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QFA Pensions practice questions

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Question 1Irish pension system and regulatory framework

Under the Irish regulatory framework, which body is the statutory regulator of workplace pension schemes and personal retirement savings accounts?

  1. The Pensions Authority Correct answer.
  2. The Central Bank of Ireland
  3. The Department of Social Protection
  4. The Revenue Commissioners

Explanation

The Pensions Authority is the statutory regulator for occupational pension schemes and PRSAs under the Pensions Acts. It supervises scheme governance, funding and trustee compliance. Revenue's role is mainly tax approval, not prudential regulation.

Question 2Irish pension system and regulatory framework

What is the maximum age at which a person may normally take benefits from a PRSA or occupational scheme under Irish tax rules?

  1. 80
  2. 66
  3. 75 Correct answer.
  4. 70

Explanation

Irish tax rules require benefits to be taken by age 75 at the latest, though earlier access is generally permitted from age 60. The upper limit applies to both occupational schemes and PRSAs.

Question 3Irish pension system and regulatory framework

Which statement best describes the minimum funding standard applicable to defined benefit schemes?

  1. It requires a scheme to hold a surplus of at least 10% of liabilities
  2. It applies only to schemes with fewer than 100 members
  3. It compares scheme assets with the cost of discharging accrued benefits Correct answer.
  4. It requires assets to cover liabilities on a wind-up basis at all times

Explanation

The minimum funding standard tests whether scheme assets would cover the cost of discharging accrued liabilities, broadly on a wind-up basis. Trustees must certify compliance and submit funding standard certificates. A shortfall triggers a funding proposal requirement.

Question 4Irish pension system and regulatory framework

A trustee of an occupational scheme is considering an investment in a property fund managed by a company owned by one of the trustees. What does the conflict-of-interest principle require?

  1. The transaction may proceed if the price is at arm's length
  2. The conflicted trustee must be excluded from the decision and the conflict documented Correct answer.
  3. The trustee must resign before the decision is made
  4. The investment is automatically void under trust law

Explanation

Trustees must act in members' interests and manage conflicts openly, typically by excluding the conflicted trustee from deliberations and recording the conflict. Arm's length pricing alone does not cure the governance defect.

Question 5Irish pension system and regulatory framework

Which of the following is a core function of the Pensions Authority in relation to PRSAs?

  1. Acting as trustee for unclaimed PRSA assets
  2. Paying the State pension top-up to PRSA holders
  3. Approving the PRSA products and supervising providers Correct answer.
  4. Setting the investment return guaranteed to contributors

Explanation

The Pensions Authority authorises and supervises PRSA providers and approves product documentation. It does not guarantee returns or act as trustee. State pension payments are outside its remit.

Question 6Irish pension system and regulatory framework

What is the standard minimum employer contribution requirement for a PRSA where the employer does not operate an occupational scheme?

  1. The employer must match employee contributions up to 5%
  2. The employer must contribute at least 10% of salary
  3. There is no statutory employer contribution requirement for a standard PRSA Correct answer.
  4. The employer must contribute at least 3% of salary

Explanation

Employers who facilitate a PRSA are not obliged by pensions legislation to contribute, although many do voluntarily. Occupational scheme funding rules are separate. Mandatory employer contributions arise under the auto-enrolment regime, not the standard PRSA framework.

Question 7Irish pension system and regulatory framework

A member of a defined contribution scheme wants to understand who bears investment risk before retirement. Who typically bears it?

  1. The employer
  2. The investment manager
  3. The member Correct answer.
  4. The scheme trustee

Explanation

In a defined contribution arrangement the member's fund value depends on contributions and investment performance, so the member bears investment risk. The employer's obligation is limited to making agreed contributions. Trustees oversee governance but do not underwrite outcomes.

Question 8Irish pension system and regulatory framework

Which body issues the guidance on trusteeship and governance that trustees of occupational schemes are expected to follow?

