R04 DB funding and scheme reporting: free practice questions

1. Question 1 of 5

   What do a DB scheme's technical provisions represent?

   Option A: The assets needed to pay accrued benefits as they fall dueOption B: The cost of buying out every benefit with an insurerOption C: The current market value of the scheme's assetsOption D: The surplus of assets over liabilities

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   The answer is A: The assets needed to pay accrued benefits as they fall due

   Technical provisions are the assets required to meet the scheme's liabilities as they fall due. The statutory funding objective is to hold enough to cover them.

   Why the other options are wrong

   B

   Buy-out cost is a different, usually higher, measure.

   C

   That's the asset value, not the provisions.

   D

   That's a surplus, not the provisions.

2. Question 2 of 5

   What overriding principle applies to a DB recovery plan?

   Option A: Members must make up half of the shortfall through higher contributionsOption B: The deficit must be cleared within three yearsOption C: Deficits must be recovered as soon as the employer can reasonably affordOption D: The plan must be approved by the PPF first

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   The answer is C: Deficits must be recovered as soon as the employer can reasonably afford

   Trustees must aim to recover the deficit as soon as the employer can reasonably afford, looking at its available cash, the reliability of its cash flows and other uses of cash.

   Why the other options are wrong

   A

   Members aren't required to fund half.

   B

   There's no fixed three-year period.

   D

   Plans go to TPR, not the PPF for approval.

3. Question 3 of 5

   Which valuation discounts liabilities using yields on high quality corporate bonds?

   Option A: The Section 179 levy valuationOption B: The Section 143 PPF valuationOption C: The buy-out valuationOption D: IAS 19 for company accounts

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   The answer is D: IAS 19 for company accounts

   IAS 19 uses AA corporate bond yields and market value assets for the company's balance sheet. Section 143 uses gilt yields and PPF levels.

   Why the other options are wrong

   A

   Section 179 uses a simpler PPF basis.

   B

   Section 143 uses gilt yields.

   C

   Buy-out uses insurer pricing.

4. Question 4 of 5

   Which change to a DB scheme requires the employer to consult affected employees?

   Option A: Appointing a new auditorOption B: Reviewing the schedule of contributionsOption C: Changing the investment managerOption D: Closing the scheme to future accrual

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   The answer is D: Closing the scheme to future accrual

   Significant benefit changes need consultation: closing the scheme or stopping accrual, moving to DC, raising member contributions or changing how benefits build up.

   Why the other options are wrong

   A

   Auditor changes don't need member consultation.

   B

   Routine schedules don't need it.

   C

   Manager changes don't need it.

5. Question 5 of 5

   What replaces the sponsoring employer in a DB superfund?

   Option A: A capital buffer from investorsOption B: The GovernmentOption C: The PPF, taking over the covenantOption D: An insurance company annuity

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   The answer is A: A capital buffer from investors

   A superfund replaces the employer covenant with a capital buffer. It must be authorised by TPR; Clara-Pensions is the only one cleared so far.

   Why the other options are wrong

   B

   There's no Government backing.

   C

   The PPF isn't a superfund.

   D

   Buy-out with an insurer is a different form of consolidation.

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