Exam October 2017 - Matthew & Linda Flashcards Preview

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Flashcards in Exam October 2017 - Matthew & Linda Deck (8)
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1
Q

State the additional information that you would require, in order to advise Matthew and Linda, on their financial aim of ensuring they have adequate income in retirement.

A
  • Income/capital needed in retirement.
  • Intended retirement date/scheme normal retirement date.
  • Group personal pension scheme (GPP) – employer matching/will company NI saving be paid into pension.
  • BR19/State Pension forecast.
  • Pension projections/statement/accrual.
  • Widow’s pension.
  • Financial strength of Matthew’s employer/scheme solvency.
  • Further inheritances expected/use of other assets/savings/downsize.
  • Capacity for loss.
  • Affordability/budget.
  • Ethical/religious preferences.
  • Any other pension plans/has Mathew joined the GPP.
2
Q

Explain to Matthew and Linda the potential benefits of receiving and acting upon advice from a financial adviser.

A
  • Identify goals/shortfalls/problems/objectives.
  • Assess attitude to risk/capacity for loss.
  • Budgeting/affordability/cash flow.
  • Analyse suitability of existing arrangements/analyse client circumstances.
  • Tax planning/use of tax allowances/tax efficiency.
  • Benefit from research.
  • Receive recommendations/implement a financial plan.
  • Ongoing service/ongoing reviews.
  • Professional/expert knowledge.
  • Clarity of explanation/aids customer understanding/peace of mind.
  • Consumer protection/regulated advice.
3
Q

Recommend and justify one suitable protection product that meets the family’s protection needs to cover the death or serious illness of Matthew or Linda.

A
  • Term assurance/family income benefit policy/whole of life.
  • Critical Illness Cover (CIC).
  • Joint life first death/2 single lives.
  • Minimum term 22 years/to retirement/to match mortgage.
  • Sum assured at least £220,000.
  • To repay mortgage/to replace income/maintain standard of living.
  • Indexation.
  • Keep real terms values/keep pace with inflation.
  • Guaranteed premiums.
  • Known cost/affordability.
  • Written in trust/split trust.
  • Speedy payment/outside of estate/CIC paid to policy holder.
  • Waiver of Premium.
  • To ensure premiums paid in the event of accident or sickness.
4
Q

Explain how Matthew’s maximum tax-relievable pension contribution for the 2017/2018 tax year is determined. No calculations are required.

A
  • Take current annual allowance/£40,000.
  • Determine pension input amounts for current tax year;
  • for employer and employee.
  • Deduct pension input amount (from annual allowance).
  • This gives remaining allowance for current tax year.
  • Determine pension input amounts for previous three tax years.
  • Calculate any unused carry forward allowance.
  • Must use current year’s allowance first.
  • Total contribution cannot exceed earned income in current tax year/£110,000.
5
Q

State the benefits of Matthew using salary sacrifice to make additional contributions into his employer’s group personal pension (GPP) scheme.

A
  • Income Tax saving/tax relief.
  • Saves employee National Insurance (NI).
  • Saves employer NI.
  • Employer may pay NI saving to Matthew’s pension.
  • Usually no reduction to net salary.
  • Reinstate his personal allowance.
  • Increased pension benefits/potential growth.
6
Q

Explain how a target date fund, using a lifestyling strategy, operates and the benefits to Matthew of using this fund.

A
  • Invests in equities initially.
  • Reduces risk (as approaching retirement date).
  • Professional fund management/active management.
  • No cost for investment advice.
  • Potential for growth.
  • Balanced to suit medium risk/matches his attitude to risk.
  • Diversification.
7
Q

State the main features of a Junior ISA and explain how such a product could be used by Matthew and Linda to make provision for their children’s future university costs.

A
  • Max contribution £4,128 per annum.
  • Not taxable on parents.
  • Tax free benefits.
  • Potential for growth.
  • Anyone can contribute.
  • Runs to age 18/child has access at 18/used to pay fees at age 18.
  • Child can make investment choices at 16/control at age 16.
  • Can roll over to Adult ISA at 18.
  • Cash and stocks and shares.
  • Wide Fund choice/choice of providers/switching/can match attitude to risk.
  • Child can also have cash ISA at 16.
8
Q

State five benefits and five drawbacks of Matthew and Linda contributing to Stocks and Shares ISAs as mortgage repayment vehicles.

A
Benefits
• Tax free benefits.
• Growth potential.
• Can contribute £40,000 per annum in total.
• May produce a surplus for them.
• Could repay early.
• Could cash in and spend.

Drawbacks
• Shortfall risk.
• Uses ISA annual allowance that could be used for other purposes.
• Charges/advice costs.
• Longer term/increased interest costs.
• Require regular reviews/need ongoing advice.
• Liquidity.