APT·FUNDING · Module 4: Funding, Benefits and Member Protection·UnitFUNDING · Unit 05Access: Premium
Unit 4.5: Transfers, Discretions and the Pension Protection Fund
Unit 4.5 covers what happens at the edges of a scheme. It takes in transfers out of a defined benefit scheme and the cash equivalent behind them, the discretionary powers trustees hold and how those are exercised, both marked DB only in the syllabus, the nature and status of professional advice and what trustees may and may not rely on, and the Pension Protection Fund, which pays compensation to members of eligible defined benefit schemes when the employer becomes insolvent and the scheme cannot secure benefits above PPF levels.
What’s in it.
4 topics- Topic 01
Transfers (DB Only)
44 questions - Topic 02
Discretionary Powers (DB Only)
44 questions - Topic 03
The Nature and Status of Professional Advice
43 questions - Topic 04
The Pension Protection Fund (PPF)
42 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.
Why can a trustee not refuse a member's statutory transfer request simply because they would prefer the member to stay in the scheme?
- Because the transfer is the member's legal entitlement, which the trustee administers, not decidesCorrect answer
- Because The Pensions Regulator must approve every refusal in advance
- Because the member's employer, not the trustee, holds the power to refuse a transfer
- Because the scheme actuary, not the trustee, has authority to accept or refuse transfer requests
ExplanationThe statutory right belongs to the member; the trustee administers it under Part 4ZA of the Pension Schemes Act 1993, subject only to the due diligence conditions, rather than deciding whether the member should transfer. Key takeaway: personal preference is not a lawful ground to refuse a statutory transfer.
Which adviser is engaged to advise pension scheme trustees on asset allocation and investment manager selection?
- The appointed legal adviser
- The investment consultantCorrect answer
- The scheme administrator
- The scheme's custodian
ExplanationThe investment consultant advises trustees on investment strategy, asset allocation, manager selection and monitoring, supporting the trustees' section 36 Pensions Act 1995 duty to obtain proper investment advice. This is distinct from the funding, legal, audit and administration functions performed by other appointees. Key takeaway: asset allocation and manager selection are the investment consultant's advisory domain.
An unfunded public service DB scheme and a funded private sector DB scheme both face financial pressure on their sponsoring bodies. Why would only the funded scheme potentially fall within PPF eligibility?
- PPF protection addresses a funded scheme's asset shortfall risk after insolvencyCorrect answer
- Funded schemes always provide higher benefits than unfunded ones
- Unfunded schemes are automatically compensated by the Fraud Compensation Fund instead
- Unfunded schemes cannot legally have a normal pension age
ExplanationThe eligibility distinction rests on the specific risk PPF protection addresses: a funded scheme's set-aside assets turning out to be insufficient after employer insolvency. Unfunded schemes do not carry that particular asset-shortfall risk, regardless of benefit levels, membership size, or normal pension age arrangements. Key takeaway: PPF eligibility follows the funded-asset-shortfall risk, not benefit generosity or membership size.