Stuff I didnt know from mock exams

Question 1

What type of schemes is the pension regulator responsible for?

Answer 1

The Pensions Regulator (TPR) is responsible for any scheme provided by an employer for an employee.

This includes both personal & occupational schemes but not state pensions.

Question 2

Individuals living in the UK now have longer life-expectancy. The Debt Management Office (DMO) have responded to this socio-economic change by issuing more… WHAT

Answer 2

long-term gilts

Longevity, for both men and women, is increasing, due to a variety of factors.
This has led to the DMO issuing greater volumes of long-term (15 year+) gilts.

EXPLANATION for understanding.
As people live longer, particularly those in retirement, there is a greater demand for stable, long-term investment options that provide secure returns over extended periods. This includes pension funds and insurance companies that need to match their long-term liabilities (e.g., pension payouts). Issuing more long-dated gilts helps the UK government cater to this demand by offering investors a way to invest in government debt that aligns with the long-term financial needs of retirees.

Question 3

What is the overseas transfer allowance and what happens if someone exceeds it?

NOT DONE

Answer 3

A transfer to a QROPS will be tested against the overseas transfer allowance (QTA). Any excess over the OTA is subject to 25% overseas transfer charge.

Question 4

Paula, an additional rate taxpayer, has the full LSA with no transitional protection.

What is ‘transitional protection’?

NOT DONE

Answer 4

On divorce, if a pension credit is awarded on a pension fund registered for Primary Protection, the individual’s primary protection factor will be either reduced or this protection completely forfeited. (LEARN THIS) LEARN OTHER CHARACTERISTICS

Question 5

Who is MOST likely to be responsible for changing eligibility criteria for an occupational scheme?

Answer 5

A sponsoring employer is responsible for any changes in eligibility requirements for employees joining an occupational scheme.

Question 6

Why do rises in both annuity and discounting rates lead to a fall in a CETV for the DB OPS member?

Answer 6

Because a smaller lump sum will be needed to ‘purchase’ revalued income and a higher rate of discounting can be applied each year back to today’s date. Both these factors will result in a reduced CETV

QUESTION THIS RELATES TO:
Amy has been a member of a DB scheme since 2000. She requested a CETV nine months ago, which was £100,000. Her most recent CETV, requested and received last week, has now fallen to £80,000. The most likely reason for this is that…

Question 7

How is a short-service refund taxed?

Answer 7

The first £20,000 is taxed at 20%

Any excess is taxed at 50%

Question 8

If someone is thinking of re-locating permanently outside of the UK but they have already purchased an annuity, how is that income taxed?

Answer 8

The income from the annuity will be taxed in the UK even though they are resident elsewhere. It will be paid NET through PAYE.

However, If the new country of residence does not have a UK double taxation agreement, it may ALSO be taxable in the country of residence, running the risk of bearing double taxation.

Question 9

2.9.1: Fund protection

There have been seven forms of transitional fund protection: WHAT ARE THEY and What two are the only ones still available and when is the deadline that these must be applied to by?

SEE IMAGE ON CAMERA ROLL TO SEE DUFFERENT LIMITS OF EACH

Question 10

What is the lifetime allowance charge?

Question 11

What is the most likely reason someone would be involved in the Financial Assistance Scheme?

Answer 11

If an individuals employer has become insolvent AND their DB OPS was underfunded.

NOTE: An employer being declared insolvent on its own would not be enough for a claim through FAS. An employer could be declared insolvent yet the occupational scheme they sponsored could be fully-funded, meaning no FAS claim. Therefore the employer must be insolvent and their scheme underfunded

Question 12

Alice is due to receive a 50% spouse’s pension. Her husband, Roger, has died aged 52, whilst an active member of a DB occupational scheme. For what reason might Alice’s payment be less than 50%?

1.She has another pension in payment
2.She has not reached age 55
3.She is a higher rate taxpayer
4.She is in receipt of Guaranteed Pension Credit

Bev and Peggy were in a civil partnership. Peggy has died, aged 45, whilst a member of a DB scheme which pays a 50% dependant pension. If Peggy was a higher rate, and Bev a basic rate taxpayer, what tax rate will Bev pay on this income?

1. 20%
   2.40%
   3.45%
   4.55%

Answer 12

QUESTION 1:
Alice’s spouse’s pension will be a scheme pension as it is from a DB scheme.

Payment will be reduced by income tax, as this type of income is classed as earned and taxable on Alice (the dependant) at her highest marginal rate.

QUESTION 2:
A dependant pension is classed as earned income and taxed on the recipient at their applicable marginal income tax rate.

Bev is a basic rate taxpayer; therefore, this pension will suffer tax at 20%.

Question 13

Someone has an integrated pension paid from a DB OPS

What is this?

