Scheme design- specific features
Eligibility
Membership may be voluntary or compulsory
Conditions for entry
Minimum service
Maximum/ minimum age
Employment status
Important to consider discrimination legislation
NRA
Lower NRA means:
Higher pension cost in a DB scheme
Probably lower accrued pension for the member
Basic benefits
DC scheme, benefits depend on
Amount of contributions paid
Investment return received on contributions
How, and on what terms, the member's accumulated fund is converted to benefits
DB scheme
Pensionable service
Accrual rate
Pensionable earnings
whether any offset is included (e.g. to allow for State benefits)
the time period used for measurement
inclusion or not of overtime, bonus and other items of remuneration
Final pensionable earnings
e.g. if an averaging period is used
Guaranteed and discretionary pension increases should be considered in order to maintain the value of the benefit after retirement
Integration with State benefits
A scheme can try to integrate with State benefits, for example:
determine the target benefit ignoring the existence of the State benefits and define the scheme benefit as the target less the benefits that will be provided by the State
As above, except deduct a proxy for the State benefit that accrues during membership of the scheme
Apply a deduction to the pensionable earnings definition upon which scheme benefits are determined
Reduce the accrual rate in a DB scheme as an attempt to reflect the benefits provided by the State
A more complex combination of the above approaches
Death benefits
DC scheme
DIS benefits could be provided from the member's accumulated fund or may be defined and provided in addition to or instead of the benefits that can be provided from the accumulated fund
These benefits can be lump sums and/ or dependants' pensions
DIS lump sums are a fairly popular form of protection. The amount may be calculated as a multiple of salary (say 4x).
Pensions to dependants on DIS can be provided. For a DB scheme these can be based on:
Pensionable earnings at death
Prospective service
Accrued service
Fixed percentabge
Ill-health
Death after retirement benefits from DC provision would depend on the form of any annuity purchased at retirement or the funds remaining from income drawdown
On death after retirement from a DB scheme, a spouse's pension of 50% of the member's pre-commutation pension is typically available
In addition, a lump sum payment equal to the balance of payments from a five year guarantee period can be provided
DB scheme
Alternative is Income Protection (IP), an income continuation scheme, and is often provided alongside DC benefits.
ER reduction may be removed or reduced
Future potential service can be included in the pension calculation
The generosity of ill-health pensions might depend on the circumstances in which the trustees will award such a benefit (i.e. how ill the recipient has to be).
Early leavers
return of member contributions (possibly with interest)
deferred pension from NRA, if a member of a DB scheme (possibly with revaluation to retirement)
Accumulated fund invested to retirement and then used to purchase benefits, if a member of a DC scheme
A transfer value (actuarially equivalent to the relevant option above).