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R06 CII June > Pensions > Flashcards

Pensions Flashcards

1
Q

How do you acquire a state pension forecast?

A

Online-Fill out the BR19 form on gov.uk
Phone-Or call the future pension centre

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2
Q

How do you ensure your pension savings go to the correct person on death?

A

-Expression of wish form
-Provided to scheme provider
-key influence for Trustees to release your savings

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3
Q

What is the purpose of a DC scheme trustee and what must they do/be? (5)

A

-Most registered schemes have 1+ trustee
-Act separately to employer
-Protects members interests
-Must be fit and proper (criminal check, competent qualifications)
-Holds assets for beneficiaries

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4
Q

What is the purpose of a dB scheme trustee? (2)

A

To ensure there is enough money to pay members when needs to be paid

To inflation proof the db scheme using scheme surplus

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5
Q

What are some considerations when considering pension contributions (5)

A

-how much can you put in-100% gross earning or £3600 if dont earn
-annual allowance £60k
-transitional protection
AMPAA £10k how much can pay in after crystallising benefits
Carey forward-3 years prior of aa
-Tapered AA (threshold income £200k and adjusted income £260k £1 every &2

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6
Q

How do you calculate the max pension contributions in any one year and receive tax relief? Employee and employer

A

-Current year and 3 years previous
-Check earnings-up to 60k each or £3600 if not working

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7
Q

What is max pension contributions in one year?

A

100% of gross income
Forget carry forward

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8
Q

What is relief at source (3)

A

-Deducted after tax
-you only pay in 80%-scheme tops up rest
-higher/additional rate via self assessment

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9
Q

What is net pay?

A

Deducted before tax from
Income
Lowers income and tax so automatically reduced tax relief

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10
Q

What type of pension use the relief at source method?

A

Personal, staleholder, group

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11
Q

How do you calculate the tapered AA?

A

Calculate threshold and adjusted
Threshold income= salary minus pension, adjusted is salary plus pensiom (if threshold is over 200k)
£1 every £2
Minimum £10,000
Reassessed each year

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12
Q

What are the pension options during divorse?(3)

A

-offsetting-asset assessed, division made incl pension benefits.
-earmarking-not clean break. Agreed portion of pension in retirement. Member in control of when, payments stop on death, CETV for db scheme, stops if remarries, amount unknown, % of pension benefit
-pension sharing-clean break, CETV can be paid into ex-spouse pension

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13
Q

What is the minimum amount of years for state pension accrual?

A

10

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14
Q

How do you increase state pension(6)

A

-class 3 nic’s
Provides guaranteed income (not reliant on investments
-inflation proofed
-In line w/couple financial aims
-Needs to be done before 6 years after
-extended to 2025 for period 2006-2016
-Weekly rate paid (if within 2 years, rate of what it was, >2 years rate of how it is now)

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15
Q

How do you defer the state pension and what are the rules? (6)

A

-can only do once
-get increased payment for every 9 weeks of defferal
-1% increase
-no ls
-taxable
-can opt at point of payment or anytime

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16
Q

Why is pension sharing generally better than earmarking? (4)

A

There is a clean break
Not lost on remarriage
Can access when they desire (not when spouse chooses)
Can chose where to invest

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17
Q

What are the downsides to pension sharing (clean break) (5)

A

-Needs costly advice
-inv risk is invest
-taxed on them, not ex spouse
-state pension cannot be shared
-scheme doesnt have to offer membership-transfer must be offered

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18
Q

Describe earmarking (not clean break) (7)

A

% of pension rights up until point of divorse

Not clean break

CETV IF DB OR % of pension if DC

As pcls or periodic payments

Lost if remarried

Unknown future value if db-payrises affect

Income taxed/ls tax free

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19
Q

What are options at point of taking your pension (7)

A

-Defer
-Use other assets to fund income
-Take 25% pcls
-purchase annuity
-designate to FAD
-designate to UFPLS
-Combo of all

