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:
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 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.