  1. The Stock Exchange
  2. The Irish Association of Pension Funds
  3. The Pensions Authority Correct answer.
  4. The Workplace Relations Commission

Explanation

The Pensions Authority publishes statutory guidance and codes of practice on trustee governance and scheme administration. Industry bodies may issue voluntary guidance but do not set regulatory standards.

Question 9Irish pension system and regulatory framework

What is the principal purpose of the Pensions Act requirement for trustees to prepare an annual report?

  1. To calculate the tax payable by each member
  2. To provide members and the regulator with information on the scheme's operation and finances Correct answer.
  3. To replace the actuarial funding certificate
  4. To certify that the scheme will never require employer contributions

Explanation

The annual report discloses how the scheme has been run, including membership, finances and governance, for members and the regulator. It does not determine individual tax liabilities. It complements rather than replaces actuarial certification.

Question 10Irish pension system and regulatory framework

A defined benefit scheme has a funding shortfall at its certification date. What is the trustee's primary obligation?

  1. Transfer the shortfall to the State
  2. Reduce member benefits without consultation
  3. Prepare a funding proposal to restore the funding standard within an approved period Correct answer.
  4. Immediately wind up the scheme

Explanation

Where the minimum funding standard is not met, trustees must submit a funding proposal setting out how the shortfall will be addressed within the permitted period. Winding up is not automatic and benefit reductions require legal process. The State does not assume scheme deficits.

Question 11Irish pension system and regulatory framework

Which of these is required before a personal retirement savings account can be marketed in Ireland?

  1. Membership of an occupational scheme
  2. A guarantee of minimum returns from the provider
  3. Approval of the product by the Pensions Authority Correct answer.
  4. Approval by the employer's trade union

Explanation

PRSA products must be approved by the Pensions Authority before they are marketed. There is no return guarantee, and PRSA holders need not belong to an occupational scheme. Union approval is not a legal prerequisite.

Question 12Irish pension system and regulatory framework

What does the principle of equal treatment require of occupational pension schemes?

  1. Identical retirement ages for all members
  2. Equal treatment of men and women in scheme rules and benefits Correct answer.
  3. Identical contribution rates for all members regardless of age
  4. Equal benefits for part-time and full-time staff irrespective of hours

Explanation

Pension schemes must not discriminate between men and women in access, contributions or benefits. Differences based on objective factors such as age or hours may be permissible where justified. Identical treatment across all characteristics is not the legal test.

Question 13Irish pension system and regulatory framework

An employer is legally obliged to offer access to a PRSA in certain circumstances. Which situation triggers this obligation?

  1. All employees are already members of a scheme
  2. The employer operates an occupational scheme but excludes some employees from membership Correct answer.
  3. The employer operates a defined benefit scheme open to all staff
  4. The employer has fewer than five employees

Explanation

Where an employer operates an occupational scheme but excludes certain employees from membership, those excluded employees must be given access to a PRSA. The obligation is designed to widen retirement saving access. It does not depend on headcount thresholds of five.

Question 14Irish pension system and regulatory framework

Which statement about the Pensions Authority's power to issue directions to trustees is accurate?

  1. Directions can only be issued by the High Court
  2. Directions apply only to PRSA providers
  3. Directions may be issued where trustees fail to comply with their obligations under the Pensions Acts Correct answer.
  4. Directions may only be issued after a scheme has been wound up

Explanation

The Pensions Authority can issue directions to trustees who fail to comply with their duties, requiring remedial action. The power is regulatory and does not require prior court involvement. It is not limited to PRSA providers or wound-up schemes.

Question 15Irish pension system and regulatory framework

What is the role of the Pensions Ombudsman in the Irish system?

  1. To set the investment strategy for defined benefit schemes
  2. To prosecute trustees for criminal offences
  3. To adjudicate complaints about maladministration of pension schemes Correct answer.
  4. To approve scheme funding certificates

Explanation

The Pensions Ombudsman investigates and decides complaints of maladministration or disputes of fact relating to pension schemes. Criminal prosecution and funding certification are handled by other bodies. Investment strategy is a trustee responsibility.

