appropriate Scheme Booklet and Tables of Factors).

Check your answers against the answers provided in the Answer column.

For Taking Action:

For the chosen Case Study, write a letter to the trustees/beneficiaries to communicate the DEATH benefits payable and the action to be taken.

Compare the contents of your letter with the information required to be communicated from the Taking Action column.

XYZ Pension and Life Assurance Scheme (CAT A)

Case StudyExamNumber CrunchingAnswerTaking Action





Victoria ArcherDeaths 1Case Study
Answer
Letter
June ConsellerDeaths 1Case Study
Answer
Letter
James TrevorDeaths 1Case Study
Answer
Letter
Haag KaschakDeaths 2Case Study
Answer
Letter
Jon PareshDeaths 2Case Study
Answer
Letter
Alesha RahalDeaths 2Case Study
Answer
Letter


XYZ Pension and Life Assurance Scheme (CAT B)

Case StudyExamNumber CrunchingAnswerTaking Action





Grace BealeDeaths 1Case StudyAnswerLetter
Michael TallisDeaths 1Case StudyAnswerLetter
Steven ThomasDeaths 1Case StudyAnswerLetter
Martin BrownDeaths 2Case StudyAnswerLetter
Sarah TailorDeaths 2Case StudyAnswerLetter
George YorkDeaths 2Case StudyAnswerLetter


RST Career Average Earnings Scheme

Case StudyExamNumber CrunchingAnswerTaking Action





Thomas DavisDeaths 1Case Study
Answer
Letter
Slav DulikDeaths 1Case Study
Answer
Letter
Tricia Johnson
Deaths 1Case Study
Answer
Letter
Roberta Wallington
Deaths 1Case Study
Answer
Letter
Galel AlmasiDeaths 2Case Study
Answer
Letter
Hai ChenDeaths 2Case Study
Answer
Letter
Felicia DixonDeaths 2Case Study
Answer
Letter


OPQ Retirement and Death Benefits Plan

Case StudyExamNumber CrunchingAnswerTaking Action





Lucy SpigotDeaths 1Case Study
Answer
Letter
Hose FernandezDeaths 1Case Study
Answer
Letter
Tony PatelDeaths 1Case Study
Answer
Letter
Jung LaiDeaths 2Case Study
Answer
Letter
Gail RobertsDeaths 2Case Study
Answer
Letter




Retirements


Retirements Overview

Welcome to the 2020-2021 Version of the online learning programme Determine Pension Scheme Retirement Benefits, one of the units that make up the Pensions Management Institute's Vocational Qualification examinations.

The Case Studies and Worked Answers that are labelled 2020-2021 have been updated to reflect current practice and are based on the latest Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes and gives guidance on what additional information (if any) is expected to be provided in the Case Studies and Letters.

Please be mindful that, although covering numerous scenarios, the case studies cannot cover each and every permutation on which learners may be tested in the examinations. 

Latest News

For the latest information or guidance on the CPC Examinations please click on the following link.  

This will take you through to the PMI website:

Certificate in Pensions Calculations

Retirements Fact Finding (final Salary)


Salary Related Schemes

In a salary related scheme, often referred to as a defined benefit scheme, the scheme rules will describe how a member's benefits should be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of retirement benefits for a salary related scheme.

The case studies that you will study in the examinations will include two (2) salary related schemes, one of which is a CARE (Career Average Revalued Earnings) scheme:

  • The RST Pension Scheme (which is not contracted out)
  • The XYZ Pension and Life Assurance Scheme (which was contracted out for Category A members until 5 April 2016 but was never contracted out for Category B members)

There are four (4) distinct retirement calculations and candidates will be tested on each of these in the examinations:

  1. Normal retirement (for members who are "active" or “preserved” and who retire at normal pension date)
  2. Early retirement (for members who are “active” or "preserved" and who retire before normal pension date)
  3. Ill-health retirement (for members who are “active” or “preserved” and retire before normal pension date due to ill-health)
  4. Late retirement (for members who are "active" or “preserved” and who retire after normal pension date)


Fact Finding

1. How are normal retirement benefits calculated?

A normal retirement pension for a salary related scheme is typically based on the rate of pension accrual, the member`s period of pensionable service and the member`s final pensionable salary at normal pension date.

The links below provide further information on some of the terms:

Under the XYZ Pension and Life Assurance Scheme for a Category A member, a normal retirement pension is based on a default pension accrual rate of 70ths (although members can vary their contribution rate in exchange for an accrual rate of 60ths or 80ths), the member`s period of pensionable service (measured in years and days) and the member`s final pensionable salary (best pensionable salary in the last 5 years) at normal pension date.

Under the XYZ Pension and Life Assurance Scheme for a Category B member, a normal retirement pension  is based on a pension accrual rate of 60ths, the member`s period of pensionable service up to 3 July 2011 (measured in years and days) and the member`s final pensionable salary (either best pensionable salary in the last 5 years or, if greater, final pensionable salary at 3 July 2011 increased by RPI).

Under the RST Pension Scheme a normal retirement pension is based on a member’s CARE pension calculated up to 5 April prior to normal pension date plus a proportionate amount from 6 April up to normal pension date. A year-to-date pro-rata CPI factor is additionally applied to the member`s CARE pension accrued to the previous 5 April.

The CARE pension is then compared to an `underpin` pension based on 1/100 x pensionable service (measured in years and complete months) x final pensionable salary (based on contractual salary). If this results in a higher figure, then the `underpin` pension rather that the CARE pension is payable.

Benefits under the RST Pension Scheme must be split pre 6 April 2006 and post 5 April 2006 due to the different rates at which these elements of pension increase in payment.

The links below provide in depth information on further items and considerations which are relevant to the calculation and treatment of retirement benefits:

2. How are early retirement benefits calculated?

An early retirement pension is generally calculated in the same way as a normal retirement pension except an actuarial reduction is typically applied to the accrued pension.

An early retirement pensions is generally reduced by an actuarial factor to reflect the fact that the pension is coming into payment earlier than expected and, consequently, is likely to be payable for a longer period than expected. The factor will typically be a fixed percentage for each complete year that the member retires early (pro-rated for each complete month early). This is the case for the XYZ Pension and Life Assurance Scheme and the RST Pension Scheme.

It is not uncommon for schemes with a normal pension age of 65 to offer retirement from age 60 with no actuarial adjustment. This is particularly likely when equalisation considerations apply.

TIP: With effect from the 6th April 2010, the earliest that a member can generally retire from an occupational pension scheme is age 55.  This is expected to rise to age 57 in 2028 in line with rises to the State Pension Age.

As with normal retirement, members can commute part of their pension for a tax-free cash sum and take a reduced pension – (see ‘Tax free lump sum’ link in previous section).

TIP: Under the RST Pension Scheme, the post 5 April 2006 pension should be commuted first with the balance, if any, being commuted from the pre 6 April 2006 pension.

If a scheme was contracted out prior to 6 April 2016, similar checks to those required for normal retirement apply on early retirement. The pension accrued for the period 6 April 1978 to 5 April 1997 must be at least equal to the GMP. In addition, if the member takes the tax-free cash sum option, the scheme should ensure that the residual pension (when revalued to ‘GMP due date`) covers the GMP at ‘GMP due date`. If it does not, the scheme must, as a minimum, uplift the residual pension to the GMP once the member reaches GMP due date`.

Should early retirement occur after ‘GMP due date` then the residual pension, after taking the tax-free cash sum option, must cover the GMP – (see ‘Contracting out’ link in previous section).

TIP: GMP due date is the date at which the GMP becomes payable and is age 65 for males and age 60 for females. It is not, as is often believed, the same as State Pension Age.

3. How are ill-health retirement benefits calculated?

An ill-health retirement pension can be based on actual pensionable service and final pensionable salary at the date of retirement (with or without an actuarial reduction being applied) or, if the scheme rules permit, it can be based on prospective pensionable service to normal pension date and final pensionable salary at the date of retirement.

In the event of ill-health retirement, it is possible for members to receive their pension prior to age 55. In cases of serious ill-health the scheme rules may additionally permit the pension to be fully commuted.

Where ill-health benefits are not fully commuted and the pension is based on pensionable service to normal pension date, careful consideration needs to be given to Annual Allowance limits.

  • Tax-free cash sum option - Please refer to earlier sections where this is discussed or where there is a ‘Tax free cash sum’ link.
  • Contracting out - Please refer to earlier sections where this is discussed or where there is a ‘Contracting out’ link.

4. How are late retirement benefits calculated?

A late retirement pension is generally calculated using the pension accrued at normal pension date with an actuarial increase being applied (as in the XYZ Pension and Life Assurance Scheme) or by accruing extra pensionable service until late retirement date with no actuarial increase being applied (as in the RST Pension Scheme).