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20
Q

What is capped DD? (5)

A

Stopped in 2016
Will have converted to FAD if exceeded cap
-Capped at 150% of governement actuarial departments rate (equivalent income one would get with an annuity)
-Avoided the MPAA-could still put into a pension and receive tax releif
-Must have relevant UK earnings

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21
Q

What is FAD? (8)

A

-Taken out from uncrystallised funds or where capped has exceeded GAD (often take PCLS then designate funds to FAD)

Is a pension product that lets you access your pension savings whenever you need to, while reinvesting your remaining funds in a way that’s specially designed to provide an ongoing retirement income.

-You take your pcls up front and income tax at marginal rate
-rest of the pot remains invested
-Only a trigger for MPAA when take income
-Higher cost than annuity
-needs annual reviews
-could run out of money due to flexibility
-investment risk-may not perform-shortfall in retirement

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22
Q

What is an UFPLS? (8)

A

-Where there is no PCLS 25% of each withdrawal is tax free, rest at marginal rate
-Rest remains invested
-Max PCLS is 25% of LTA at the time
-can take from 55
-must be from uncrystallised funds

-could underperform leaving a shortfall
-could run out
-an annuity is more guaranteed
-loses investment growth once taken from pension

23
Q

What is an annuity? (11)

A

-Regular income for life
-Level set at outset
-standard annuity Does not trigger the MPAA
-flexible annuity does
-cheaper than FAD
-Income guaranteed
-annuity rates are linked to interest rates-as insurance company often buys government bonds for reliable returns
-inflexible if life changes
-guarantee periods can be built in so survivor benefits-but no good if also dies
-based on longevity/health/lifestyle
-underwritten

24
Q

What is small pots trivial commutation?(5)

A

-Where pension pots are small it is possible to commute for one off payment

-Avoids MPAA-continue to contribute ul to £60k aa
-max 3 pots (£30k total)
-3 payments of £10k
-25% tax free, 75% marginal rate

