TM1 vs series X Q3.2...?

[YetAnotherStudent]

Ok. Q x3.2 (i & ii) states that, so summarise, you are advising a DC scheme which is about to issue annual benefit statements to the members.

The scheme is going to wind up in 6 months (the members don't know this) and the q goes on to ask if the benefit statements in their current form (viz accumulated fund, proj to retirement, and accumulated fund with future conts to retirement, proj to retirement) should be issued unchanged or not; taking into account that members' benefits will be secured by buying a deferred pension for them in 6 months' time.

Now the answer given makes no reference to the existence of TM1 at all! Given TM1 is not in the syllabus, but it is as far as I know, legally required?

To quote TM1:

"6.2.1
Where this Technical Memorandum sets out precise methods and assumptions to be used to carry out calculations, these must be followed. Where discretion is given to Providers, they must use reasonable efforts to ensure that any assumptions or approximations produce appropriate results for each Member."

and again:

"For Scheme (statement) years ending on or after 6 April 2003, the requirement to provide an Illustration applies to any pension arrangement that is required to issue an Annual benefit statement under the Legislation (see paragraphs 2.1 and 2.2), and so may apply to an investor or member with money purchase benefits in any of a wide range of individual and occupational pension arrangements, such as:
•
Stakeholder pensions
•
personal pensions
•
money purchase occupational pension schemes (also referred to as “defined contribution” schemes), including additional voluntary contribution arrangements (AVCs)
•
defined benefit occupational pension schemes (including AVCs)
•
benefits “bought-out” from occupational pension schemes, where the relevant contract is in the name of the trustees rather than the Member
•
free-standing AVCs (FSAVCs).
Where the Legislation applies, the relevant pension arrangement is referred to in this Technical Memorandum as the Scheme and the investor or member concerned is referred to as the Member. Except in certain specified circumstances, Illustrations are required irrespective of whether or not money purchase contributions in respect of the Member will be paid into the Scheme in future."



So am I correct in assuming that this projection should be as under TM1? Without reading the whole thing again, I seem to recall that you have to do the statutory illustration but you then can provide additional illustrations as well. Taking that approach you could cobble together an answer to this Q, but ...?

Or do I just hope that the profession will not set such a Q in the exam?

 

[ExamFatigued]

The solution should really mention both TM1 and the relevant guidance note for DC illustrations GN34. I think GN34 is in the core reading (it certainly should be) but TM1 is not.

TM1 governs illustrations to be provided under the Disclosure Regulations (not in core reading either). The illustration to be provided as per this question can be viewed as this illustration (in which case TM1 applies) or not (in which case GN34 principles will apply). The solution suggests that the illustration could be given in the same format as last year (which would be a TM1 disclosure) plus additional 'realistic' buy-out style disclosures. There may be no need to produce the TM1 illustration at all, since the benefits may have been bought out by the time the statutory deadline is met.

The key thing is not to get bogged down in which regs apply, but to discuss what should be a reasonable approach. You can then let your compliance department sort out what need to be done in addition. Personally, this is exactly the type of question I wanted to turn up. Lots if easy marks for discussing principles.

 

[YetAnotherStudent]

Yes, GN 34 is required reading.

I agree that 'reasonable approaches' might well get you marks, but how can we be let loose on the world as an FIA/FFA without knowing what really HAS to be done? Surely 'reasonable approaches' should be for ST4 rather than SA4?

That said expecting one 100 mark exam to be the make/break between knowing and not knowing is also a bit ridiculous.

I'm also going slightly mad trying to learn 'historic' data when I know it's changed since....

I think studying is turning me into a grumpy person