A late retirement pension is generally increased by an actuarial factor to reflect the fact that the pension is coming into payment later than expected and, consequently, is likely to be payable for a shorter period than expected. The factor will typically be a fixed percentage for each complete year that the member retires late (pro-rated for each complete month late). This is the case for the XYZ Pension and Life Assurance Scheme.

  • Tax-free cash sum option - Please refer to earlier sections where this is discussed or where there is a ‘Tax free cash sum’ link.
  • Contracting out - Please refer to earlier sections where this is discussed or where there is a ‘Contracting out’ link.

5. How are retirements from preserved status handled?

Preserved benefits (often called deferred benefits) belong to members who have left the pension scheme and who have chosen to leave their benefits in the scheme to be taken when they reach retirement. For the purposes of the examinations, a preserved member will always have a date of leaving and a date of retirement.

For a salary related scheme, leaving service entitlements will normally be quoted at the member's date of leaving and will then need to be indexed up to the member's actual retirement date (with actuarially adjusted factors being applied on early or late retirement to cater for a longer or shorter period of payment, respectively).

Under the XYZ Pension and Life Assurance Scheme, the GMP will need to be increased during the period of deferment using the fixed rate revaluation method. Schemes may also adopt the full rate revaluation method whereby the GMP is increased fully in line with the increase in average earnings (Section 148 orders).

For the fixed rate method of revaluation the percentage rate to be applied depends on the date the member left the scheme (see table below). The number of years of revaluation at this percentage rate will be based on the number of complete tax years between the date of leaving and `GMP due date` (or earlier date of retirement). Further statutory increases will apply in the event of retirement occurring after `GMP due date` (age 65 for male members and age 60 for female members).

For the fixed rate method of revaluation the percentage rate to be applied depends on the date the member left the scheme (see table below). The number of years of revaluation at this percentage rate will be based on the number of complete tax years between the date of leaving and `GMP due date` (or earlier date of retirement). Further statutory increases will apply in the event of retirement occurring after `GMP due date` (age 65 for males and age 60 for females).


6 April 2017 onwards

3.5%

6 April 2012 to 5 April 2017

4.75%

6 April 2007 to 5 April 2012

4.0%

6 April 2002 to 5 April 2007

4.5%

6 April 1997 to 5 April 2002

6.25%

6 April 1993 to 5 April 1997

7.0%

6 April 1988 to 5 April 1993

7.5%

6 April 1978 to 5 April 1988

8.5%


Under the XYZ Pension and Life Assurance Scheme, the whole of the pension in excess of the GMP at the date of leaving is increased by RPI subject to a maximum of 5% for each complete year from date of leaving to date of retirement.

Under the RST Pension Scheme, the whole of the pension is increased by CPI subject to a maximum of 5% for each complete year from date of leaving to date of retirement.

6. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect learners to write letters to include all the facts and figures that are required to be communicated.

For retirement case studies from the RST Pension Scheme and XYZ Pension and Life Assurance Scheme all letters should include the following (where applicable):

1. Member’s date of retirement

2. Member’s options:

  1. Full pension (stating actual values for pension splits [pre-1988 GMP, post-1988 GMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme])
  2. Tax-free lump sum and residual pension (stating actual values for pension splits [pre-1988 GMP, post-1988 GMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre- 2006 and post-2006 elements for RST Pension Scheme])

3. Pension details:

  1. Commencement date
  2. Frequency of payment
  3. Pension increase rates (stating actual rates for pension splits [pre-1988 GMP, post-1988 GMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme])

4. Spouse’s pension

5. Death in retirements benefits

6. LTA percentage used (stating percentage for each of the member’s options)

7. Requirements for payment:

  1. Choice of option
  2. Member’s birth certificate
  3. Bank details

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.



Retirements Fact Finding (Money Purchase Scheme)


Money Purchase Schemes

In a money purchase scheme, often referred to as a defined contribution scheme, the scheme rules will describe how a member's benefits are to be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of retirement benefits for a money purchase scheme.

The case studies that you will be referred to in the examinations will include one (1) money purchase scheme:

  • The OPQ Retirement & Death Benefits Plan (which is not contracted out)

TIP: From 6 April 2012 it was no longer possible for money purchase schemes to be contracted out.

There are four (4) distinct retirement calculations and candidates will be tested on each of these in the examinations:

  1. Normal retirement (for members who are "active" or “preserved” and who retire at normal pension date)
  2. Early retirement (for members who are “active” or "preserved" and who retire before normal pension date)
  3. Ill-health retirement (for members who are “active” or “preserved” and retire before normal pension date due to ill-health)
  4. Late retirement (for members who are "active" or “preserved” and who retire after normal pension date)


Fact Finding

1. What benefits are available on retirement from a money purchase scheme?

The benefits potentially available on retirement are as follows:

  1. Tax-free cash sum
  2. Member’s pension (with or without increases)
  3. Spouse's or dependant's pension payable on the death of the member (with or without increases)

For members taking their money purchase benefits from 6 April 2015, there are additional options available as a result of the Pension Freedoms. For instance, under the OPQ Retirement & Death Benefits Plan, it is now possible to take a single Uncrystallised Funds Pension Lump Sum (UFPLS). By taking this option, the member`s entire Personal Retirement Account is exhausted, with 25% of the UFPLS being paid tax-free and the balance being taxed at the member`s marginal rate of income tax.

TIP: The OPQ Retirement & Death Benefits Plan does not test candidates on death in retirement case studies since the member’s annuity, once in payment, is the responsibility of the chosen provider and not the OPQ Retirement & Death Benefits Plan.

2. How is the tax-free cash sum calculated?

Under a money purchase scheme, the maximum tax-free cash sum is generally 25% of the value of the member's fund.

Should a member choose to not take the tax-free cash sum option or, alternatively, to take less than the maximum available, then this will leave a higher fund value with which to purchase a pension.

From 6 April 2015, it is now also possible to take a single one-off Uncrystallised Funds Pension Lump Sum (UFPLS) or a series of UFPLS`s. 25% of each lump sum is tax-free, with the balance being taxed at the member`s marginal rate of income tax. Under the OPQ Retirement & Death Benefits Plan, only the single UFPLS is available. However, members may choose to transfer to an alternative pension arrangement if they wish to take a series of UFPLS payments or, indeed, if they wish to exercise other options available following the introduction of the Pension Freedoms introduced in Budget 2014.

Since members retiring from 6 April 2012 no longer have any protected rights, it is now possible to take 25% of the value of the overall policy account as a tax-free cash sum, assuming the amount is within the member`s remaining Individual Lifetime Allowance.

3. How is a normal retirement pension calculated?

A normal retirement pension is based on the member's fund value (after exercising the tax-free cash sum option), the prevailing annuity rates and the choice of pension at normal pension date (e.g. single life / joint life or escalating / non-escalating).

The annuity factor will vary according to the member's age at retirement and the benefits to be provided. For example:

Details
Calculation
  • Member is retiring at age 65
Fund available: £30,000
  • Annuity factor for pension for member only
  • Pension increasing annually by RPI limited to 5%
£6.60 pension per annum per £100 of fund value
  • Annuity factor for pension for member plus 50% spouse’s pension on death of member
  • Pension increasing annually by RPI limited to 3%
£5.79 pension per annum per £100 of fund value
  • Amount of pension (no spouse’s pension)
[£30,000 / 100] x 6.60 = £1,980 per annum
  • Amount of pension (50% spouse’s pension)
[£30,000 / 100] x 5.79 = £1,737 per annum


With the OPQ Retirement & Death Benefits Plan, members can make use of an `Annuity Bureau` when purchasing their annuity on retirement. For this service, an ‘Annuity Bureau` charge is applied. This charge is £60.00 or, if greater, 0.05% of the value of the member`s Personal Retirement Account after the tax-free cash sum has been taken.

TIP: Another option for securing a pension under the OPQ Retirement & Death Benefits Plan is for the trustees to purchase an annuity with an insurance company (open market option).  This option must be mentioned on the examination paper.

4. How is an early / ill-health / late retirement pension calculated?

An early / ill-health / late retirement pension is calculated in exactly the same way as a normal retirement pension. However, although the key elements are the same (i.e. fund value after exercising the tax free cash sum option, annuity factors and choice of pension), the annuity factors are based on the member's age at retirement date and so will be more generous for late retirement (due to the shorter expected period of payment) and less generous for early retirement (due to the longer expected period of payment).

