Trustee Good Practice Guide
Glossary
The following glossary contains terms relating specifically to the PPF assessment period.
Admissible rules
When a pension scheme enters
an assessment period, a review is undertaken to identify changes to the pensions scheme rules in the three years before the assessment date:
- any discretionary increase under the pension scheme rules that were made or came into effect which were made or took effect, and
- rules that come into force by reference to an insolvency event in relation to the employer or any associated event.
If the review establishes that immediately before the assessment date, the aggregate effect of recent rule changes resulted in an overall increase in the pension scheme’s liabilities those changes will be disregarded by the PPF leaving only those rules which are admissible. Additionally any pension scheme pension scheme rule which came into operation through the winding-up of the pension scheme or any associated event will be treated as void.
Assessment date
The date of the qualifying insolvency event.
Assessment period
The period following the qualifying insolvency event during which the PPF determines whether it should formally assume responsibility for the pension
scheme. During this period the scheme
continues to be managed by the
trustees, subject to various restrictions
and controls.
The assessment period is likely to last a minimum of one year and could be longer depending on the complexity of the financial situation of both the employer and the scheme.
PPF compensation
Individuals who, at the assessment date, have already reached normal pension age or are in receipt of a survivor’s pension or a pension on
the grounds of ill health:
- are compensated at the level of 100 per cent of their current pension in payment at the assessment date
- the pension in respect of service from 6 April 1997 will increase, and
- this increase is in line with the Retail Prices Index to a maximum of 2.5 per cent per annum.
For those individuals who have not reached normal pension age at the assessment date and are not in receipt of a pension on the grounds of ill health or a survivor’s pension:
- the compensation level is 90 per cent of their accrued benefits at the assessment date
- revaluation in line with the Retail Prices Index for each year between the assessment dates and the commencement of compensation payments
- subject to an overall cap adjusted according to the age at which compensation comes into payment, and
- once in payment, indexation as for retired members.
Contracting out
Using a pension scheme to meet certain conditions to provide benefits (GMPs, Protected Rights) in place of the State Second Pension. Employees
and the sponsoring employers of contracted out occupational schemes pay reduced rate National Insurance contributions.
Contracting out certificate
The certificate issued by HMRC, in respect of an occupational pension scheme which satisfies the conditions for contracting out, confirming that the employees in the employments named in the certificate are to be treated as being in contracted out employment.
Equalisation
The European Court of Justice ruling that since the Barber Judgment of
17 May 1990 men and women must have equal rights to join occupational pension schemes, occupational
pensions earned from service must
be equal for men and women and
that normal pension ages must be
the same for both sexes.
Guaranteed Minimum Pension (GMP)
The minimum pension which a salary related occupational pension scheme must provide in respect of contracted out contributions paid between April 1978 and April 1997, as a condition of contracting out.
Replaced by the Reference Scheme Test for contributions paid after 1997.
HM Revenue & Customs (HMRC)
Formed in 2005, following the merger of the Inland Revenue and HM Customs
and Excise. Responsible for the tax approval of pension schemes and taxation of contributions and benefits.
Indemnity insurance
Trustee indemnity insurance covers trustees against personal liability when legal claims are made against them, either by their pension scheme or by a third party. Provided that the trustees have authority under the scheme
rules, they are entitled to be insured against claims that may arise from their legitimate actions as trustees, and will be covered against liability as long as they have acted honestly and reasonably.
Independent trustee
An individual or corporate body with no direct or indirect involvement with the pension scheme, employer or member, other than performing the duties of the trustee.
Insolvency practitioner
In the United Kingdom, only an
authorised or licensed insolvency practitioner may be appointed in
relation to formal insolvency
procedures.