APT·FUNDING · Module 4: Funding, Benefits and Member Protection·UnitFUNDING · Unit 04Access: Premium
Unit 4.4: DC Arrangements, Risk Benefits and Decumulation
Unit 4.4 covers the defined contribution side of the syllabus together with the benefits that are insured rather than funded. It takes in risk benefits such as death in service and ill-health cover, which are usually insured rather than met from scheme assets, the way defined contribution arrangements work through contributions, member investment choice and a default arrangement, and decumulation, meaning the routes a member can take to turn a pot into retirement income, which the syllabus marks DC only. A trustee of a defined contribution scheme spends more time here than anywhere else in Module 4.
What’s in it.
3 topics- Topic 01
Non-Funded but Usually Insured Scheme Benefits (Risk Benefits)
37 questions - Topic 02
Defined Contribution Arrangements
41 questions - Topic 03
Decumulation of Pension Funds (DC Only)
44 questions
Sample questions
3 of manyA few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.
What ongoing duty do trustees have in respect of the default arrangement?
- A duty to obtain individual member consent before any contribution is invested in it
- A duty to guarantee a minimum investment return on the default arrangement each year
- A duty to design it in members' interests and to monitor and periodically review itCorrect answer
- A duty to close the default arrangement to new members once it reaches a certain size
ExplanationTrustees must design the default arrangement in members' interests and keep it under regular monitoring and review, reflecting its importance given how many auto-enrolled members end up relying on it without making an active choice. Key takeaway: the trustee duty is ongoing design, monitoring and review, not a one-off decision made at launch.
Why do the vast majority of auto-enrolled members end up in the default arrangement?
- Because the default arrangement offers a guaranteed return that self-select funds cannot match
- Because most members do not make an active investment choice, and the default is where contributions go automaticallyCorrect answer
- Because TPR requires every auto-enrolled member to remain in the default arrangement permanently
- Because the default arrangement is the only fund available, until a member reaches age 50
ExplanationAutomatic enrolment relies on member inertia by design: members are enrolled without needing to actively choose an investment, so unless they take the extra step of selecting their own funds, their contributions default into the arrangement built for that purpose. Key takeaway: reliance on the default arrangement stems from member inertia, not from any restriction on making an active choice.
What is lifestyling as an investment strategy?
- An automated approach that shifts a member's assets from higher-risk towards lower-risk as retirement nearsCorrect answer
- A strategy that invests a member's entire pot in a single company's shares chosen by the employer
- Five years before retirement, the member's pot is automatically converted into an annuity
- A strategy that increases a member's contribution rate automatically as they approach retirement
ExplanationLifestyling automatically de-risks a member's asset allocation as they approach their target retirement date, typically moving from higher-risk, higher-growth assets towards lower-risk, more liquid assets such as bonds and cash, and it is the typical default investment design. Key takeaway: lifestyling is an automated de-risking glide path tied to a target retirement date, not a fixed allocation or a contribution-rate change.