The annuity factor will vary according to the member`s age at retirement and the benefits to be provided. The examples below cover early and late retirement:

Details
Calculation
  • Member is retiring EARLY at age 58
Fund available: £30,000
  • Annuity factor for pension for member only
  • Pension increasing annually by RPI limited to 5%
£5.00 pension per annum per £100 of fund value
  • Annuity factor for pension for member plus 50% spouse’s pension on death of member
  • Pension increasing annually by RPI limited to 3%
£4.61 pension per annum per £100 of fund value
  • Amount of pension (no spouse’s pension)
[£30,000 / 100] x 5.00 = £1,500 per annum
  • Amount of pension (50% spouse’s pension)
[£30,000 / 100] x 4.61 = £1,383 per annum


Details
Calculation
  • Member is retiring LATE at age 71
Fund available: £30,000
  • Annuity factor for pension for member only
  • Pension increasing annually by RPI limited to 5%
£8.75 pension per annum per £100 of fund value
  • Annuity factor for pension for member plus 50% spouse’s pension on death of member
  • Pension increasing annually by RPI limited to 3%
£7.32 pension per annum per £100 of fund value
  • Amount of pension (no spouse’s pension)
[£30,000 / 100] x 8.75 = £2,625 per annum
  • Amount of pension (50% spouse’s pension)
[£30,000 / 100] x 7.32 = £2,196 per annum


5. How are retirements from preserved status handled?

Preserved benefits (often called deferred benefits) belong to members who have left the pension scheme and who have chosen to leave their benefits in the scheme to be taken when they reach retirement. For the purposes of the examinations, a preserved member will always have a date of leaving and a date of retirement.

For money purchase schemes, the fund date of leaving will remain invested until such time as the member takes his benefits but no further contributions will be paid. Benefits will be determined in exactly the same way as indicated in previous sections. 

6. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect learners to write letters to include all the facts and figures that are required to be communicated.

For retirement case studies from the OPQ Retirement & Death Benefits Plan, all letters should include the following (where applicable):

1. Member’s date of retirement

2. Value of member’s Personal Retirement Account

3. Full set of options:

  1. Annuity only (stating all combinations based on escalation rates and single life / joint life options)
  2. Tax-free cash sum and annuity (stating all combinations based on escalation rates and single life / joint life options)

4. Pension details:

  1. Commencement date
  2. Frequency of payment

5. UFPLS option (stating tax-free element and taxable element)

6. Open market option

7. LTA percentage used (stating the percentages for each of the annuity / tax-free cash sum options)

8. Requirements for payment:

  1. Choice of option
  2. Member’s birth certificate
  3. Bank details

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study

Retirements Special Circumstances


Special Circumstances

For the purposes of the CPC examinations, learners will need to take into account a variety of special circumstances and show how they affect the benefits payable:

  • Split rates of accrual
  • Part-time service
  • Transferred-in benefits
  • Additional voluntary contributions
  • Augmentations
  • Retained benefits

Although Retained Benefits (i.e. additional pension benefits, which are not held within the scheme) are not specifically tested in the CPC examinations, they will have an impact on the available Lifetime Allowance.

Details of special circumstances should always be included when an associated letter is required to be written.


Fact Finding

1. How are split rates of accrual handled?

Typically, changes in accrual rate will occur in a salary related scheme whereby members have either changed their category of membership to one that accrues pension at a different rate or because the scheme rules have been amended to provide a higher / lower accrual rate.

If a member retires from active status, pensionable service will need to be determined for each change in accrual rate to enable the overall pension to be calculated. For ill-health calculations, any prospective service will be calculated using the prevailing accrual rate at the date of ill-health. Depending on the special circumstances quoted, a different accrual rate might provide for a different percentage to be applied in determining the spouse`s / civil partner`s pension for the period for which the changed accrual rate applies.

2. How is part-time service handled?

Where a member has worked (or is working) on a part-time basis, pensionable service for a salary related scheme will need to be adjusted to reflect the reduced hours that the member has worked (or is working).  For a money purchase scheme, working reduced hours will mean contributions are based on a lower salary (i.e. actual salary rather than the full-time equivalent salary).

For salary related schemes, if a member retires from active service, pensionable service will need to be determined for each change in part-time service to enable the overall pension to be calculated. For retirement before normal pension date, prospective service will be calculated using the prevailing part-time basis at the date of retirement.

3. How are transferred-in benefits handled?

Benefits transferred in to a salary related scheme may take the form of either a fixed additional pension (often revalued to normal pension date) or a number of added years/months (or days) of pensionable service. For a money purchase scheme, the transfer in will normally be in the form of a single payment to be added to the member`s individual policy account.

In the event of a member retiring, any transferred-in benefits will be subject to the rules of the receiving scheme.

4. How are AVCs handled?

Schemes are obliged to keep Additional Voluntary Contributions (AVCs) separate from the main fund. For salary related schemes and money purchase schemes, the actual value of the AVCs are generally used to provide additional benefits. However, for some salary related schemes it is possible to pay AVCs to provide added years of service.

From 6 April 2006 it has not been compulsory for occupational pension schemes to offer the facility for members to pay AVCs.

5. How are augmentations handled?

An augmentation is an enhancement to a member`s benefits over and above those that would normally be provided under the scheme rules.

If an augmentation has been granted prior to a member`s retirement, it is important that the augmentation has been properly authorised and documented by the trustees.

6. How are retained benefits handled?

Retained benefits are pension rights derived from membership of other employers' registered schemes.

Retained benefits must be taken into account when checking against a retired member's Individual Lifetime Allowance.

Retirements Revision Pages


Number Crunching and Taking Action


For Number Crunching:

Take a look at an individual Case Study from the Number Crunching column.

Calculate the RETIREMENT benefits payable (using the appropriate Scheme Booklet and Tables of Factors).

Check your answers against the answers provided in the Answer column.

For Taking Action:

For the chosen Case Study, write a letter to the trustees/member to communicate the RETIREMENT benefits payable and the action to be taken.

Compare the contents of your letter with the information required to be communicated from the Taking Action column.

XYZ Pension and Life Assurance Scheme (CAT A)

Case StudyNumber CrunchingAnswerTaking Action




Elizabeth BannisterCase StudyAnswerLetter
Lawrence LandyCase StudyAnswerLetter
Lorna BayiCase StudyAnswerLetter
Martina ElliotCase StudyAnswerLetter
Stephen WalkerCase StudyAnswerLetter


XYZ Pensions and Life Assurance Scheme (CAT B)

Case StudyNumber CrunchingAnswerTaking Action




Angela RoseCase StudyAnswerLetter
Arthur SimmonsCase StudyAnswerLetter
James BedfordCase StudyAnswerLetter
Jane FosterCase StudyAnswerLetter
Mark GoaterCase StudyAnswerLetter


RST Career Average Earnings Scheme

Case StudyNumber CrunchingAnswerTaking Action




Christopher BeattieCase StudyAnswerLetter
Jessica MarinerCase StudyAnswerLetter
Paula MillsCase StudyAnswerLetter
Samuel WarkCase StudyAnswerLetter
Stanley OsborneCase StudyAnswerLetter


OPQ Retirement and Death Benefits Plan

Case StudyNumber CrunchingAnswerTaking Action




Amy ReesCase StudyAnswerLetter
Jane WilsonCase StudyAnswerLetter
Joseph DellerCase StudyAnswerLetter
Petula BristowCase StudyAnswerLetter
Stephen LoweCase StudyAnswerLetter






Leavers


Leavers Overview

Welcome to the 2020-2021 Version of the online learning programme Determine Pension Scheme Leavers Benefits, one of the units that make up the Pensions Management Institute's Vocational Qualification examinations.

The Case Studies and Worked Answers that are labelled 2020-2021 have been updated to reflect current practice and are based on the latest Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes and gives guidance on what additional information (if any) is expected to be provided in the Case Studies and Letters.

Please be mindful that, although covering numerous scenarios, the case studies cannot cover each and every permutation on which learners may be tested in the examinations. 

Latest News

For the latest information or guidance on the CPC Examinations please click on the following link.  This will take you through to the PMI website:

 Certificate in Pensions Calculations

Leavers Fact Finding (Final Salary)


Salary Related Schemes 

In a salary related scheme, often referred to as a defined benefit scheme, the scheme rules will describe how a member's benefits should be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of leaver benefits for a salary related scheme.

The case studies that you will study in the examinations will include two (2) salary related schemes, one of which is a CARE (Career Average Revalued Earnings) scheme:

  • The RST Pension Scheme (which is not contracted out)
  • The XYZ Pension and Life Assurance Scheme (which was contracted out for Category A members until 5 April 2016 but was never contracted out for Category B members)

There are three (3) distinct leaver calculations and candidates will be tested on each of these in the examinations:

  1. Refund of contributions (for members who are "active" when they leave the scheme)
  2. Preserved pension (for members who are “active” when they leave the scheme)
  3. Transfer out (for members who are “active” when they leave the scheme)

It should be noted that, for the Transfer out option, it will only be necessary for learners to ‘state’ the option (assuming the option exists on leaving the scheme).


Fact Finding

1. How and when can contributions be refunded?

If a member has completed less than two (2) years of qualifying service in a salary related scheme, then a refund of contributions will be offered.