Question 16Irish pension system and regulatory framework

A trustee board is reviewing its knowledge and internal controls. Which practice best reflects the governance standards expected by the regulator?

  1. Relying on the employer to monitor scheme compliance
  2. Delegating all decisions to the investment manager without oversight
  3. Maintaining a formal conflicts register and regular trustee training Correct answer.
  4. Holding no formal meetings but corresponding by email

Explanation

Good governance involves documented controls, conflict registers and ongoing trustee training so trustees can exercise informed oversight. Delegation without oversight or reliance on the employer undermines trustee accountability.

Question 17Irish pension system and regulatory framework

Which statement correctly describes the tax treatment of employee contributions to an approved occupational pension scheme?

  1. Contributions are made from gross pay with no tax relief
  2. Contributions attract relief only for directors
  3. Contributions receive tax relief subject to age-related earnings limits Correct answer.
  4. Contributions are taxed as a benefit-in-kind

Explanation

Employee contributions attract income tax relief within age-related percentage limits of earnings, subject to the earnings cap. Relief is available to eligible employees generally, not just directors. Contributions are not treated as a benefit-in-kind.

Question 18Irish pension system and regulatory framework

A scheme member is approaching retirement and asks about the option to transfer to a PRSA. What is the key regulatory consideration?

  1. Transfers must comply with disclosure and consent requirements protecting the member Correct answer.
  2. Transfers are prohibited from occupational schemes
  3. Transfers require the member to be within five years of retirement
  4. Transfers require the employer's written consent in all cases

Explanation

Transfers between arrangements are permitted but must follow disclosure and consent rules so members make informed decisions. The employer's consent is not a general requirement. Transfers are not prohibited or restricted solely by proximity to retirement.

Question 19Irish pension system and regulatory framework

Which of the following best explains why the Pensions Authority requires trustees to have an internal dispute resolution procedure?

  1. To replace the need for scheme rules
  2. To reduce the number of complaints reaching the Ombudsman
  3. To determine tax disputes between members and Revenue
  4. To allow members to challenge scheme decisions through a defined process before external escalation Correct answer.

Explanation

An internal dispute resolution procedure gives members a structured route to challenge decisions before matters escalate externally. It does not eliminate Ombudsman jurisdiction or replace scheme rules. Tax disputes are outside its scope.

Question 20Irish pension system and regulatory framework

What is the significance of the Pensions Authority's codes of practice?

  1. They set out expected standards of conduct that trustees should follow Correct answer.
  2. They are issued by the Minister for Finance
  3. They are legally binding statutes with criminal penalties
  4. They apply only to personal pensions

Explanation

Codes of practice articulate the standards the regulator expects trustees to meet and can be used to assess compliance. They are not criminal statutes and are not confined to personal pensions. They are issued by the Pensions Authority.

Question 21State pensions and social welfare provisions

Under a typical pay-as-you-go state pension scheme, how are current pension payments primarily financed?

  1. From accumulated assets held in a sovereign wealth fund
  2. From the personal savings accounts of each retiree
  3. From current contributions of active workers and taxpayers Correct answer.
  4. From borrowing on international capital markets

Explanation

Pay-as-you-go schemes transfer money from current contributors to current beneficiaries rather than pre-funding liabilities. There is no earmarked pool of invested assets backing each individual's entitlement. Financing therefore depends on the size of the active workforce relative to the retired population.

Question 22State pensions and social welfare provisions

A state pension system that pays a benefit calculated from a worker's earnings record and years of contributions is best described as which type of scheme?

  1. Social assistance
  2. Social insurance Correct answer.
  3. Defined contribution
  4. Universal flat-rate

Explanation

Social insurance schemes link entitlement to contribution history and earnings, typically through a benefit formula. This contrasts with universal schemes that pay everyone the same amount regardless of record. The earnings-related formula is the defining feature of social insurance pensions.