25
What is the issue of pension passing to spouse on death?
Create IHT issue for kids
26
What are the three options to generate an income in retiremenr from a dc fund?
Annuity Fad Ufpls
27
Ways to generate income in retirement (9)
Annuity Fad Ufpls Income from db scheme State penion-br19 Downsizing propert Existing investments Phased retirement Inheritance
28
What is a stakeholder pension (8)
Good for low earners or self employed Personal pension Meets government standards to ensure value for money Capped charges Can stop payments if wish Low risk inv as default 100% of relevant earnings/£3600 Can take at 55 regardless of work
29
What is a SIPP (6)
Wider investment options than stakeholder More flexible More control over inv Good for self managing Higher fees than stakeholder Riskier
30
What is the pension protection fund?(5)
For if employer becomes insolvent 90% of db scheme accrual 100% if in payment/ill health/survivors No cap 50% spouse pension on death
31
Reasons to stay in a DB scheme (8)
Pension is guaranteed for life-no longevity risk Spouse pension benefit Inflation prooed Death in service eg 3x ls Simple-less admin No charge in initial and ongoing basis No investment risk Pension protection fund
32
Benefits/thoughts on using DB pension for retirement (6)
Guaranteed income for life Minimal benefits to estate on death No choosing death benefits (one size fits all) Accessible at scheme retirement age Income benefits fixed, not flexible No investment risk-benefit defined
33
Benefits and drawbacks of lifetime annuity for retriement (9)
Bought with 75% of pension fund after pcls Pays out for life Tax free if <75 Treated as part return of capital/rest as PAYE Can be guaranteed Simple Guarantee period can be built in Can be joint life May not be great if dont live long
34
How does db schemes inflation Proof
They use the db scheme surplus (when they have it)
35
Considerations for of deffering state pension (7)
Can defer at any point (only once) Min 9 weeks to get 1% increase No death benefits so lose if dont use (estate can claim 3 months in arrears) If HR tax payer may be beneficial to defer until BR if in good heath you coudl defer for a higher income later No lump sum/income only Can defer at point of payment or when in payment
36
Benefits of using UFPLS (7)
Flexible Tax efficient possibility (can draw down when br) You take withdrawals from pension (what remains grows in pension/what is in UFPLS does not Mpaa trigger event Death benefit Pension passes iht free (not ufpls) State pension will support too
37
Whats one of the biggest differences between UFLPS AND FAD?
FAD takes tax free lump sum upfront and rest is designated into drawdown whilst UFPLS is 25% tax free with each withdrawal. Both trigger the MPAA OF £10k
38
What do fad and an annuity have in common?
They’re both bought after the pcls
39
Questions to ask around a db pension?(12)
Scheme retirement age Current projected pension entitlement Definition of salary Years of service/contracted out? PCLS Spouse benefits/death benefits Any nominations Early retirement factor/penalties/revaluation Indexation/escalation levels (in retirement) Scheme deficits PPF CETV Any transitional protections in place
40
Why should a pension plan be considered? (14)
If have no current pension benefits Tax free growth State pension unlikely to be enough 20/40/45% tr Contributions extend basic band/increase child benefit IHT free on death Can make nomination for spouse Can provide flexible death benefits Pensions are protected from creditors Wide range of funds/providers Can match atr/ethical requirements Simple to setup/administer online/low costs Pound cost averagin Long timeframe for invests/more volatile inv
41
Why must one complete a nomination of wishes? (4)
Helps trustees decide who death benefits should be paid to Can be changed by completing a new one Makes sure lump sump and relevant drawdown is available to beneficiary Reviewing at 75 worthwhile to ensure pass tax efficiently
42
What state pensions can be inherited? (4)
Second state pension/additional state pension 50-100% Dependant on when die Paid on top of your state pension when reach retirement age The older you are, the more youre entitled to
43
What is the two year limit in relation to passing pension death benefits tax free
Must be under 75 (or taxable) Its the time limit for designating funds to the next beneficiary Starts from when scheme is notified of death
44
What pensions can you access from age 55?
Private pensions
45
What is an UFPLS generally used for and how?
UFPLS can be useful for those with a fairly small pension pot, where it’s not worth buying an annuity or setting up a pension drawdown scheme. People also use UFPLS to give themselves more time before making big decisions about what to do with their pension. Perhaps you’re reaching retirement age but still want to keep working, or not yet ready to buy an annuity.
46
What is the difference between FAD and UFPLS? (3)
With FAD you take your PCLS TF then leave rest in pension grow With UFPLS you take a segment or small pot and it is 25% TF and 75% taxable You can designate either remaining funds into an annuity after should you wish
47
What is the safe withdrawal rate for dc pensions?
SWR 4%-anything above risks running out of money
48
Out of annuity fad and ufpls what is a trigger for mpaa
Ufpls and fad
49
Why nomination is it best to do nomination of wishes for kids (5)
Fund passes to intended beneficiaries/protect pension from both deaths If still in dc fund it ensures children can use fad Improves tax efficiency for children Can pass iht free to children Can withdraw in tax efficient manner if over 75 (at marginal rate) or income tax free <75
50
What is the purpose of a db scheme actuarial
To ensure the employers liabilities To calculate the assumed cost of providing benefits taking into consideration salary etc
51
What type of pension cannot have a cetv?
Unfunded public sector dont have automatic right
52
What is an executive pension plan? (2)
One man dc scheme So that higher benefits can be provided separate to those on the main occupational scheme
53
Additional info to provide advice on pension (10)
Nomination of wishes Will State pension/BR19 When want to retire Target income in retirement Pension contribution history/carry forward Salary sacrifice available Fund choice available Fees/charges Nomination on death in service
54
What happens to income on an annuity when it is passed down through the estate?
Tax free for beneficiary if dies before 75

R06 CII June (22 decks)

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