When a refund of contributions is paid, the amount payable depends solely on the contributions paid by the member. These contributions may include interest, depending on the rules of the scheme.

Historically, if a scheme was contracted out prior to 6 April 2016 (and the refund related to any period of service before 6 April 2016), an amount was deducted from the gross refund equal to the National Insurance (NI) saving that the member had made through being contracted out of the State Second Pension (S2P) for the period before 6 April 2016.

This amount was called the Certified Amount (CA). The CA was repaid to the State along with the saving that the employer additionally made through the member being contracted out. The combined saving repaid to the State in respect of the member and the employer was known as the Contribution Equivalent Premium (CEP).

The remaining contributions are refunded after the deduction of tax at the rate of 20% on the amount up to £20,000 and 50% on any amount above £20,000.

Additional Voluntary Contributions (AVCs), typically including interest and / or investment growth, are added to the gross refund prior to the deduction of tax.

TIP: Although many schemes apply interest to member contributions, the RST Pension Scheme and the XYZ Pension and Life Assurance Scheme do not. Additionally, AVCs for these schemes are refunded without taking into account investment growth.

The links below provide further information in relation to refunds:

From 6 April 2006, members who leave a scheme with three (3) or more months but less than two (2) years of qualifying service have had the added option of a cash equivalent transfer value as an alternative to the refund option.

Although not obliged to do so, some schemes may additionally offer the option of a preserved pension when a member leaves the scheme with less than two (2) years of qualifying service. Sometimes, the scheme rules will stipulate a minimum period of qualifying service in the scheme for this option to apply.

For the RST Pension Scheme, members with three (3) months or more but less than two (2) years of qualifying service, and who have no transferred-in benefits, have the choice of:

(a) Refund of their own contributions without interest, or

(b) Preserved pension, or

(c) Cash equivalent transfer value to another pension arrangement.


It should be noted that, for the RST Pension Scheme, the preserved option is permitted regardless of the length of qualifying service if the reason for leaving is redundancy.

For the XYZ Pension and Life Assurance Scheme, members with three (3) months or more but less than two (2) years of qualifying service, and who have no transferred-in benefits, have the choice of:

(a) Refund of their own contributions without interest, or

(b) Cash equivalent transfer value to another pension arrangement.

It should be noted that, for the XYZ Pension and Life Assurance Scheme, the preserved option is additionally permitted provided the member leaves with one (1) year or more of qualifying service and the reason for leaving is either due to ill-health or dismissal other than for fraud or misconduct.

2. How and when can benefits be preserved?

If a member has completed two (2) years or more of qualifying service in a salary related scheme, then a preserved pension will be offered.

See previous section on refunds to see other circumstances in which benefits can be preserved under either the XYZ Pension and Life Assurance Scheme or the RST Pension Scheme.

Under the XYZ Pension and Life Assurance Scheme for Category A members, a preserved pension is based on a default pension accrual rate of 70ths (although members can vary their contribution rate in exchange for a rate of 60ths or 80ths), the member`s period of pensionable service (measured in years and days) and the member`s final pensionable salary (best pensionable salary in the last 5 years) at the date of leaving the scheme.

Under the XYZ Pension and Life Assurance Scheme for Category B members, a preserved pension is based on a pension accrual rate of 60ths, the member`s period of pensionable service up to 3 July 2011 (measured in years and days) and the member`s final pensionable salary (either best pensionable salary in the last 5 years from the date of leaving or, if greater, final pensionable salary at 3 July 2011 increased by RPI).

Under the RST Pension Scheme, a preserved pension is based on the member`s CARE pension calculated up to 5 April prior to the date of leaving plus a proportionate amount from 6 April up to the date of leaving.

The CARE pension at the date of leaving is then compared to an `underpin` pension based on 1/100 x pensionable service (measured in years and complete months) x final pensionable salary (based on contractual salary). If this results in a higher figure, then the `underpin` pension rather that the CARE pension applies.

Benefits under the RST Pension Scheme must be split pre 6 April 2006 and post 5 April 2006 due to the different rates at which these elements of pension increase in payment.

For both the XYZ Pension and Life Assurance Scheme and the RST Pension Scheme, the preserved pension is revalued from the date of leaving to normal pension date. In the event of the member retiring earlier than normal pension date, then the preserved pension is revalued to the date of early retirement date, with an early retirement factor then being applied.

Should retirement occur after normal pension date, then the preserved pension is revalued to late retirement date for the RST Pension Scheme. However, for the XYZ Pension and Life Assurance Scheme, the preserved pension is revalued to normal pension date, with a late retirement factor then being applied.

Under the XYZ Pension and Life Assurance Scheme, the GMP for Category A members is increased during the period of deferment using the fixed rate revaluation method. It is also possible for schemes to adopt the full rate revaluation method whereby the GMP is increased fully in line with the increase in average earnings (Section 148 orders).

For the fixed rate method of revaluation the percentage rate to be applied depends on the date the member left the scheme (see table below). The number of years of revaluation at this percentage rate will be based on the number of complete tax years between the date of leaving and GMP due date (or earlier date of retirement). Further statutory increases will apply in the event of retirement occurring after GMP due date (age 65 for males and age 60 for females).

       

6 April 2017 onwards

3.5%

6 April 2012 to 5 April 2017

4.75%

6 April 2007 to 5 April 2012

4.0%

6 April 2002 to 5 April 2007

4.5%

6 April 1997 to 5 April 2002

6.25%

6 April 1993 to 5 April 1997

7.0%

6 April 1988 to 5 April 1993

7.5%

6 April 1978 to 5 April 1988

8.5%


For salary related schemes, there are also legislative requirements for the revaluation of a member`s preserved pension over and above the GMP. The rate of statutory revaluation to be applied to various elements of pension is dependent on when the member left pensionable service as follows:

  • Date of leaving before 1 January 1986 - No revaluation on pension over and above GMP
  • Date of leaving between 1 January 1986 and 31 December 1990 - No revaluation on pension earned before 1 January 1985 but RPI increases (to a maximum of 5% per annum) on pension earned from 1 January 1985
  • Date of leaving between 1 January 1991 and 5 April 2009 - RPI increases (to a maximum of 5% per annum) on all pension earned
  • Date of leaving after 5 April 2009 - RPI increases (to a maximum of 5% per annum) on pension earned to 5 April 2009 and RPI increases (to a maximum of 2.5% per annum) on pension earned from 6 April 2009

Scheme rules can stipulate increases to the various preserved pension elements over and above the GMP at different rates to those outlined above provided the statutory minimum requirements are met.

The Pensions Act 2011 implemented the Government`s policy to use CPI in place of RPI as the preferred index for determining revaluation in deferment. The Pensions Act confirms, however, that no CPI underpin is required where schemes continue to increase by reference to the RPI.

Under the XYZ Pension and Life Assurance Scheme, the whole of the pension in excess of the GMP at the date of leaving is increased by RPI subject to a maximum of 5% for each complete year from date of leaving to date of retirement.

Under the RST Pension Scheme, the whole of the pension is increased by CPI subject to a maximum of 5% for each complete year from date of leaving to date of retirement.

The links below provide in depth information on further items and considerations which are relevant to the calculation and treatment of preserved benefits:

3. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect candidates to write letters to include all the facts and figures that are required to be communicated.

For leaver case studies from the RST Pension Scheme and XYZ Pension and Life Assurance Scheme all letters should include the following (where applicable):

1. Member's date of leaving and normal pension date

2. Preserved pension on leaving (with actual values for pension splits [pre-1988 GMP, post-1988 GMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme])

3. Revaluation to normal pension date (with actual values for revalued elements, as stipulated above)

4. Lump sum option at retirement (subject to the remaining pension covering the GMP, if applicable)

5. Death before retirement: 

  1. refund of contributions (including payee)
  2. spouse / civil partner's pension (if applicable)

6. Death after retirement:

  1. lump sum death benefit of balance of 5 years' pension payments (including payee)
  2. spouse / civil partner's pension

7. Post retirement increases (with actual rates for pension splits [pre-1988 GMP, post-1988 GMP and excess elements for XYZ Pension and Life Assurance Scheme; and pre-2006 and post-2006 elements for RST Pension Scheme)

8. Transfer value option

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Leavers Fact Finding (Money Purchase Scheme)


Money Purchase Schemes

In a money purchase scheme, often referred to as a defined contribution scheme, the scheme rules will describe how a member's benefits are to be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of leaver benefits for a money purchase scheme.

The case studies that you will be referred to in the examinations will include one (1) money purchase scheme:

  • The OPQ Retirement & Death Benefits Plan (which is not contracted out)

TIP: From 6 April 2012 it was no longer possible for money purchase schemes to be contracted out.