Question 23State pensions and social welfare provisions

What does the replacement rate of a pension measure?

  1. The share of scheme assets invested in domestic government bonds
  2. The ratio of active contributors to retired beneficiaries
  3. The pension benefit as a proportion of pre-retirement earnings Correct answer.
  4. The rate at which pension payments are indexed to prices

Explanation

The replacement rate expresses retirement income relative to prior earnings, usually gross or net. It is a standard indicator of how well a pension sustains pre-retirement living standards. Indexation and dependency ratios are separate concepts.

Question 24State pensions and social welfare provisions

In a defined benefit state pension, who ultimately bears the investment and longevity risk of the scheme?

  1. The asset manager
  2. The scheme sponsor or government Correct answer.
  3. The individual member
  4. The reinsurer exclusively

Explanation

In defined benefit arrangements the promise is a specified benefit, so the sponsoring entity absorbs shortfalls from investment returns or longer-than-expected lifespans. Members receive the promised amount regardless. In defined contribution arrangements this risk shifts to the individual.

Question 25State pensions and social welfare provisions

What is the primary purpose of a means test in a social assistance pension?

  1. To calculate the claimant's average lifetime earnings
  2. To limit benefits to those with income or assets below a threshold Correct answer.
  3. To determine the claimant's statutory retirement age
  4. To verify that the claimant has paid enough contributions

Explanation

Means testing directs benefits toward those with limited financial resources by comparing income or assets to a set threshold. It is distinct from contribution tests, which verify payment history. Means-tested benefits are typically funded from general taxation.

Question 26State pensions and social welfare provisions

A state pension scheme that pays the same benefit to every resident who meets a residency or age condition, regardless of work history, is called what?

  1. Occupational defined benefit scheme
  2. Beveridgean universal scheme Correct answer.
  3. Notional defined contribution scheme
  4. Bismarckian earnings-related scheme

Explanation

Universal flat-rate schemes, often associated with the Beveridge tradition, pay a uniform benefit based on residence or age rather than contributions. Bismarckian schemes instead tie benefits to earnings and contribution records. The distinction is a core typology in comparative pension analysis.

Question 27State pensions and social welfare provisions

Which demographic trend most directly strains the finances of an unfunded state pension scheme?

  1. Increasing life expectancy of retirees Correct answer.
  2. Declining returns on government bonds
  3. Rising birth rates among active workers
  4. Falling real wages among contributors

Explanation

Longer retirements increase the number of years benefits are paid, raising total liabilities in a pay-as-you-go system. This is captured by rising old-age dependency ratios. Bond returns are not a primary driver of unfunded scheme costs.

Question 28State pensions and social welfare provisions

A country operates a two-tier state pension: a flat-rate basic pension plus an earnings-related second tier. A worker with high lifetime earnings retires. How does her total state pension compare with a low earner's under this structure?

  1. She receives less overall because the basic tier is clawed back
  2. Both receive amounts determined solely by their contribution years
  3. She receives more overall because the second tier is earnings-related Correct answer.
  4. Both receive identical amounts because the basic tier is universal

Explanation

The universal basic tier is the same for both, but the earnings-related tier scales with the higher earner's record. Total entitlement is therefore greater for the high earner. Contribution years affect eligibility but the earnings link drives the difference.

Question 29State pensions and social welfare provisions

A pensioner's benefit is indexed to the consumer price index. Over a period of high inflation, what happens to the real value of the pension?

  1. It rises because nominal benefits outpace prices
  2. It is broadly preserved because benefits rise with prices Correct answer.
  3. It falls because nominal benefits are frozen
  4. It becomes unpredictable because indexation is random

Explanation

Price indexation adjusts nominal benefits in line with inflation, so purchasing power is approximately maintained. Real value is preserved rather than increased or eroded. Only a frozen nominal benefit would lose real value.

