Pension Scheme Types

• Topic 01

  Pension Scheme Types

  44 questions

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

1. A client's employer offers a Group Personal Pension (GPP). The client has a complaint about how the scheme is managed and asks which regulator they should contact. What is the correct answer?

   • A
     Either TPR or FCA — as the employer is involved, both have concurrent jurisdiction
   • B
     The Pension Protection Fund (PPF), which handles all pension complaints
   • C
     The Financial Conduct Authority (FCA), as GPPs are contract-based personal pensions regulated by the FCA, not occupational schemes regulated by TPR
     Correct answer
   • D
     The Prudential Regulation Authority (PRA), which regulates insurance companies that run GPPs
   Explanation

   A GPP is a contract-based personal pension, despite being arranged by the employer. The legal relationship is between the individual employee and the pension provider (an insurance company or other FCA-authorised firm). Accordingly, the FCA regulates GPPs and handles regulatory complaints about them. TPR regulates trust-based occupational schemes only.

2. What is the annual management charge cap for a stakeholder pension for the first 10 years?

   • A
     0.75% of fund value per year
     Correct answer
   • B
     2% of fund value per year
   • C
     0.5% of fund value per year
   • D
     1.5% of fund value per year
   Explanation

   The annual management charge cap for a stakeholder pension is 0.75% of the fund value per year for the first 10 years of the policy. This cap is set by the Stakeholder Pension Schemes Regulations and is a defining feature distinguishing stakeholder pensions from other personal pension arrangements.

3. A client is comparing a stakeholder pension with a standard personal pension from the same provider. The stakeholder pension has a 0.75% AMC. The standard personal pension has a 0.5% AMC but levies a separate platform fee of 0.3% and an exit charge of 1% if the client leaves within 5 years. Which product has better consumer protection under the statutory rules?

   • A
     The stakeholder pension — but only because it is FCA-regulated, whereas the standard personal pension is not
   • B
     The standard personal pension — the lower AMC of 0.5% results in a lower total cost despite the exit charge
   • C
     The stakeholder pension — the total charge cap of 0.75% includes all charges, exit penalties are not permitted, and minimum contribution flexibility is required by statute
     Correct answer
   • D
     They are equivalent — stakeholder regulations only govern the AMC and permit any additional charges
   Explanation

   Stakeholder pension regulations cap total charges at 0.75% (or 1% after 10 years) and prohibit exit penalties and charges for stopping, starting, or varying contributions. The standard personal pension's total cost (0.5% AMC + 0.3% platform = 0.8%) already exceeds the stakeholder cap, and the exit charge is not permitted under stakeholder rules. The stakeholder regime provides stronger statutory protection even if the headline AMC appears higher.