There are three (3) distinct retirement calculations and candidates will be tested on each of these in the examinations:

  1. Refund of contributions (for members who are "active" when they leave the scheme)
  2. Preserved pension (for members who are “active” when they leave the scheme)
  3. Transfer out (for members who are “active” when they leave the scheme)

It should be noted that, for the Transfer out option, it will only be necessary for learners to ‘state’ the option (assuming the option exists on leaving the scheme).

Fact Finding

1. How and when can contributions be refunded?

If a member has completed less than 30 days of qualifying service in a money purchase scheme, then a refund of contributions will be offered. For the OPQ Retirement & Death Benefits Plan, the refund option does not apply if a member has transferred-in benefits from a personal pension plan.

2. How and when can contributions be preserved?

If a member leaves with 30 days or more of qualifying service in a money purchase scheme, then the option of preserved benefits within the scheme will be offered.

Alternatively, members can opt to transfer the value of their fund to another arrangement (such as to the registered scheme of a new employer).

When a refund of contributions is applicable, the amount payable typically depends on the contributions paid by the member.

As a rule, the actual member contributions paid (excluding interest and / or investment growth) are refunded after the deduction of tax. This is at the rate of 20% on the amount up to £20,000 and 50% on any amount over and above £20,000. Any interest and/or investment growth is then generally accumulated to the refund, with the onus on the member to declare this additional amount to HMRC.

TIP: On refunds from the OPQ Retirement & Death Benefits Plan, tax is deducted from the member’s actual contributions, with any investment growth on these contributions being accumulated to the net refund without a further deduction for tax.  The member must then declare any investment growth to HM Revenue & Customs.

For members who have at least 30 days of qualifying service (or who have less than 30 days of qualifying service but have a transferred-in benefit from a previous arrangement), the refund option does not apply. In these cases, members are entitled to either a cash equivalent transfer value or preserved benefits within the scheme.

For money purchase schemes, the fund at the date of leaving will remain invested until such time as the member takes his benefits, and no further contributions will be paid. As such, the amount of pension that can be purchased for a member (should that option be taken) will be unknown until the member actually takes his benefits. The pension will then be dependent upon how well the investments have performed and the annuity rates in force when the pension is purchased (plus the manner in which the pension is to be paid; e.g. single life / joint life, rate of escalation and period of guarantee).

3. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect candidates to write letters to include all the facts and figures that are required to be communicated.

For leaver case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1.Member’s date of leaving and normal pension date (or TRD if Lifestyling applies)

2. Fund value at date of leaving (including unit holdings and fund values, split by contribution type within fund)

3. Statement that the policy account will continue to be invested until benefits are taken

4. Statement that annual benefit statements will be issued

5. Options when taking benefits from the OPQ Retirement & Benefits Plan:

  1. Annuity only using ‘Annuity Bureau’ factors (single life v joint life and increasing v non-increasing)
  2. Tax-free lump sum and reduced annuity using ‘Annuity Bureau’ factors (single life v joint life and increasing v non-increasing)
  3. Single UFPLS

6. Benefits on death before retirement

7. Refund of policy account to legal personal representatives

8. Transfer value option

The list is not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Leavers Special Circumstances


Special Circumstances

For the purposes of the CPC examinations, learners will need to take into account a variety of special circumstances and show how they affect the benefits payable:

  • Split rates of accrual
  • Part-time service
  • Transferred-in benefits
  • Additional voluntary contributions
  • Augmentations
  • Retained benefits

Although Retained Benefits (i.e. additional pension benefits, which are not held within the scheme) are not specifically tested in the CPC examinations, they will have an impact on the available Lifetime Allowance.

Details of special circumstances should always be included when an associated letter is required to be written.

1. How are split rates of accrual handled?

Typically, changes in accrual rate will occur in a salary related scheme whereby members have either changed their category of membership to one that accrues pension at a different rate or because the scheme rules have been amended to provide a higher / lower accrual rate.

If a member leaves active status with entitlement to preserved benefits, pensionable service will need to be determined for each change in accrual rate to enable the overall pension to be calculated. Depending on the special circumstances quoted, a different accrual rate might provide for a different percentage to be applied in determining the spouse`s / civil partner`s pension for the period for which the changed accrual rate applies.

2. How is part-time service handled?

Where a member has worked (or is working) on a part-time basis, pensionable service for a salary related scheme will need to be adjusted to reflect the reduced hours that the member has worked (or is working).  For a money purchase scheme, working reduced hours will mean contributions are based on a lower salary (i.e. actual salary rather than the full-time equivalent salary).

For salary related schemes, if a member leaves active service, pensionable service will need to be determined for each change in part-time service to enable the overall pension to be calculated.

3. How are transferred-in benefits handled?

Benefits transferred in to a salary related scheme may take the form of either a fixed additional pension (often revalued to normal pension date) or a number of added years/months (or days) of pensionable service. For a money purchase scheme, the transfer in will normally be in the form of a single payment to be added to the member`s individual policy account.

In the event of a member leaving active service, any transferred-in benefits will be subject to the rules of the receiving scheme.

4. How are AVCs handled?

Schemes are obliged to keep Additional Voluntary Contributions (AVCs) separate from the main fund. For salary related schemes and money purchase schemes, the actual value of the AVCs are generally used to provide additional benefits. However, for some salary related schemes it is possible to pay AVCs to provide added years of service.

From 6 April 2006 it has not been compulsory for occupational pension schemes to offer the facility for members to pay AVCs.

5. How are augmentations handled?

An augmentation is an enhancement to a member`s benefits over and above those that would normally be provided under the scheme rules.

If an augmentation has been granted prior to a member leaving service, it is important that the augmentation has been properly authorised and documented by the trustees.

6. How are retained benefits handled?

Retained benefits are pension rights derived from membership of other employers' registered schemes.

Retained benefits must be taken into account when checking against a preserved member's Individual Lifetime Allowance.

Leavers Revision Pages


Number Crunching and Taking Action


For Number Crunching:

Take a look at an individual Case Study from the Number Crunching column.

Calculate the LEAVER benefits payable (using the appropriate Scheme Booklet and Tables of Factors).

Check your answers against the answers provided in the Answer column.

For Taking Action:

For the chosen Case Study, write a letter to the trustees/member to communicate the LEAVER benefits payable and the action to be taken.

Compare the contents of your letter with the information required to be communicated from the Taking Action column.


XYZ Pension and Life Assurance Scheme (CAT A)

Case StudyExamNumber CrunchingAnswerTaking Action





Bianka DagmarLeavers  1Case Study
Answer
Letter
Artur BaranouLeavers 2Case Study
Answer
Letter
Jennifer AddingtonLeavers 2Case Study
Answer
Letter
Martin CarpenterLeavers 2.Case Study
Answer
Letter


XYZ Pension and Life Assurance Scheme (CAT B)

Case StudyExamNumber CrunchingAnswerTaking Action





James HughesLeavers 1
Case Study
Answer
Letter
Grace DickinsonLeavers 2
Case Study
Answer
Letter
Paul BaxterLeavers 2
Case Study
Answer
Letter
Suzanne CarrLeavers 2Case Study
Answer
Letter


RST Career Average Earnings Scheme

Case StudyExamNumber CrunchingAnswerTaking Action





Amir ChowdhuryLeavers 1
Case Study
Answer
Letter
Noah WilliamsLeavers 1
Case Study
Answer
Letter
Ailsa CookLeavers 2
Case Study
Answer
Letter
Annabel ZirkelLeavers 2
Case Study
Answer
Letter
Naomi BalinksiLeavers 2
Case Study
Answer
Letter
Tomas LopesLeavers 2
Case Study
Answer
Letter


OPQ Retirement and Death Benefits Plan

Case StudyExamNumber CrunchingAnswerTaking Action





Juan RuedaLeavers 1
Case Study
Answer
Letter
James PetersonLeavers 1
Case Study
Answer
Letter
Marta DobsonLeavers 2
Case Study
Answer
Letter
Elena BaileyLeavers 2
Case Study
Answer
Letter



Transfers In and Out


Transfers in and Out Overview

Welcome to the 2020-2021 Version of the online learning programme Determine Pension Scheme Transfer In and Transfer Out Benefits, one of the units that make up the Pensions Management Institute's Vocational Qualification examinations.

The Case Studies and Worked Answers that are labelled 2020-2021 have been updated to reflect current practice and are based on the latest Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes and gives guidance on what additional information (if any) is expected to be provided in the Case Studies and Letters.

Please be mindful that, although covering numerous scenarios, the case studies cannot cover each and every permutation on which learners may be tested in the examinations. 

Latest News

For the latest information or guidance on the CPC Examinations please click on the following link.  This will take you through to the PMI website:

Certificate in Pensions Calculations

Transfers in and Out Fact Finding (Final Salary)


Salary Related Schemes 

In a salary related scheme, often referred to as a defined benefit scheme, the scheme rules will describe how a member's benefits should be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of transfer benefits for a salary related scheme.

