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Home / FUNDING · Module 4: Funding, Benefits and Member Protection
Mapped to the published PMI Award in Pension Trusteeship syllabus across 22 units and 91 topics

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.

Questions
810
Units
5
Topics
18

What’s in it.

5 units

Sample questions

3 of many

A few questions from this module, with the answer and a full explanation. The complete bank is available when you start practising.

  1. A DB scheme member dies leaving a cohabiting partner who was financially interdependent with the member but was never married to them, alongside an adult child who was financially independent. The scheme's trust deed defines the class of potential beneficiaries to include dependants and relatives. A trustee argues that only the adult child should be considered, since the cohabiting partner was 'not family'. Is this approach correct?

    • No, because financial independence disqualifies the adult child entirely from consideration
    • Yes, because the trust deed's reference to relatives overrides its reference to dependants
    • No, but only if the cohabiting partner is also named on a valid expression of wish form
    • No, the partner may qualify as a dependant due to financial interdependence with the member, regardless of marital status
      Correct answer
    Explanation

    Where a trust deed's class of potential beneficiaries includes dependants, financial interdependence with the member, not marital or blood relationship, is generally the relevant test for whether someone qualifies. A cohabiting partner who was financially interdependent with the member may therefore fall within the class as a dependant, and trustees would be wrong to exclude them purely because they were unmarried. Key takeaway: dependency is generally assessed by financial interdependence, not formal family status.

  2. A member queries why their scheme's transfer value seems markedly lower than a published typical transfer value they saw in a newspaper article about DB transfers generally. Which explanation correctly addresses this, without suggesting an error has occurred?

    • The figure is low only because the member's scheme has identified a red flag in relation to their transfer
    • The figure is low only because the member's scheme has failed to comply with the 1996 transfer value regulations
    • The figure is low only because the scheme actuary has applied the amber-flag guidance requirement to reduce the value
    • Published typical figures are averages; an individual scheme's actuary may reasonably adopt different assumptions, so a lower figure alone is not evidence of an error
      Correct answer
    Explanation

    Since the 1996 Transfer Values Regulations allow each scheme's actuary to set its own assumptions, published average figures will not match every individual scheme's CETV; a lower-than-average figure, on its own, does not indicate non-compliance or a due diligence issue. Key takeaway: red-flag, amber-flag, and safeguarded-benefit status are irrelevant to why calculated values differ between schemes.

  3. A scheme reports a funding level of 92% at its actuarial valuation. What does this indicate about the Statutory Funding Objective?

    • The scheme has automatically breached pensions law
    • The Statutory Funding Objective is not met, because assets are below technical provisions
      Correct answer
    • The sponsoring employer must immediately buy out all benefits
    • The scheme no longer needs an actuarial valuation
    Explanation

    A funding level below 100% means assets are less than technical provisions, so the SFO is not met at that valuation, though this is a shortfall requiring a recovery plan, not a breach of pensions law in itself. Key takeaway: below 100% funding level means the SFO is not currently met.

Frequently asked questions

4 questions
What 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.