Explore answers to commonly asked questions about pensions.
Curious? Your questions answered
This is a swap contract whereby one party agrees to pay a fixed rate of interest in exchange for a floating rate of interest. Interest rate swaps are useful for hedging a pension scheme’s fixed liabilities. For example, where scheme members receive a fixed rate benefit every year, a pension scheme could enter into a swap contract to pay a floating rate of interest and receive a fixed rate of interest. A fall in interest rates would typically increase the scheme’s funding target but the scheme would benefit from an offsetting increase in the value of its interest rate swap.
This refers to (part of) a firm, such as LCP, or to an individual within such a firm that provides investment advice across a wide range of areas such as investment strategy and investment manager selection. Such advice is normally provided to institutional clients, including pension scheme trustees and companies, rather than to individuals.
As part of their governance structure, many pension scheme trustees have set up an Investment Sub-Committee. The ISC is usually a subset of the full trustee board. Its job is to monitor investment-related matters and to recommend action to the trustee board and/or act on its pre-agreed executive powers. Particularly in the case of large trustee boards, having an ISC normally leads to faster decision-making, which can often be beneficial.
DB pension scheme run-on is where you continue to operate a pension scheme beyond the funding level required to fully insure and buy-out pension benefits.
A pension scheme wind-up is the process of formally closing down a pension scheme, after the scheme assets have been used to secure members’ benefits and any residual assets have been distributed. For defined benefit schemes, this usually involves securing members’ benefits with an insurance company through what is known as a “buy-out”.
In the context of a defined contribution (DC) pension scheme, a platform is an investment structure established by a pension provider (eg an insurance company) which offers a wide range of investment funds. These normally comprise both the provider’s own (“in-house”) funds as well as third party (“external”) funds. Members of pension schemes which are on the platform will then have access to some or all of the available funds, with details of the precise fund offering depending upon those responsible for the pension scheme – eg the trustees in the case of a trust based arrangement and the company in the case of a contract based (such as a Group Personal Pension or a Stakeholder Pension) arrangement.
The "silver dividend" refers to the potential economic benefits that can come from an aging population, particularly as people live longer and healthier lives. Instead of seeing older people only as a cost or burden, the idea is that if they stay active, keep working longer, volunteer, or support their families and communities, they can continue contributing to society.
In simple terms, a SPAC is a listed company with no commercial operations that exist purely to raise capital from investors and to use that capital to acquire privately-held companies and to help those companies grow through investment in the business, increasing brand awareness and/or acquisition and then ultimately to take the business public. SPACs have two years to complete a transaction, else they must return the raised funds to investors.
This is the entity that supports a pension scheme, primarily through the payment of contributions to meet some or all of the specified scheme benefits. Sponsors are most commonly private sector employers, or the government/local authorities in the case of public sector arrangements.
A stakeholder pension is a type of defined contribution (DC) personal arrangement, with certain distinguishing features, such as a legal cap on the level of investment management charges that can be levied and low minimum contribution levels. Both individual and group stakeholder pension schemes exist.
This is a document – normally referred to as the “SIP” – which the trustees of most occupational pension schemes are required to produce. Legislation details minimum SIP requirements although many SIPs go beyond this and are designed to provide an overview of the trustees’ overall investment policies and arrangements. Trustees need to take written advice (normally from their investment adviser) on their SIP when first drafted and on any subsequent changes, and must consult the sponsor on the SIP contents before it is finalised. In any event, the SIP needs to be reviewed at least every three years.
This version of the additional state pension was introduced in 2002-03 as a modified version of the SERPS (state earnings related pension scheme) system, which had been in place since 1978-79.