The case studies that you will study in the examinations will include two (2) salary related schemes, one of which is a CARE (Career Average Revalued Earnings) scheme:

  • The RST Pension Scheme (which is not contracted out)
  • The XYZ Pension and Life Assurance Scheme (which was contracted out for Category A members until 5 April 2016 but was never contracted out for Category B members)

There are two (2) distinct transfer calculations and candidates will be tested on each of these in the examinations:

  1. Transfers out (for members who are "preserved")
  2. Transfers in (for members who are “active”)


Fact Finding

1. How are transfers out handled?

The 1985 Social Security Act required that any member who left pensionable service on / after 1 January 1986 with rights to a preserved pension had to be offered a cash equivalent transfer value. The Pensions Act 1995 extended this right to all leavers with entitlement to a preserved pension regardless of the date of leaving pensionable service. Under current legislation, a cash equivalent transfer value is required to be offered after leaving a scheme with three (3) months of pensionable service.

Members may transfer the value of their benefits to one of the following:

  1. A new employer’s scheme; or
  2. An insurance policy; or
  3. A personal pension scheme / stakeholder arrangement

A Cash Equivalent Transfer Value (CETV) represents the expected cost of providing the member`s benefits within the scheme. In the case of money purchase benefits, this is generally straightforward since it is the accumulated contributions made by and on behalf of the member together with investment returns. In the case of defined benefits, the CETV is a value determined on actuarial principles, which requires assumptions to be made about the future course of events affecting the scheme and the member`s benefits.

A new regime governing the payment of cash equivalent transfer values (CETVs) from occupational defined benefit schemes was introduced from 1 October 2008. It is now the responsibility of the trustees to set the transfer value basis. Previously, the calculation had to be in accordance with Guidance Note 11 of the Institute of Actuaries.

The Legislation provides for two methods for calculating CETVs:

  1. Method based on a "best estimate" of the cost of providing the member's benefits in the scheme; or
  2. Method where trustees want to pay CETVs above the minimum amount

The best estimate method involves the calculation of an 'initial cash equivalent' (ICE). This is the amount of money needed at the effective date of the calculation which, if invested by the scheme, would be just sufficient to provide the benefits.

Generally the principles underlying the calculation are:

  1. It should be calculated with regards to the member's accrued benefits; and
  2. It should include any options and discretionary benefits that the trustees decide should be included; and
  3. It should take account of the scheme's investment strategy when choosing assumptions as to the investment returns to be expected

The ICE may be adjusted, in certain circumstances, to arrive at the final CETV. One of the permitted reductions is to allow for the funding position of the scheme. However, trustees may only reduce ICEs for this reason after obtaining an assessment by the actuary (in the form of an `insufficiency report`) of the funding of the scheme using the transfer value assumptions.

When a cash equivalent quotation is issued to a deferred member of a defined benefit scheme, the trustees must inform the member that information about the transfer can be obtained from the Financial Services Authority, the Pensions Regulator or the Pensions Advisory Service. Such information may be useful in assisting the member to make an informed decision on whether to proceed with a transfer.

Both the RST Pension Scheme and the XYZ Pension and Life Assurance Scheme carry out a single transfer value calculation.

2. How are transfers out from contracted-out schemes handled?

If a member transfers out benefits from a salary related scheme, then the transfer value will typically be used to secure benefits with the occupational scheme of the new employer or with an insurance company through an insurance policy or a personal pension arrangement.

If there is a Guaranteed Minimum Pension (GMP) under the transferring scheme (i.e. it is a contracted-out salary related scheme), then care must be taken to ensure that the receiving scheme or policy is suitable for providing contracted out benefits.

If the transfer is to an approved contracted-out salary related scheme, then there is no problem with the scheme receiving the transfer (subject to the approval of the trustees).

Historically, if the transfer was to an approved contracted-out money purchase arrangement, then the scheme was able to receive the contracted out benefits. In such cases, the value of any GMP and post 1997 benefits being transferred were treated as protected rights. However, with effect from 6 April 2012, contracting out has not been permitted for money purchase arrangements and so contracted-out benefits can no longer be transferred.

If the receiving scheme is unable (or unwilling) to accept the GMP liability, then the available options are as follows:

  1. Leave the GMP in the scheme from which the transfer is being made; or
  2. Transfer the GMP to an individual policy which is able to receive it (e.g. an individual buy-out policy)

For a transfer to an insurance policy, usually a Section 32 Buy Out policy, the GMP must be guaranteed within the insurance policy.

For the purpose of the CPC examinations, it should be assumed that the transfer value to be calculated from the XYZ Pension and Life Assurance Scheme will include a GMP element. The calculation of this element is split into three (3) parts. These are detailed in the Tables of Factors booklet.

3. What about post April 1997 benefits?

If a transfer value contains post 5 April 1997 benefits, then the value of these benefits need to be identified separately. For the RST Pension Scheme, this involves calculating the transfer value for the benefits accrued between 6 April 1997 and 5 April 2006 and then calculating the transfer value for the benefits accrued from 6 April 2006.  The calculation is in two (2) parts due to the fact these elements of pension increase at different rates in payment.

4. How are transfers in handled?

A transfer in may arise in respect of a member's retained benefits in a previous employer's scheme or from a personal pension.

Prior to 1 October 2008, it was a requirement under Guidance Note 11 of the Institute of Actuaries that transfers in used methods and assumptions consistent with those of a transfer out. This requirement has now been removed, although when the trustees are choosing transfer in assumptions it will usually be appropriate for them to be consistent with the transfer out basis.

The calculation of a transfer credit should take into account the following principles:

  1. The transfer credit (from a transferring member's perspective) should be fair value for any transfer received; and
  2. The transfer credit should not be expected to prejudice the security of existing members' benefits; and
  3. The transfer credit should not be expected to require additional funding from the employer in the long term unless agreed in advance.

TIP: A transfer in is really like a transfer out in reverse!

For a scheme that is not contracted out, like the RST Pension Scheme, the calculation is in two (2) parts:-

Firstly, the transfer value is divided by a market level adjustment factor and from this is deducted the cost of refunding the member contributions on death before retirement.

The cost of refunding the contributions on death before retirement is calculated using the formula below:

Member’s contributions x rate for valuing member contributions (see Table of factors)

Please note that the calculation relating to the pre 6 April 2006 and post 5 April 2006 contributions needs to be done separately to identify the relevant splits. However, the factor to be used in the calculation for each element is the same.

Secondly, the balance of the transfer value is divided by the rate for valuing the excess pension (see the Tables of Factors booklet) to determine the additional pension secured by the transfer in and payable from normal pension date.

Once again, it should be noted that the balance of pension for the pre 6 April 2006 and post 5 April 2006 elements needs to be calculated separately, although this time using different factors. As with the transfer out calculation, the post 5 April 1997 element must be calculated and shown separately.

5. How are transfers in to contracted-out schemes handled?

Contracted-out cases are again a little more complicated! In order to calculate the balance of the transfer value available to purchase a pension in excess of the Guaranteed Minimum Pension (GMP) for the XYZ Pension and Life Assurance Scheme, both the cost of the return of contributions on death and the cost of buying the GMP benefits need to be deducted.

TIP: If the transfer in is not sufficient to cover the GMP liabilities, then the case should be referred to a manager.

It is important to remember that, for the XYZ Pension and Life Assurance Scheme, the transferred-in GMP payable from normal pension age (65) needs to be added to the transferred-in excess pension payable from normal pension age to derive the total transferred-in pension payable from normal pension age. In addition, it needs to be remembered that the post 5 April 1997 transferred-in benefits must be detailed separately.

6. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect candidates to write letters to include all the facts and figures that are required to be communicated.

For the examination, candidates will be expected to produce one letter for a transfer in case and one letter for a transfer out case.

For transfer out case studies from the RST Pension Scheme and the XYZ Pension and Life Assurance Scheme all letters should include the following (where applicable):

1. Date of calculation

2. Amount of total transfer value

3. Amount of AVCs included in transfer value (if any)

4. Amount of transfer value relating to post-1997 element (if any)

5. Options for the transfer value

6. If transferring to an arrangement where benefits can be accessed flexibly:

  1. mention requirement to take independent financial advice from an authorised provider regulated under Financial Services and Markets Act 2000 (if TV exceeds £30,000)
  2. mention that written request to apply for transfer must be made to trustees within three (3) months of TV guarantee date
  3. mention requirements to confirm to trustees within three (3) months of receiving TV quotation that independent financial advice has been received
  4. mention trustees will verify within six (6) months of TV guarantee date that independent financial advice has been received AND carry out transfer
  5. mention that, unless evidence exists to the contrary, trustees will assume TV will be to an arrangement where benefits can be accessed flexibly

7. Statement that financial advice cannot be given

8. Reference to "Pension Scams"

9. Statement that if transfer out proceeds, no benefits will remain in the existing scheme

For transfer in case studies from the RST Pension Scheme and the XYZ Pension and Life Assurance Scheme all letters should include the following (where applicable):

1. Amount of transfer value (including the post 1997 transfer value) and date of calculations and post 2006 transfer value, if applicable

2. Details of benefits that can be provided by that amount (e.g. pension at NPD of £ ... and refund of member's contributions on death before retirement of £ ...

