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CWM Applied Wealth Management > Mindmaps > Flashcards

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1
Q

What is the current UK state pension age?

A

66

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2
Q

How many yrs of NI contributions to receive the state pension

&

How many to receive the max?

A

10 & 35

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3
Q

What are the 3 parts of the “triple lock”?

A

1) 2.5%
2) Wage Growth
3) CPI (Inflation)

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4
Q

How can the value of an individual’s state pension be increased?

How much does it increase by?

A

Deferral

1% per 9 weeks
5.8% per year

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5
Q

What is a defined benefit scheme?

A

A pension scheme that guarentees a level of income for life, based upon a proportion of earnings

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6
Q

What type of pension is a DB pension?

A

A “scheme pension”

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7
Q

What is the equation for calculating a DB pension?

A

(Final or Average Salary) * Yrs of Service * Accrual Rate

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8
Q

What are the two accrual rates for DB pensions?

A

1/80 (Public Sector)
1/60 (Private Sector)

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9
Q

For a DB pension, how does a Death in Service Benefit Work?

A

Pays out a multiple of salary if scheme member dies before drawing pension

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10
Q

Give 5 benefits / advantages of a DB pension

A

1) Certainty of Income
2) PPF Backed
3) Easier Retirement Planning
4) Death in Service Benefit
5) Inflation Linked

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11
Q

Give 5 Drawbacks of DB Pensions

A

1) Limited Flexibility
2) Scheme funder could fail
3) Worse benefits compared to DC
4) Reduced generosity in calculation
5) May be past peak earnings potential

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12
Q

What is a DC Pension?

A

A pension where the final value is based upon contributions and fund performance.

It is not guarenteed to have a minimum value

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13
Q

What are the 4 options to take a DC pension?

A

1) Do Nothing
2) Tax 25% Tax Free Cash
3) Purchase an annuity
4) Flexi-Access Drawdown

Can mix and match all of the above

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14
Q

Give 3 benefits of DC pensions

A

1) Flexibility
2) Wide range of annuity options
3) Death Benefits

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15
Q

Give 3 negatives of DC pensions

A

1) Investment Risk
2) Longevity Risk
3) Complex Decision Making (selecting funds / options)

Can be expensive to obtain good pension advice

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16
Q

How does a DB to DC transfer work?

A

Calculate a CETV to transfer a DB to a lump sum

Cash equivalent transfer value

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17
Q

What 3 things is a CETV based on?

A

1) Life expectancy
2) DB Income
3) Discount Rate

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18
Q

What is the FCAs view on a DB to DC transfer

A

It is unsuitable, and is an advisor’s responsibility to prove why it is suitable

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19
Q

When must an individual get advice when doing a DB to DC transfer?

A

When the CETV exceeds £30,000

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20
Q

Who has to provide advice for a DB to DC transfer?

A

A pensions transfer specialist

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21
Q

Gives 3 benefits of a DB to DC transfer

A

1) Flexibility
2) Annuity Options
3) Better death benefits

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22
Q

Gives 3 disadvantages of a DB to DC transfer

A

1) Lack of certainty
2) Longevity Risk
3) No longer protected by PPF

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23
Q

What is lifestlying?

A

Reducing risk as an individual approaches retirement

in their pension fund

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24
Q

When should lifestyling begin?

