Pensions Flashcards
who can make pension contributions?
individuals under 75 yrs old
two types of pension schemes?
occupational
personal
occupational pension scheme?
- set up by employer for benefit of employees
- contributions made by employee or employer
personal pension scheme?
- run by a financial institution (e.g., insurance company/bank)
- availably anyone (self-employed or employed)
- contributions made by individual or a third party on individual’s behalf
types of occupational pension schemes?
- money purchase schemes (relates to the performance of the fund)
- defined benefit schemes (relates to employee earnings)
to be enrolled in an occupational pension scheme…
you must be an eligible jobholder
eligible jobholder criteria?
- work in the UK
- aged between 22 and state pension age
- earn more than 10,000 p.a.
can employees request to join a pension scheme?
yes, if they earn between £6,240 and £10,000
and their employer cannot refuse them
how is income tax relief given for occupational pension schemes?
by deducting the contribution from the employee’s salary before tax is calculated by PAYE
(if contribution is made by employee)
pension scheme contributions made by the employer?
exempt benefit
allowable trading expense for the employer on a paid basis (deductible when paid)
income tax relief for personal pension scheme?
operates the same as gift aid
extend both the BRB and HRB by the grossed up contribution
gross contributions are also deducted from net income when calculating adjusted net income
do pensions impact adjusted net income?
yes
grossed up personal pension contributions are deducted from net income when calculating adjusted net income
this increases the PA
is there a limit on the relief one can get on their own pension contributions?
yes
maximum pension contribution is higher of:
- relevant earnings
- 3,600
for the pension limit, which values are used for OPS & PPS?
OPS = face value
PPS = grossed up value
relevant earnings for pension limit?
relevant earnings for OPS = employment income
relevant earnings for PPS = trading income
annual allowance?
60,000
applies to total contributions into PPS and OPS
how is unused allowance from PY handled?
any unused pension allowance can be carried forward three years
after current year has been used (FIFO basis)
if total pension contributions exceed 60,000…
the individual suffers an income tax charge on the excess amount
when can pensions be paid out?
pensions cannot be paid out until one reaches the age of 55
is it possible to receive a pension and continue working?
yes
how does one withdraw their pension?
on reaching pension age:
- individual ay receive a tax-free lump sum
- balance can be withdrawn at ay time
maximum tax-free lump sum?
25% of the value of the fund
capped at £268,275
how are pension withdrawals taxed?
- lump sum is tax free
- other withdrawals are taxed as non-savings income in the year they’re received
is it compulsory for employers to enrol eligible jobholders in the OPS?
yes