3. Post-1997 benefit amount and post-2006 benefit amount (if applicable)

4. Pre-1988 GMP and post-1988 GMP amounts payable from NPD (if applicable)

5. Spouse's pension

6. Statement that benefits provided by the transfer in will be subject to the rules of the receiving scheme

7. Statement that if transfer in proceeds, no benefits will remain in the previous scheme

8. Expiry date for the quotation

9. Statement that the writer may not give financial advice

10. Statement that the member's written authority is required if the transfer in is to proceed

These lists are not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Transfers In and Out Fact Finding (Money Purchase Scheme)


Money Purchase Schemes 

In a money purchase scheme, often referred to as a defined contribution scheme, the scheme rules will describe how a member's benefits are to be calculated on leaving service, retirement or death. This element of the resource material will concentrate on the calculation and communication of transfer benefits for a money purchase scheme.

The case studies that you will be referred to in the examinations will include one (1) money purchase scheme:

  • The OPQ Retirement & Death Benefits Plan (which is not contracted out)

TIP: From 6 April 2012 it was no longer possible for money purchase schemes to be contracted out.

There are two (2) distinct transfer calculations and candidates will be tested on each of these in the examinations:

  1. Transfers out (for members who are "preserved")
  2. Transfers in (for members who are “active”)


Fact Finding

1. How are transfers out handled?

If a member leaves his company with entitlement to preserved benefits from his period of membership of that company`s money purchase scheme, the member can choose to leave his preserved benefits within the scheme (where they will continue to be invested) or he can choose to transfer the value of those preserved benefits to the occupational pension scheme of his new employer or to an insurance company.

The transfer value available will be the current value of the member`s fund, comprising the value of the member's contributions (including AVCs) and the value of the employer's contributions.

2. How are transfers in handled?

When a transfer in is received by a money purchase scheme, it is important to identify the correct split between member contributions (including any AVC split) and employer contributions.

Tip: This is key because the member may wish for each element of the transfer in to be invested in separate funds (e.g. life-style for member and employer contributions but free-style for AVCs).

It should be noted that, for a transfer in from a salary related scheme that was contracted out prior to 6 April 2016, the value of any Guaranteed Minimum Pension (GMP) cannot be accepted by money purchase schemes as contracting out for these schemes was abolished from 6 April 2012 (with any Protected Rights being converted to normal scheme benefits).

3. How are communications with the member / trustees made?

Once the benefits have been calculated they need to be communicated to the member and / or trustees of the scheme in the form of a letter. The examinations will expect candidates to write letters to include all the facts and figures that are required to be communicated.

For the examinations, candidates will be expected to produce one letter for a transfer in case study and one letter for a transfer out case study.

For transfer out case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1. Date of transfer out calculation

2. Total amount of transfer value

3. of each fund and split of individual values within those funds (member regular, employer regular and AVCs)

4. Statement that transfer value is not guaranteed

5. Options for the use of the transfer value (e.g. occupational pension scheme, insurance policy or personal pension arrangement)

6. Statement that if the transfer proceeds then no benefits will remain in the existing scheme

7. Statement that no financial advice can be given

8. Requirement for member’s written authority to proceed

9. Reference to "Pension Scams"

For transfer in case studies from the OPQ Retirement & Death Benefits Plan all letters should include the following (where applicable):

1. Date of transfer in calculation

2. Total value of transfer in

3. Statement to acknowledge receipt of written request to proceed with transfer in

4.  of the composition of the transfer in (i.e. member contributions, employer contributions and AVCs.)

5. Details of unit allocation following transfer in (i.e. member units, employer units and AVC units split by fund)

6. Statement that the benefits provided will be subject to the rules of the OPQ Retirement & Death Benefits Plan

7. Statement that no benefits remain in the ceding scheme

These lists are not definitive and all letters must, for example, refer to any special circumstances and additional information contained in the case study.

Transfers In and Out Special Circumstances


Special Circumstances

For the purposes of the CPC examinations, learners will need to take into account a variety of special circumstances and show how they affect the benefits payable:

  • Split rates of accrual
  • Part-time service
  • Transferred-in benefits
  • Additional voluntary contributions
  • Augmentations
  • Retained benefits

Although Retained Benefits (i.e. additional pension benefits, which are not held within the scheme) are not specifically tested in the CPC examinations, they will have an impact on the available Lifetime Allowance.

Details of special circumstances should always be included when an associated letter is required to be written.

1. How are split rates of accrual handled?

Typically, changes in accrual rate will occur in a salary related scheme whereby members have either changed their category of membership to one that accrues pension at a different rate or because the scheme rules have been amended to provide a higher / lower accrual rate.

Split rates of accrual will not be applicable for case studies relating to Transfers.

2. How is part-time service handled?

Where a member has worked (or is working) on a part-time basis, pensionable service for a salary related scheme will need to be adjusted to reflect the reduced hours that the member has worked (or is working).  For a money purchase scheme, working reduced hours will mean contributions are based on a lower salary (i.e. actual salary rather than the full-time equivalent salary).

Part-time service will not be applicable for case studies relating to Transfers.

3. How are transferred-in benefits handled?

Benefits transferred in to a salary related scheme may take the form of either a fixed additional pension (often revalued to normal pension date) or a number of added years/months (or days) of pensionable service. For a money purchase scheme, the transfer in will normally be in the form of a single payment to be added to the member`s individual policy account.

Transferred-in benefits will not be applicable for case studies relating to Transfers.

4. How are AVCs handled?

Schemes are obliged to keep Additional Voluntary Contributions (AVCs) separate from the main fund. For salary related schemes and money purchase schemes, the actual value of the AVCs are generally used to provide additional benefits. However, for some salary related schemes it is possible to pay AVCs to provide added years of service.

From 6 April 2006 it has not been compulsory for occupational pension schemes to offer the facility for members to pay AVCs.

5. How are augmentations handled?

An augmentation is an enhancement to a member`s benefits over and above those that would normally be provided under the scheme rules.

If an augmentation has been granted prior to a member leaving service, it is important that the augmentation has been properly authorised and documented by the trustees.

Augmentations will not be applicable for case studies relating to Transfers.

6. How are retained benefits handled?

Retained benefits are pension rights derived from membership of other employers' registered schemes.

Retained benefits must be taken into account when checking against a preserved member's Individual Lifetime Allowance.

Retained benefits will not be applicable for case studies relating to Transfers.

Transfers In and Out Revision Pages


Number Crunching and Taking Action


For Number Crunching:

Take a look at an individual Case Study from the Number Crunching column.

Calculate the TRANSFER benefits payable (using the appropriate Scheme Booklet and Tables of Factors).

Check your answers against the answers provided in the Answer column.

For Taking Action:

For the chosen Case Study, write a letter to the trustees/member to communicate the TRANSFER benefits payable and the action to be taken.

Compare the contents of your letter with the information required to be communicated from the Taking Action column.

XYZ Pension and Life Assurance Scheme

Case StudyNumber CrunchingAnswerTaking Action




Lucia AguayoCase Study
Answer
Letter
Leslie EdgarCase Study
Answer
Letter
Anika HannCase Study
Answer
Letter
Callum SmithCase Study
Answer
Letter


RST Career Average Earnings Scheme

Case StudyNumber CrunchingAnswerTaking Action




Lola AmbroseCase Study
Answer
Letter
Amy BeringerCase Study
Answer
Letter
Li WeiCase Study
Answer
Letter
Adam WilsonCase Study
Answer
Letter


OPQ Retirement and Death Benefits Plan

Case StudyNumber CrunchingAnswerTaking Action




Hector AguirreCase Study
Answer
Letter
Maribel BlanchetCase Study
Answer
Letter
Paul EvansCase Study
Answer
Letter
Sophie JacksonCase Study
Answer
Letter
Alberado SantosCase Study
Answer
Letter
Margaret SmithCase Study
Answer
Letter





Scheme Booklets


Scheme Booklets

The examinations are designed to test the competence of candidates in the calculation and communication of pension benefits for a range of scheme types. Depending on the examination being tested, there will be either five (5) or six (6) case studies (Calculation Section) and either one or two letters (Letter Section).

