APT·ModuleFUNDING
Module 4: Funding, Benefits and Member Protection
Module 4 covers how benefits are paid for and what protects them. It starts with the actuarial valuation of a defined benefit scheme, the methods used to value assets, the principles of funding defined benefit liabilities and the different funding measures a scheme may be shown against, alongside the importance of complete and accurate member data. It then covers the employer covenant and how contributions are determined, the statutory funding objective and the statement of funding principles, the defined contribution side through insured risk benefits and decumulation, and finally transfers, discretionary powers, the status of professional advice and the Pension Protection Fund. Several criteria in this module are marked DB only or DC only in the published syllabus, and those labels are kept on the topic names here because they change what a trustee is expected to know.
What’s in it.
5 units- Unit 01
Unit 4.1: Actuarial Valuation and DB Funding Principles
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Unit 4.2: Contributions and the Employer Covenant
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- Unit 04
Unit 4.4: DC Arrangements, Risk Benefits and Decumulation
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Frequently asked questions
4 questionsWhat is the statutory funding objective?
A defined benefit scheme must hold sufficient and appropriate assets to cover its technical provisions, which are the amount needed to meet the benefits already accrued. Trustees prepare a statement of funding principles, obtain an actuarial valuation, and where there is a shortfall agree a recovery plan and a schedule of contributions with the employer.
What is the employer covenant?
The covenant is the employer’s legal obligation to the scheme together with its financial ability to meet that obligation now and in the future. Trustees assess it because the strength of the covenant shapes how much funding and investment risk the scheme can reasonably carry.
What is the Pension Protection Fund?
The PPF pays compensation to members of eligible defined benefit schemes when the sponsoring employer becomes insolvent and the scheme does not have enough assets to secure benefits above PPF levels. It is funded by a levy on eligible schemes, and the compensation it pays is not necessarily the same as the benefit the scheme promised.
What does decumulation mean in a DC scheme?
Decumulation is how a member turns a defined contribution pot into retirement income. The main routes are an annuity, drawdown, taking cash, or some combination of these, and trustees have duties around communications and access to guidance so that members can make an informed choice.