Bulk Insured Pensions - A Good Practice Guide - NAPF

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64 ABI GOOD PRACTICE GUIDE Buyout Transfers all obligations to members to the insurer. Members are issued with individual annuities to secure equivalent pensions and cease to be in the scheme. The scheme is eventually wound up. The sponsor no longer funds or accounts for the scheme and trustees are discharged from responsibility. Collateral Assets earmarked to reimburse one party in the case of default of a counterparty (for example a bank or insurance company). Sometimes used in larger Buy-in contracts or longevity swaps to provide additional security to the trustee. Contracted-in A scheme is contracted-in if the members continued to build up the additional state pension (the State Second Pension) whilst in service under the scheme. A contracted-in scheme is one which is not contracted-out. Contracted-out A contracted-out scheme provides members with benefits which replace their additional state pension (the State Second Pension). Where members are contracted-out, they and their employer pay lower National Insurance Contributions in return for the scheme agreeing to provide certain benefits in place of the State Second Pension. Corporate Bonds Bonds issued by companies. The term is often also used to refer to Bonds issued by governments and national institutions which are not issued in the home currency of the issuer. Data The detailed information about scheme members and their benefits. Data cleanse The process of checking that scheme data is complete and accurate so that any errors or omissions can be corrected. Data verification A process where the provider checks all the Data relating to a policy. The data is usually listed in schedules at the back of the policy. The purpose of data verification is to identify any errors or omissions so that the correct benefits are provided under the policy.
ABI GOOD PRACTICE GUIDE 65 Deferred members Members who have left pensionable service under the scheme but have not started to receive their pension. Their pension has been deferred until they retire. Defined benefit scheme A pension scheme under which the benefits which members are entitled to receive are defined by the scheme’s governing documents. The benefits are typically defined by reference to the member’s earnings and length of service. The scheme members usually pay a set amount of contributions (if any) and the employer is required to pay whatever else is required to provide the defined benefits. Dependant/Dependants’ pensions A dependant is someone who relies on a member, either financially or due to disability. When a member dies, a dependant’s pension may be payable to their dependants. Each scheme will have its own terms for paying dependants’ pensions. Derivative A financial instrument which provides for payments to be made based on the performance of a particular asset or index. A swap is a type of derivative. DIY Buy-in Trustees purchase inflation, interest rate and longevity swaps via multiple transactions with an investment bank to mimic a buy-in without having to transfer assets out of the scheme. Also known as a synthetic buy-in. Early retirement Where a member takes their pension before their normal retirement age. Employer The employer who is responsible for funding the scheme. In schemes which have more than one participating employer, employer usually refers to the principal employer. Sometimes referred to as “scheme sponsor”. Enhanced transfer value (ETV) An approach to pension scheme liability management in which the employer pays for an offer over and above the level of the scheme’s standard transfer value terms in order to “incentivise” members (usually deferred members, but can also be offered to actives) to transfer benefits out of the scheme into another arrangement, typically a defined contribution plan. The <strong>Pensions</strong> Regulator has issued guidance on how such arrangements should be conducted, stressing the importance of individual financial advice and clear communications to ensure member’s can make an informed choice.
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Contents Executive Summary 5 Introd
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Bulk Insured Pensions - A Good Practice Guide - NAPF

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