The examinations are based on three types of fictitious pension schemes:

Scheme

Type

Contracted-Out Status

OPQ

Money Purchase

Not Contracted Out

RST

Career Average Revalued Earnings (CARE)

Not Contracted Out

XYZ

Final Salary

Contracted Out (Category A) until 5 April 2016

Not Contracted Out (Category B)


The examinations require candidates to provide evidence of their ability to:

  • Understand and interpret rules for different types of pension scheme
  • carry out manual calculations for a range of member events
  • Understand the impact of supplementary information (e.g. part-time service, enhanced accrual rates, transferred-in benefits, AVCs, etc.) on the core benefits payable
  • Understand legislative restrictions that apply to the level of benefits payable
  • Communicate benefit options fully and accurately and request all the information required before the scheme can pay the benefits

Copies of Scheme Booklets and Tables of Factors should be taken into the examinations. It is vital that candidates ensure they have the current versions, which are downloadable from this page by accessing the following links:

Past Papers


Past Papers 

From this page, it is possible to download Past Papers and Examiners’ Reports (including Common Errors and Summary Answers).

Since the Scheme Booklets and Tables of Factors have been updated for the March 2021 examinations, the relevant versions for the September 2020 and September 2019 examinations can be found by accessing the following links (please note that the September 2020 examinations were actually the March 2020 examinations, as these were postponed due to Covid-19): 


Booklets and Tables for September 2019/September 2020 Examinations

OPQ Retirement and Death Benefits Plan Booklet (reviewed May 2019)

RST Career Average Earnings Scheme (reviewed May 2019)

XYZ Pension and Life Assurance Scheme Booklet (reviewed May 2019)

Table of Factors(reviewed May 2019)

Key Features Document (reviewed May 2019)


September 2020 - Examinations (available shortly)

Part 1 - Determine Retirement Benefits 

Part 2 - Determine Retirement Benefits 

Part 1 - Determine Death Benefits 

Part 2 - Determine Death Benefits 

Part 1 - Determine Leavers’ Benefits 

Part 2 - Determine Leavers’ Benefits 

Determine Transfers In and Transfers Out 

September 2020 Examiners Report


September 2019 - Examinations

Part 1 - Determine Retirement Benefits

Part 2 - Determine Retirement Benefits

Part 1 - Determine Death Benefits

Part 2 - Determine Death Benefits

Part 1 - Determine Leavers' Benefits

Part 2 - Determine Leavers Benefits

Determine Transfers In and Transfers Out

September 2019 Examiners Report


2020 Examination Series rEvision Documentation


All Modules


Since the Scheme Booklets and Tables of Factors are being updated for the March 2021 examinations, the relevant versions for the September 2020 booklets can be found by accessing the following links (please note that the September 2020 examinations were actually the March 2020 examinations, as these were postponed due to Covid-19)


Booklets and Tables for September 2020 Examinations

OPQ Retirement and Death Benefits Plan Booklet (reviewed May 2019)

RST Career Average Earnings Scheme (reviewed May 2019)

XYZ Pension and Life Assurance Scheme Booklet (reviewed May 2019)

Table of Factors(reviewed May 2019)

Key Features Document (reviewed May 2019)


Retirements

OPQ Retirement and Death Benefits Plan

Case StudyNumber CrunchingAnswerTaking Action




Agatha SuljovicCase StudyAnswerLetter
Arthur NoppertCase StudyAnswerLetter
James BuntingCase StudyAnswerLetter
Peter  CrossCase StudyAnswerLetter


RST Career Average Earnings Scheme

Case StudyNumber CrunchingAnswerTaking Action




Bernard CallaghanCase StudyAnswerLetter
Jane BarnesCase StudyAnswerLetter
Jason BlissetCase StudyAnswerLetter
Josephine SherwoodCase StudyAnswerLetter
Sarah JacketCase StudyAnswerLetter


XYZ Pension and Life Assurance Scheme (CAT A)

Case StudyNumber CrunchingAnswerTaking Action




Bethany ReardonCase StudyAnswerLetter
Frederick HigginsCase StudyAnswerLetter
Gemma SpencerCase StudyAnswerLetter
Mensur WerbenuikCase StudyAnswerLetter
Micheal ThorburnCase StudyAnswerLetter


XYZ Pension and Life Assurance Scheme (CAT B)

Case StudyNumber CrunchingAnswerTaking Action




Angela MinterCase StudyAnswerLetter
Arthur LeonardCase StudyAnswerLetter
Cuthbert HearnsCase StudyAnswerLetter
Julio CalzagheCase StudyAnswerLetter
Venessa SibsonCase StudyAnswerLetter


Deaths

OPQ Retirement and Death Benefits Plan

Case StudyExamNumber CrunchingAnswerTaking Action





Robyn HughesDeaths 1Case StudyAnswerLetter
Rajesh HussenDeaths 1Case StudyAnswerLetter
Gabriella RodriguezDeaths 1Case StudyAnswerLetter
Petra KhanDeaths 2Case StudyAnswerLetter
Pam McGavinDeaths 2Case StudyAnswerLetter
Paulo SamosDeaths 2Case StudyAnswerLetter


RST Career Average Earnings Scheme

Case StudyExamNumber CrunchingAnswerTaking Action





Anneke AndersDeaths 1Case StudyAnswerLetter
Ron BakerDeaths 1Case StudyAnswerLetter
Tina SmithDeaths 1Case StudyAnswerLetter
John TaylorDeaths 1Case StudyAnswerLetter
Andre BernadoDeaths 2Case StudyAnswerLetter
Danielle LiamDeaths 2Case StudyAnswerLetter
Juan MiguelDeaths 2Case StudyAnswerLetter


XYZ Pension and Life Assurance Scheme (CAT A)

Case StudyExamNumber CrunchingAnswerTaking Action





Huw DaviesDeaths 1Case StudyAnswerLetter
Marie DupelleDeaths 1Case StudyAnswerLetter
Lawrence JonesDeaths 1Case StudyAnswerLetter
Sara RaniDeaths 1Case StudyAnswerLetter
Shelley BrownDeaths 2Case StudyAnswerLetter
Pedro FernandezDeaths 2Case StudyAnswerLetter
Lui YingDeaths 2Case StudyAnswerLetter


XYZ Pension and Life Assurance Scheme (CAT B)

Case StudyExamNumber CrunchingAnswerTaking Action





Sarah BeanDeaths 1Case StudyAnswerLetter
Henry BootDeaths 1Case StudyAnswerLetter
Rina PurmaDeaths 1Case StudyAnswerLetter
Neil JonesDeaths 2Case StudyAnswerLetter
Alex SinghDeaths 2Case StudyAnswerLetter
Dio ThuanDeaths 2Case StudyAnswerLetter
Xia YunnanDeaths 2Case StudyAnswerLetter


Leavers

OPQ Retirement and Death Benefits Plan

Case StudyNumber CrunchingAnswerTaking Action




Joshua KirkCaseStudy.docxAnswer.docxLetter.docx
Jacob ThompsonCaseStudy.docxAnswer.docxLetter.docx
Grace HarrisonCaseStudy.docxAnswer.docxLetter.docx
Maria ThomasCaseStudy.docxAnswer.docxLetter.docx


RST Career Average Earnings Scheme


XYZ Pension and Life Assurance Scheme


Transfers

OPQ Retirement and Death Benefits Plan

Case StudyExamNumber CrunchingAnswerTaking Action





Ravi GanatraTVINCase StudyAnswerLetter
Jackie TrentTVINCase StudyAnswerLetter
Dominica StoltzTVOUTCase StudyAnswerLetter
Simon GoldbrookTVOUTCase StudyAnswerLetter
Dan FentonTVOUTCase StudyAnswerLetter
Hayley FinleyTVOUTCase StudyAnswerLetter


RST Career Average Earnings Scheme

Case StudyExamNumber CrunchingAnswerTaking Action





John JacobsTVIN QuoteCase StudyAnswerLetter
Joanna ScottTVIN CompleteCase StudyAnswerLetter
Sonja DeloiseTVOUTCase StudyAnswerLetter
Howard WilliamsTVOUTCase StudyAnswerLetter


XYZ Pension and Life Assurance Scheme

Case StudyExamNumber CrunchingAnswerTaking Action





Peter PeacockTVIN QuoteCase StudyAnswerLetter
Dawn LedgerTVIN CompleteCase StudyAnswerLetter
Aditi SinghTVOUTCase StudyAnswerLetter
Paul HartlandTVOUTCase StudyAnswerLetter

Feedback Request


If you have any enquiries then you can send them via this messaging service or directly contact the team on:
0207 247 1452

email
KHoodless@pensions-pmi.org.uk (Director Lifelong Learning)
VJackson@pensions-pmi.org.uk  (Manager Lifelong Learning)
KBokaka@pensions-pmi.org.uk (VQ Qualifications Coordinator)