Module 2: Pensions Law, Regulation and Scheme Design

• Unit 01

  Unit 2.1: Occupational Pensions Legislation and Its Effect on the Trust

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  135 questions · 3 topics
• Unit 02

  Unit 2.2: The Pensions Regulator, Internal Controls and Disputes

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  135 questions · 3 topics
• Unit 03

  Unit 2.3: Tax, State Pensions, Automatic Enrolment and Scheme Design

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  225 questions · 5 topics

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

1. A scheme operates relief at source for member contributions. A basic-rate taxpayer wants to make a contribution that results in £100 being added to their pot. How does the mechanism achieve this?

   • A
     The member's employer deducts £80 from gross pay and HMRC pays the difference into payroll.
   • B
     The member pays £80 and the scheme borrows £20 from the employer's contribution budget.
   • C
     The member pays £100 net and HMRC later refunds £20 directly to the member's bank account.
   • D
     The member pays £80 net and the scheme claims £20 basic-rate relief from HMRC, bringing the total to £100.
     Correct answer
   Explanation

   Relief at source works by grossing up a net contribution: HMRC pays basic-rate relief directly to the scheme, so an £80 net payment becomes £100 in the pot. This reclaim goes to the scheme, not to the member's own account, and it is tax relief, not a National Insurance rebate. Key takeaway: under relief at source, the scheme reclaims basic-rate relief from HMRC and adds it to the member's net payment.

2. A trustee is preparing a compliance escalation policy and proposes that every type of breach, whether it relates to data protection, tax reporting or adviser authorisation, should be reported to The Pensions Regulator as a single point of contact. Which response correctly evaluates this proposal?

   • A
     The proposal is flawed: each area of law has its own regulator, so a data breach should go to the ICO, a tax issue to HMRC, and an adviser authorisation concern to the FCA, rather than all being routed to TPR
     Correct answer
   • B
     The proposal is flawed only because TPR lacks the administrative capacity to handle high volumes of reports
   • C
     The proposal is sound, provided TPR is notified within 72 hours of any breach
   • D
     The proposal is sound: TPR is designed to act as a single point of contact for every type of scheme-related compliance issue
   Explanation

   A single-regulator escalation policy misunderstands how UK regulatory responsibility is divided: the Information Commissioner's Office handles data protection, HM Revenue and Customs handles pensions tax, and the Financial Conduct Authority handles adviser and firm authorisation, while The Pensions Regulator handles scheme funding, governance and supervision. Each type of issue must be routed to the regulator with the relevant jurisdiction. Key takeaway: a workable compliance policy must map issues to the correct regulator, not assume one regulator covers everything.

3. A payroll system flags a worker as requiring automatic enrolment because their annualised salary exceeds the earnings trigger, even though their actual earnings in the current pay reference period, due to unpaid leave, fall below the pro-rated trigger for that period. A trustee reviewing the flag questions its accuracy. Which principle should resolve the question correctly?

   • A
     The payroll system is correct, since annualised salary, not actual pay-period earnings, is always the basis for the earnings trigger test.
   • B
     The worker should be assessed using whichever figure, annualised or actual, produces automatic enrolment, to err on the side of caution.
   • C
     Assessment against the earnings trigger is based on actual qualifying earnings in the relevant pay reference period, not an annualised salary figure, so the worker should not be treated as crossing the trigger in a period where actual earnings fall short.
     Correct answer
   • D
     The earnings trigger only applies to workers paid monthly, so this worker's assessment method depends on pay frequency alone.
   Explanation

   The statutory test looks at actual qualifying earnings paid in each pay reference period against the trigger (pro-rated as appropriate for that period), not a notional annualised salary. A period genuinely affected by unpaid leave that brings earnings below the relevant threshold for that period should not trigger eligible jobholder status for that period, regardless of what the worker's annualised salary would suggest. Key takeaway: the earnings trigger test looks at real earnings actually paid in the pay reference period, not a projected annual figure.