10 Pensions

Question 1

What are two different types of pension schemes?

Answer 1

Occupational and personal

Question 2

What are the two different types of occupational pension scheme?

Answer 2

Defined benefit scheme and money purchase scheme

Question 3

What is a defined benefit scheme?

Answer 3

The benefits obtained on retirement are linked to the level of earnings of the employee.

Question 4

What is a money purchase scheme (or ‘defined contribution’ scheme)?

Answer 4

The benefits obtained depend upon the performance of the investments held by the pension fund.

Question 5

Who may personal pension scheme contributions may be made by?

Answer 5

Individual and any third party i.e. employer, spouse, parent ect

Question 6

When is pension tax relief available?

Answer 6

When the scheme is a registered scheme and the individual is a UK resident under 75 years old

Question 7

What is the tax relief maximum annual amount?

Answer 7

Higher of £3,600 or 100% of the individuals relevant earnings

Question 8

What is tax relief available on?

Answer 8

Lower of gross pension contributions and maximum annual amount

Question 9

What does relevant earnings include?

Answer 9

Taxable trading profits, employment income and profits from furnished holiday lettings but not investment income.

Question 10

What can an individual with no relevant earnings claim up to?

Answer 10

£3,600 PA

Question 11

When does an employer deduct pension contributions for an occupational pension scheme?

Answer 11

Before tax

Question 12

What are payments made into a pension scheme made by employers?

Answer 12

1. Tax deductible
2. Exempt employment benefit for the employee
3. Added to the pension contributions paid by the employee to reach the annual maxiumum

Question 13

How is the deduction recorded in the employers profit and loss?

Answer 13

Add back any amount charged and deduct the amount paid. This is recorded the amount paid.

Question 14

What is the annual allowance?

Answer 14

£40,000 for the last three years

Question 15

What can you do with the annual allowance?

Answer 15

Bring forward unused allowance

Question 16

What years was the annual allowance £40,000?

Answer 16

1415, 1516, 1617

Question 17

What years was the annual allowance £40,000?

Answer 17

1314

Question 18

How is the annual allowance calculated in relation to more than one year?

Answer 18

FIFO

Question 19

How is the tax charge calculated when the annual allowance is exceeded?

Answer 19

The tax charge is calculated as if the excess is the individual’s top slice of income (i.e. taxed last after all sources of income, including dividends) at non-savings rates.

Question 20

How is the annual allowance tax charge taken?

Answer 20

Through self-assessment or through the pension scheme

Question 21

How is the annual allowance reduced for high-income individuals?

Answer 21

Adjusted income - £150,000 x 50%

Question 22

What is the limit to which annual allowance can be reduced to?

Answer 22

Only can be reduced to is £10,000

Question 23

Under what circumstances do you reduce the annual allowance?

Answer 23

The restriction applies to individuals with ‘adjusted income’ exceeding £150,000.

Question 24

How is the adjusted income calculated for the reduction in annual allowance?

Answer 24

Net income + Occupational pension scheme contributions for employee and any scheme employer contributions

Question 25

What is the lifetime allowance?

Answer 25

£1 million 2016/17

Question 26

What is the minimum age for accessing your pension fund?

Answer 26

55

Question 27

In a money purchase scheme how much can an individual take tax free?

Answer 27

25%

Question 28

When does lifetime allowance apply?

Answer 28

When the individual becomes entitled to take benefits out the scheme

Question 29

When does the tax charge on the lifetime allowance apply?

Answer 29

If the value of the pension fund at that time exceeds the lifetime allowance a tax charge applies