Pensions Flashcards
Q: What is auto-enrolment?
A: A legal requirement for employers to automatically enroll eligible workers into a workplace pension.
Term: Defined Contribution Pension
Definition: A pension where the retirement benefit depends on contributions and investment performance.
Q: What is a defined benefit pension?
A: A scheme where retirement income is based on salary and years of service.
Term: Annual Allowance
Definition: The maximum amount you can contribute to pensions each year with tax relief — currently £60,000 (2024/25).
Q: What is the Lifetime Allowance (LTA)?
A: Abolished in 2023/24 — no longer limits total tax-privileged pension savings.
Term: Pension Commencement Lump Sum (PCLS)
Definition: A tax-free lump sum (usually 25%) you can take when you start drawing pension benefits.
Q: What are the minimum ages for accessing pensions?
A: 55 currently, rising to 57 in 2028.
Term: Crystallization
Definition: The point when pension benefits are accessed or moved into drawdown.
Q: What is pension drawdown?
A: Taking income from a pension while keeping the rest invested.
Term: Annuity
Definition: A financial product that converts pension funds into a guaranteed income for life or a set term.
Q: What are the tax implications of pension income?
A: Treated as earned income and taxed accordingly.
Term: State Pension Age
Definition: The age at which individuals can claim the State Pension — currently 66 (rising to 67 by 2028).
Q: What are the contribution limits for non-earners?
A: Up to £3,600 gross per year.
Term: Money Purchase Annual Allowance (MPAA)
Definition: A reduced annual allowance (£10,000) that applies after accessing certain pension benefits.
Q: What is a self-invested personal pension (SIPP)?
A: A flexible pension scheme offering a wide choice of investments.