Question 30State pensions and social welfare provisions

If a scheme indexes pensions to average earnings rather than to prices, what is the typical long-run effect relative to price indexation?

  1. Benefits are unaffected by economic growth
  2. Benefits grow more slowly and fall behind wages
  3. Benefits are reduced whenever wages rise
  4. Benefits grow in line with wages and preserve relative living standards Correct answer.

Explanation

Earnings indexation links pensions to wage growth, so retirees share in rising living standards and the replacement rate is broadly stable. Price indexation preserves purchasing power but not relative position. Earnings indexation is generally more costly for the scheme.

Question 31State pensions and social welfare provisions

A government raises the statutory retirement age from 65 to 67 for future cohorts. What is the most direct effect on the state pension system?

  1. It lowers the contribution rate required by law
  2. It reduces the average duration of benefit receipt Correct answer.
  3. It increases the number of years benefits are paid
  4. It removes the need for means testing

Explanation

A higher retirement age shortens the period over which benefits are drawn, reducing total liabilities for a given cohort. It also extends the contribution period. It does not by itself change contribution rates or means-testing rules.

Question 32State pensions and social welfare provisions

What is a notional defined contribution (NDC) scheme?

  1. A scheme paying only a flat universal benefit
  2. A scheme where employers hold all investment risk
  3. A pay-as-you-go scheme that credits notional accounts with a formula rate Correct answer.
  4. A funded scheme investing contributions in individual accounts

Explanation

NDC schemes record contributions in notional individual accounts and apply a notional interest rate, but the money is used to pay current pensions. Benefits are calculated from the notional balance at retirement. The accounts are bookkeeping entries rather than real invested assets.

Question 33State pensions and social welfare provisions

A low-income worker with a short contribution record reaches retirement age. Under a scheme with a minimum pension guarantee, what happens if the formula benefit falls below the guarantee level?

  1. The benefit is paid at the formula amount with no adjustment
  2. The benefit is topped up to the guaranteed minimum Correct answer.
  3. The worker must repay contributions to qualify
  4. The worker is denied any pension

Explanation

A minimum pension guarantee ensures a floor income by topping up formula benefits that fall short. This protects low earners and those with incomplete records from poverty in old age. The guarantee supplements rather than replaces the formula calculation.

Question 34State pensions and social welfare provisions

Which of the following best describes a dependency ratio in the context of state pensions?

  1. The ratio of contributions to investment returns
  2. The ratio of retirees to contributors in the population Correct answer.
  3. The ratio of pension benefits to national GDP
  4. The ratio of public to private pension provision

Explanation

The old-age dependency ratio compares the number of people of retirement age with the number of working-age contributors. A rising ratio means fewer contributors support each retiree, pressuring pay-as-you-go finances. It is a demographic indicator, not a financial ratio.

Question 35State pensions and social welfare provisions

A government introduces a clawback so that the basic state pension is reduced by 50 cents for each dollar of private pension income above a threshold. What design feature does this illustrate?

  1. Income testing of benefits Correct answer.
  2. Universal provision
  3. Earnings-related accrual
  4. Contribution-based entitlement

Explanation

Reducing a benefit as other income rises is income testing, a form of means testing. It targets the benefit at those with lower total resources. Universal and contribution-based schemes do not vary benefits with other income in this way.

Question 36State pensions and social welfare provisions

Why might a state pension scheme apply a cap on the earnings counted toward the benefit formula?

  1. To guarantee a minimum pension for all
  2. To remove the need for any contribution conditions
  3. To ensure high earners receive proportionally more
  4. To limit the cost of the scheme and the benefit going to high earners Correct answer.

Explanation

An earnings cap limits both the contributions and benefits linked to very high earnings, controlling scheme cost and redistributive scope. It is a common design feature in social insurance. It does not affect minimum guarantees or remove contribution conditions.