A

A conversation should be had 5-10yrs before retirement

There should be regular (yearly) meetings to assess the need and performance

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25
When may lifestyling not be appropriate
When not purchasing an annuity and instead doing a drawdown income
26
What does the pension protection fund do?
Provide protection to DB scheme members when a scheme fails
27
How is the PPF funded ## Footnote pension protection fund
Through a levy on DB scheme members
28
What are the 3 cases under which the PPF will pay out
1) Employer is insolvent 2) Scheme is underfunded 3) There is no realistic chance of rescue
29
What values do individual receive from the PPF ## Footnote in proportion to their DB income
100% if already drawing / past retirement age 90% if under retirement age
30
What is the rule of trivial commutation?
Can take a small DB pension if its value is <£30,000
31
What 3 criteria must be met for a trivial commutation
1) Value must be under £30,000 2) Must be at least 55 (or retired early to ill age) 3) Must extinguish pension through the commutation ## Footnote Only applies to DB
32
What is the small pots rule?
In addition to trivial commutation An individual can take up to 3 pots, as a lump sum, if they are valued under £10,000 each ## Footnote Applies to DC
33
How are trivial commutations and small pots taxed?
25% tax free and 75% at marginal income rate
34
What 4 drivers of vulnerability did the FCA highlight? ## Footnote (potential causes of vulnerability)
1) Health 2) Resilience 3) Life Events 4) Capacity
35
Explain Health as a driver of vulnerability
1) Not being able to go to the bank 2) Conditions that effect ability (e.g. alzheimers) 3) Blind / Deaf
36
Explain Resilience as a driver of vulnerability
Ability to withstand shocks More likely to be vulnerable if: - Low Income - Low Savings - High Debt
37
Explain Life events as a driver of vulnerability
Death, divorce, loss of job etc Can lead to - Time pressure - Change in risk attitude - "Head being elsewhere / absent mindedness"
38
Explain Capacity as a driver of vulnerability
The knowledge and confidence to manage ones money - Poor english skills - Poor tech skills - Financially illiterate - Low confidence
39
How can vulnerability affect decision making ## Footnote 6 examples
1) Time pressure 2) Hightened stress levels 3) Brain being elsewhere 4) Inability to process information 5) Lack of perspective (cannot see bigger picture) 6) Change in attitude to risk (becoming reckless)
40
How do the FCA define a vulnerable person?
An individual who because of their personal circumstances, is at greater risk of harm ## Footnote especially when a firm don't exercise due care
41
How do the FCA suggest dealing with a vulnerable client?
1) Avoid one size fits all approaches 2) Provide tailored advice in accessible formats 3) Discuss having a friend / family member present (may require TPA) 4) Document to financial crime if duress is suspected
42
What are the FCAs 3 areas of focus for vulnerable clients
1) Product and Service Design (easy to use) 2) Communication (clear and easy to understand) 3) Customer Service (proper training to identify and support vulnerability)
43
What is an insistant client?
A client who proceeds with a transaction, against the advice of their flinancial adviser.
44
What is the first step, in the process of identifying / dealing with an insistent client?
Clearly communicating recommendations, including: - Ensuring reccomendations follow guidelines - Providing reasons for recommendations
45
What is the second step, in the process of identifying / dealing with an insistent client?
Client enters a transaction which differs from advice **wants the firm to facilitate the transaction**
46
What is the third step, in the process of identifying / dealing with an insistent client?
Firm should clearly communicate that the transaction goes against their advice
47
What is the fourth step, in the process of identifying / dealing with an insistent client?
Firm should highlight the risks involved in the alternative transaction
48
What is the fifth step, in the process of identifying / dealing with an insistent client? ## Footnote last step
Ensure the insitent client process has been clearly documented
49
Are pension protection fund payments static?
No, they increase in line with inflation each year (capped at 2.5%)
50
Other than a DB scheme failing, when will the PPF pay out?
Loss of money & underfunding due to fraud
51
What 3 things does a Risk Profile Comprise of?
1) Risk Tolerance 2) Risk Perception 3) Risk Capacity ## Footnote overall risk profile is a combination
52
What is Risk Tolerance?
How much volatility an individual is able to emotionally tolerate (e.g. before they start having reactions / wanting to sell)
53
Give 4 objective factors which influence Risk Tolerance
1) Age / Life Stage 2) Wealth 3) Time Horizon 4) Dependents / Commitments
54
Give 2 subjective factors which influence Risk Tolerance:
1) Knowledge / Understanding 2) Psychological Makeup
55
What is risk perception?
How a client feels and interprets risk ## Footnote for example the likelihood of loss on an investment
56
Give 4 factors which influence risk perception
1) Past Experiences 2) Biases / Beleifs 3) Media / Exposure 4) Traits (e.g. being risk averse)
57
Give examples of biases and heurestics that effect risk perception
1) Availability (of recent information) 2) Loss / Risk Aversion
58
What is risk capacity?
Ability to tolerate loss without compromising stability
59
What factors influence risk capacity?
1) Income / Expenditure 2) Liabilities 3) Proportion of total wealth 4) Cash reserves 5) Time Horizon 6) Liquidity Requirements
60
What is the purpose of estate planning?
Ensuring assets go to intended beneficaries and minimising tax ## Footnote also providing for later life (e.g. care / PoA)
61
List 6 key areas of Estate Planning?
1) Valid Will 2) IHT Planning 3) International Estate Planning 4) Setting up Trusts 5) Care Costs 6) PoA
62
What are the risks associted with failing to estate plan?
1) Dying intestate 2) Large IHT Bill 3) Family Disputes 4) Cannot afford care 5) No PoA in place (could lead to abuse) 6) hardship for dependents
63
What is the main purpose of creating a power of attorney
If not done in time, financial institutions will not accept instructions must go to court of protection to grant deputyship (costly and time consuming)
64
What are the 3 main types of power of attorney?
1) Ordinary 2) Enduring 3) Lasting
65
What is ordinary power of attorney used for?
Short term needs (donor is ill / abroad) only covered for financial affairs
66
When does ordinary power of attorney end?
1) on a set date 2) When the donor wants 3) On donor losing mental capacity
67
What is enduring power of attorney?
Up until 2007 - granted permanent attorney over financial affairs still valid, but have been replaced
68
What is lasting power of attorney?
Replaced EPA in 2007 in order to expand the scope
69
What are the two forms of LPA?
1) Health & Welfare 2) Property & Affairs (financial)
70
What are the duties of an attorney? ## Footnote power of attorney
1) Act in best interests 2) Follow code of conduct 3) Keep own financial affairs seperate
71
What must be done with LPA and EPA but not for OPA?
Registered with office of public guardian to be valid

CWM Applied Wealth Management (29 decks)

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