CPC Learner Materials
for the
Certificate in Pensions Calculations Exams

CPC Examination

Important Information to Learners before Starting Studies

All learners will need to review the information in these THREE documents before starting their studies:

1. Notice to Learners
   

2. Advice for Learners

3. Examination Guidance

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 fictitious pension schemes.  

Two 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

Deaths Overview

Welcome to the 2024-2025 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 are labelled 2024-2025. These have been updated to reflect current practice and are based on the revised Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets and Tables of Factors, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes for 2024-2025 and provides guidance on what additional information will be 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

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 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 distinct death calculations although learners will be tested only on the first two 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.

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 (i.e. the member 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 the actual values for each component) payable to either persons at the Trustee's discretion or to the deceased member's legal personal representatives
3. Value of lump sum death benefit (stating that it counts against the deceased member’s remaining 'Lump Sum & Death Benefit Allowance')
4. Requirements for payment:

a) Member’s death certificate

b) Marriage certificate (if applicable)

c) Spouse's birth certificate (if applicable)

d) Bank details (if applicable)

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

Number Crunching and Taking Action - 2024/25 Case Studies

Learners should be aware that there WILL BE CHANGES for the next series of CPC examinations in September 2024. 

For Deaths, learners will now be expected to test the monetary value of any lump sum death benefits against the monetary value of the deceased member’s remaining LS&DBA.   

Example Case Studies are available as normal in the Case Studies section of this website. 

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.

PLEASE WRITE FULL ANSWERS AND NOT BULLET POINTS

XYZ Pension and Life Assurance Scheme (Cat A)

XYZ Pension and Life Assurance Scheme (CAT B)

RST Pension Scheme

OPQ Retirement & Death Benefits 

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 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 distinct retirement calculations and learners 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.

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 5% per annum compound or the increase in the RPI, if lower).

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 1/90 x pensionable service (measured in years and complete months) x 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.

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 6 April 2010, the earliest that a member can generally retire from an occupational pension scheme is age 55. This is set 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 

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.

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.
• Contracting out - Please refer to earlier sections where this is discussed.

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.
• Contracting out - Please refer to earlier sections where this is discussed.

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 (for Category A members), 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).

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

3. Pension details:

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

4. Death in retirements benefits (stating the actual values for the spouse's pension)

5. Confirmation (or otherwise) that the tax-free cash sum is within the member's remaining 'Lump Sum & Death Benefit Allowance' and 'Lump Sum Allowance'

6. 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.

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 rights held outside of the scheme) are not specifically tested in the CPC examinations, they may have an impact on a member's available 'Lump Sum & Death Benefit Allowance' and 'Lump Sum 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 a member's participation in other registered pension schemes.

Retained benefits must be considered when checking against a member's available 'Lump Sum & Death Benefit Allowance' and 'Lump Sum Allowance'.

Leavers Overview

Welcome to the 2024-2025 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 are labelled 2024-2025. These have been updated to reflect current practice and are based on the revised Scheme Booklets and Tables of Factors. In addition to familiarising themselves with the Scheme Booklets and Tables of Factors, learners are strongly advised to read the Key Features document which has been released at the same time. This document details all key changes for 2024-2025 and provides guidance on what additional information will be 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

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 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 distinct leaver calculations and learners 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 responsibility falling to 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 the annuity that can be purchased for a member (should that option be taken) will be unknown until the member actually takes his / her benefits. The annuity will then be dependent upon how well the investments have performed and the annuity rates in force when the annuity is purchased (plus the manner in which the annuity 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 learners 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

2. Reference to the member's normal pension date (which should be stated as being the member's SPA) or the member's actual TRD if life-styling applies

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

4. Statement that the policy account will continue to be invested until the benefits are taken (which cannot be before age 55 unless the member is retiring on the grounds of ill health) 

5. Statement that annual benefit statements will be issued

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

1. Annuity only using ‘Annuity Bureau’ factors (based on either single life or joint life option [which can be either escalating or non-escalating])
2. Tax-free cash sum and reduced annuity using ‘Annuity Bureau’ factors (based on either single life or joint life option [which can be either  escalating or non-escalating])
3. Single UFPLS

7. Benefits on death before retirement (i.e. refund of policy account payable to the deceased member’s 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.

Number Crunching and Taking Action - 2024/25 Case Studies

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.

PLEASE WRITE FULL ANSWERS AND NOT BULLET POINTS

XYZ Pension and Life Assurance Scheme (CAT A)

XYZ Pension and Life Assurance Scheme (CAT B)

RST Pension Scheme

OPQ Retirement & Death Benefits Plan

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 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 distinct transfer calculations and learners 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 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 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 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 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 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 multiplied by the rate for valuing those contributions (see the Tables of Factors booklet)

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 tend to be 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 learners to write letters to include all the facts and figures that are required to be communicated.

For the examination, learners 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 the transfer value

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

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

5. Options for the destination of the transfer value

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

• mention the requirement to take independent financial advice from an authorised provider regulated under the Financial Services and Markets Act 2000 (if TV exceeds £30,000)
• mention that a written request to apply for the transfer must be made to the trustees within three months of the TV guarantee date
• mention the requirement to confirm to the trustees within three months of receiving the TV quotation that independent financial advice has been received
• mention the trustees will verify within six months of the TV guarantee date that independent financial advice has been received and that the adviser has the correct permissions to proceed by verifying details on the Financial Services register before carrying out the transfer
• mention that, unless evidence exists to the contrary, the trustees will assume the TV will be to an arrangement where benefits can be accessed flexibly
• mention the trustees must offer to book a pensions guidance appointment with Pensions Wise on behalf of the member and that the TV cannot proceed without the guidance having been provided (unless the member provides the trustees with an opt-out notification)

7. Statement that financial advice cannot be given

8. Reference to "Pension Scams"

9. Statement that if the 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. Date of calculation

2. Amount of the transfer value received (including the post 1997 element, if applicable)

3. Details of the benefits that can be provided at normal pension date by the transfer value received (including any GMP elements, excess elements and any post 1997 elements, if applicable)

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

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

6. Expiry date for the quotation

7. Statement that financial advice may not be provided

8. 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.

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 rights held outside of the scheme) are not specifically tested in the CPC examinations, they may have an impact on a member's available 'Lump Sum & Death Benefit Allowance' and 'Lump Sum 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 a member's participation in other registered pension schemes.

Retained benefits must be considered when checking against a member's remaining 'Lump Sum & Death Benefit Allowance' and 'Lump Sum Allowance'.

Retained benefits will not appear in case studies relating to Transfers.

Scheme Booklets

The examinations are designed to test the competence of learners 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 or six case studies (Calculation Section) and either one or two letters (Letter Section).

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

The examinations require learners 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 learners ensure they have the current versions, which are downloadable from this page by accessing the following links:

Current Scheme Booklets

XYZ Pension and Life Assurance Scheme Booklet (reviewed April 2024)

RST Pensions Scheme Booklet (reviewed April 2024)

OPQ Retirement & Death Benefits Plan Booklet (reviewed April 2024)

Tables of Factors (reviewed April 2024)

Key Features (reviewed April 2024)