Question 37State pensions and social welfare provisions

A worker spends part of her career in a country with a Bismarckian scheme and part in a country with a Beveridgean scheme. Which statement best reflects how her entitlements typically differ between the two?

  1. The Bismarckian scheme links her benefit to her contribution record there Correct answer.
  2. Both schemes pay identical flat-rate amounts
  3. Neither scheme counts her years of residence
  4. The Beveridgean scheme pays her based on her foreign earnings

Explanation

Bismarckian schemes tie benefits to contributions and earnings in that system, so her record there determines that portion. Beveridgean schemes generally rely on residence or age rather than an earnings record. Total cross-border entitlements usually combine both types of accrual.

Question 38State pensions and social welfare provisions

What is the principal rationale for coordinating social security entitlements between countries through totalisation agreements?

  1. To prevent workers who move between countries from losing accrued entitlements Correct answer.
  2. To harmonise contribution rates across all signatory countries
  3. To eliminate the need for retirement ages in member states
  4. To replace national schemes with a single supranational pension

Explanation

Totalisation agreements allow periods of contribution or residence in different countries to be combined when assessing entitlement. This protects mobile workers from losing rights through fragmentation of records. They do not harmonise rates or replace national schemes.

Question 39State pensions and social welfare provisions

A scheme's benefit formula is 1.5% of average earnings per year of contribution. A worker with average earnings of 40,000 and 30 contribution years retires. What is her annual pension before any indexation?

  1. 6,000
  2. 24,000
  3. 18,000 Correct answer.
  4. 36,000

Explanation

The formula multiplies the accrual rate by years and by average earnings: 1.5% × 30 × 40,000 = 18,000. The accrual rate and contribution years combine to give the replacement rate of 45%. This yields the annual benefit before indexation adjustments.

Question 40State pensions and social welfare provisions

A country's old-age dependency ratio rises sharply because the working-age population shrinks while the retired population grows. Which policy response most directly preserves the solvency of an unfunded scheme without cutting benefits for current retirees?

  1. Lowering the statutory retirement age
  2. Raising the contribution rate on active workers Correct answer.
  3. Investing scheme reserves in equities
  4. Reducing the number of contribution years required

Explanation

When there are fewer contributors per retiree, raising the contribution rate increases revenue to sustain current benefit payments. It does not alter benefits for existing retirees. Lowering the retirement age or easing contribution conditions would worsen the imbalance.

Question 41State pensions and social welfare provisions

An NDC scheme credits contributions to a notional account at a rate tied to average wage growth, and at retirement converts the notional balance to an annuity using a cohort life expectancy divisor. If life expectancy at retirement rises, what happens to the annual pension for a given notional balance?

  1. It rises because the notional rate rises automatically
  2. It is unchanged because the balance is fixed
  3. It rises because the divisor increases
  4. It falls because the divisor increases Correct answer.

Explanation

The annuity divisor reflects expected years of retirement; a longer life expectancy raises the divisor. Dividing a fixed notional balance by a larger divisor produces a smaller annual pension. This automatic adjustment helps keep the scheme financially sustainable as longevity increases.

Question 42State pensions and social welfare provisions

A means-tested top-up is withdrawn at a rate of 60% against other income. A pensioner has other income of 5,000 above the threshold. What is the reduction in the top-up?

  1. 5,000
  2. 1,800
  3. 3,000 Correct answer.
  4. 4,000

Explanation

The withdrawal is 60% of the excess income: 0.60 × 5,000 = 3,000. The top-up is reduced by this amount. High withdrawal rates can create strong disincentives to save, a common criticism of means-tested top-ups.

Question 43State pensions and social welfare provisions

Which argument best explains why some analysts prefer universal flat-rate pensions over means-tested ones on efficiency grounds?

  1. Universal pensions always pay more to high earners
  2. Universal pensions eliminate all fiscal cost
  3. Means-tested schemes require no administrative data
  4. Means-tested withdrawal rates can discourage private saving Correct answer.

