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Services and benefits

Cymraeg

Calculating FAS Assistance

Eligibility

To be considered for assistance payments from the FAS a member must belong or have belonged to a qualifying pension scheme and have been within 15 years of their scheme normal retirement age or older on the 14 May 2004. Survivors of qualifying members who die after the start of wind-up may also be considered for payments.

Members who expected to reach their scheme normal retirement age between 14 May 2004 and 14 May 2011 will see any pension that they are receiving topped up to 80% of their expected core pension. Members who expected to reach their scheme normal retirement age between 15 May 2011 and 14 May 2015 will see any pension they receive topped up to 65% of their expected core pension. Members who expected to reach their scheme normal retirement age between 15 May 2015 and 14 May 2019 will see any pension they receive topped up to 50% of their expected core pension.

In most cases, final FAS payments (“annual payments”) will top-up qualifying members’ final scheme pensions to 80% of their ‘expected pension’, as determined by FAS rules. Payments are subject to the operation of a cap and a de minimis rule.

Payment types

In general, information on the full scale of an individual’s loss is not available until a scheme is close to completing wind up. Until such information is available we are unable to assess a beneficiary’s final level of assistance.

As completing wind up can take a number of years, ‘initial payments’ enable us to start paying some money to qualifying members or survivors who become entitled to assistance before their scheme has completed winding up. Scheme trustees must request such payments.

Calculating the ‘expected pension’

The ‘expected pension’ (for initial payments and for annual payments) is calculated in different ways depending on whether assistance is being calculated in relation to a member who was a pensioner or a non-pensioner at the start of wind-up. In both cases, the ‘expected pension’ is determined by reference to a ‘certification date’. The certification date depends on information schemes hold on members’ benefits. In most cases it will be the date as at which the annuity rate (or interim pension in the case of initial payments) provided by trustees is correct.

For a non-pensioner member, we revalue the rate of their accrued pension from the time their pensionable service ended up to the 'certification date' to provide their ‘expected pension’. Further details are provided below on how the ‘expected pension’ for a non-pensioner member is determined.

For a pensioner member, the ‘expected pension’ is the rate of unreduced pension that would have been in payment at the 'certification date' had the scheme not started to wind up.

We will not take account of pension increases beyond the certification date or other features of the member’s scheme, such as the level of survivors' benefits in determining the 'expected pension'.

Revaluing the ‘expected pension’

For a typical FAS qualifying member – one who was not in receipt of a pension immediately before wind-up – we determine an ‘expected pension’ across two separate periods at two different rates:

The first revaluation period

For the first revaluation period we revalue the amount of pension that a scheme member had accrued in their scheme up to the date that they left service in accordance with relevant sections of the Pension Schemes Act 1993 (‘the 1993 Act’). Generally, this means that different tranches of members’ pensions will revalue at different rates across this period but those rates will accord with the way those tranches of pension would have been revalued by the qualifying scheme.

Guaranteed Minimum Pension

During the first revaluation period any Guaranteed Minimum Pension (GMP) the member had accrued will be revalued in one of three ways that are laid down in the 1993 Act, either:

The method used in any particular case will depend on the method that the qualifying scheme would have used.

Revaluing pension over the GMP

During the first revaluation period, any pension in excess of the GMP that was subject to revaluation within the qualifying scheme rules will be revalued in line with the relevant revaluation order applying under the 1993 Act. Again, in general, this is likely to match the revaluation rate that would have been employed to that tranche of pension by the member’s qualifying scheme during that period.

The second revaluation period

For the second revaluation period, the amount of pension that the scheme member had accrued in their scheme up to the date that they left service plus the amount of revaluation determined under the first revaluation period is revalued in line with prices. Specifically, we use those entries in the Retail Price Index that correspond to dates two months before the scheme began to wind up and two months before the certification date. The result of that calculation (subject to the cap) is the FAS ‘expected pension’. The scheme pension is then deducted from 80% (or in the case of initial payments 60%) of the ‘expected pension’ to provide the FAS assistance rate at the certification date.

Non-revaluing scheme benefits

Some members may have benefits that were not subject to revaluation under their qualifying scheme’s rules. If members have such benefits then we will not revalue those benefits in either the first or the second revaluation periods.

Revaluing the FAS payment

If the FAS payment is payable from a date a month or more after the certification date then the assistance is revalued up to that payment date. The rate of revaluation that we use is in line with prices. Relevant entries from the Retail Price Index are used in line with dates two months before the certification date and two months before the payment date.

Worked example

What follows is an example of how the FAS process is applied to an individual scheme members circumstances.

Circumstances

First revaluation period

Revaluation applied from the date the member left the scheme to the day before the start date of wind up.

GMP

The revaluation period is from the tax year (6 April to 5 April inclusive) in which the member left contracted-out employment, until the tax year in which wind up started. Different rates of revaluation are applied if the member reached GMP payment age during that period. The relevant annual rate corresponding to the date at which the member left service should be applied cumulatively to the revaluation period.

The tax year of leaving service was 1994-95. The tax year in which the scheme started to wind up was 2002-03. The member reaches GMP pension age on 4 December 2007 and therefore had not reached this age before the scheme started to wind up. Hence the revaluation is for eight years.

As the member left active service in tax year 1994-95 the relevant annual rate for 6 April 1993 to 5 April 1997 applies, which is 7.0%. The revaluation for the GMP element of the member’s pension in this case is 107% – 100% = 71.8%.

So, in this case the amount of GMP revaluation would be 71.8% of £300, which is £215.40

Revaluing pension above the GMP

The annual rate of revaluing pension in excess of the GMP is revalued in line with the relevant revaluation order applying to the calendar year in which the member left pensionable service and the calendar year in which the scheme started to wind up. The revaluation period applies to complete calendar years only.

The calendar year of leaving service in this case is 1994 and the scheme started to wind-up in calendar year 2003. Eight complete years of revaluation apply. The revaluation order made in November 2002 and coming into force on 31 December 2002 (Occupational Pensions (Revaluation) Order 2002 (SI2002/2951)) applies. This gives a revaluation factor of 22.5% for a revaluation period of eight years ending in 2003. So, in this case the amount of revaluation for the revaluing pension in excess of GMP would be £300 x 22.5%, which is £67.50.

Second revaluation period

The GMP and the revaluing excess above the GMP plus the total revaluation amount for the first revaluation period is revalued in line with prices.

This is done in line with changes in the Retail Price Index (RPI) using the following formula:

(100 times a divided by b) minus 100

Where a is the RPI entry two months before certification date (in this case 196.5 as at April 2006) and b is the RPI entry two months before the start of wind up (in this case 178.4 as at January 2003).

In this case (100 x 196.5 divided by 178.4) - 100 = 10.15%; and

(£300 + £215.40 + £300 + £67.50) x 110.15% = £972.50

Total expected pension = £972.50

FAS assistance at the certification date

This is an example of a final FAS payment which tops up a scheme pension to 80% of the ‘expected pension’.

So, in this case the amount of FAS assistance at the certification date would be £972.5 x 80% - £100 = £678.

FAS payment = £678pa

Revaluation of the FAS payment

If there is a month or more between the certification date and the FAS payment date then the FAS assistance rate at the certification date is revalued before it comes into payment. In this case the FAS assistance of £678 would be revalued from 19 June 2006 up to 4 December 2007. Revaluation would be applied in line with prices as described in relation to the second revaluation period above.

Backdating of payments

In cases where the calculation of FAS payments happens after the date at which the member became entitled to FAS, the FAS assistance is backdated to cover the relevant period. Backdating does not apply in this example as the member’s entitlement starts in December 2007 and the certification date is in June 2006.

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