Explanation

High effective withdrawal rates in means-tested schemes can penalise saving and work, distorting behaviour. Universal benefits avoid this implicit tax because entitlement does not depend on other income. Universal schemes are, however, more costly fiscally.

Question 44State pensions and social welfare provisions

A scheme's replacement rate is 45% gross but a large share of the benefit is taxable while pre-retirement earnings were taxed only lightly. What does this imply for the net replacement rate compared with the gross rate?

  1. The net rate will be lower than the gross rate Correct answer.
  2. The net rate cannot be determined from tax treatment
  3. The two rates will be identical
  4. The net rate will be higher than the gross rate

Explanation

The net replacement rate compares after-tax income in retirement with after-tax earnings before retirement. If the pension is taxed more heavily relative to prior earnings, the net rate falls below the gross rate. Tax treatment is therefore central when comparing adequacy across systems.

Question 45Occupational pension schemes

In a defined benefit occupational pension scheme, the retirement benefit is normally calculated by reference to which of the following?

  1. The investment return achieved by the scheme's default fund over the member's career
  2. The annuity rate prevailing on the member's chosen retirement date
  3. The member's accrued pension entitlement linked to salary and service Correct answer.
  4. The accumulated value of contributions invested in the member's individual account

Explanation

Defined benefit schemes promise a benefit defined by a formula, typically a fraction of pensionable salary for each year of service. The member's benefit is not determined by account balances or investment performance, which fall on the employer and scheme.

Question 46Occupational pension schemes

Which of the following best describes the role of a scheme trustee in an occupational pension scheme?

  1. To set the investment strategy solely in line with the employer's commercial goals
  2. To audit the employer's accounts and certify the scheme's funding position
  3. To market the scheme to prospective members and collect contributions
  4. To hold and administer the scheme's assets in the interests of beneficiaries Correct answer.

Explanation

Trustees hold the scheme assets on trust and must act in the interests of beneficiaries, for example in setting investment strategy and overseeing administration. They are distinct from the employer, auditors and administrators.

Question 47Occupational pension schemes

What is the principal purpose of the statutory funding objective for defined benefit occupational schemes?

  1. To require all schemes to invest solely in government bonds
  2. To ensure the scheme has sufficient and appropriate assets to cover its technical provisions Correct answer.
  3. To guarantee that benefits can never be reduced under any circumstances
  4. To cap employer contributions at a level agreed with the regulator

Explanation

The statutory funding objective requires a scheme to hold sufficient and appropriate assets to meet its technical provisions, with a written statement of funding principles. It does not guarantee benefits absolutely or dictate a single investment class.

Question 48Occupational pension schemes

A defined benefit scheme member has pensionable salary of 40,000 and accrues a pension of 1/60th of salary for each year of service. After 20 years of service, what is the member's accrued annual pension?

  1. 8,000
  2. 12,000
  3. 13,333 Correct answer.
  4. 16,000

Explanation

The accrual is 1/60 of pensionable salary per year, so each year builds 40,000/60 = 666.67 of annual pension. Over 20 years this gives 20 x 666.67 = 13,333.

Question 49Occupational pension schemes

In a defined contribution occupational pension scheme, which party generally bears the investment risk?

  1. The scheme actuary
  2. The sponsoring employer
  3. The scheme trustee
  4. The member Correct answer.

Explanation

In defined contribution arrangements the member's eventual benefit depends on contributions and investment returns, so the member carries the investment risk. The employer's obligation is generally limited to making the agreed contributions.

Question 50Occupational pension schemes

Under automatic enrolment, what is the minimum total contribution (employer plus employee) required on qualifying earnings for a standard scheme?

  1. 2%
  2. 12%
  3. 8% Correct answer.
  4. 5%

Explanation

The minimum automatic enrolment contribution is 8% of qualifying earnings in total, of which at least 3% must come from the employer. Lower percentages may apply during transitional phasing.