Answer 13

An integrated pension paid from a DB OPS is temporarily higher to take account of an individual’s Single Tier State Pension entitlement.

This is the same as a bridging pension.

QUESTION THIS RELATES TO:
Peter is receiving an integrated pension from his DB occupational pension. This means that he is temporarily being paid a higher scheme pension to take account of his… Single Tier State Pension entitlement

Question 14

Tell me the difference between critical yield A and B

NOT DONE

Answer 14

Difference =

Question this relates to:

Jake has been in capped drawdown for over two years. His financial adviser had informed him that his critical yield A was 8.5% at outset. This meant that…

ANSWER: The 8.5% critical yield shows the net annual growth required from the drawdown invested funds to match the income that could be purchased via the lifetime annuity option.

Question 15

Someone has opted out of their pension scheme after 7 days and paid no contributions.

What happens to their fixed protection 2016?

How does this differ to the other form of transitional protection

Question 16

One of the recent issues facing DB occupational schemes is funding deficits leading to problems in the event of mergers.

Why has this occurred?

Answer 16

Since IAS 19, DB schemes sponsoring employers will need to show scheme surpluses or liabilities on their balance sheet.

So, if a scheme has a large funding deficit this will be more of an issue in relation to mergers. Think of British Home Stores or The Arcadia Group as a couple of examples of this.

Question 17

Auto-enrolment has been introduced by the government to achieve one main aim, which is to…

A) encourage low paid workers to save towards their retirement

Or

B) address the lack of adequate employer pension provision

Answer 17

Answer = encourage low paid workers to save towards their retirement

Question 18

(READ 4.4: Public-sector schemes)

What is the transfer club?

Answer 18

QUESTION THIS RELATES TO:

Janet has worked in the public sector all her life in several different jobs. She has transferred pension benefits using the Transfer Club. At retirement on 21st November in the current tax year, her pension scheme will use her…

1. final salary from her current job with the start date of her first job
   2.final salary from her current job with the start date of her final job
   3.career average final salary throughout her public sector career
2. career average final salary from the last job of her public sector career

Answer = A
Public sector schemes use the Transfer Club for any internal transfers. As Janet was within 10 years of retirement on 1st April 2012, at retirement her final salary will be used with the start date of her first job for service years. Janet will therefore lose nothing due to using the Transfer Club. The transfer club uses beneficial terms.

Question 19

A client of yours has just retired. Their PCLS entitlement is greater than 25% of their fund value despite no formal TFC protection registration. How can this be?

Answer 19

This client must be benefitting from SCHEME SPECIFIC tax-free cash protection. This was where a member had an entitlement greater than 25%. It did not involve formal HMRC TFC registration but was automatic as at April 2006.

Question 20

Jane has just deferred her Single Tier State Pension for twelve months. She will receive a higher pension income when this starts to be paid. This income will increase by WHAT?

Answer 20

5.78%

Jane’s Single Tier State Pension will increase by 5.78% once it starts to be paid as she has deferred for a complete year, under single tier rules.

Under current rules, deferral must be for at least nine weeks. For each nine-week period deferred, Peter’s Single Tier State Pension will rise by 1% which comes to 5.78%

NOTE: 10.4% is the old annual increase under pre 2016 rules. Now it is 5.78%.

A cash lump sum in lieu option is no longer available.

Question 21

Tell me the difference between a trust based and a contract based pension plan

Answer 21

Question this relates to:

A client of yours is contributing to a number of RPSs which include:

Scheme Value:
SSAS = £325,000
Stakeholder pension plan (SHP) = £20,000 annual scheme pension
Personal pension plan (PPP) = £100,000

Which of these schemes are contract-based?

1.the SSAS and the SHP plan
2.the SHP plan and the PPP
3.the SSAS and the PPP
4. Solely the SSAS

Answer = the SHP plan and the PPP

A SSAS is an occupational scheme, so is likely to be trust-based.

Both a PPP and a SHP plan will be contract-based.

Question 22

Sarndip is claiming Jobseekers Allowance (JSA). Does this mean he is paying NICs for his state pension or not?

Answer 22

As Sarndip is eligible for Jobseekers Allowance (JSA) he will receive Class 1 national insurance credits automatically

Question 23

Pat is an additional rate taxpayer, who is currently making maximum pension contributions. He plans to retire in five years’ time to live in South Africa. He has an additional £100,000 he would like to invest towards his retirement. For which of the following reasons might an offshore bond be suitable?

1.It provides access for investments into a narrow range of collective schemes
2. Pat can invest up to 5% of his investment directly into equities
3.He could sell this offshore bond in one tax year whilst overseas, free of UK tax
4.He can utilise 15% current fund value tax-free withdrawals at any time

Answer 23

Answer = He could sell this offshore bond in one tax year whilst overseas, free of UK tax

EXPLANATION:
An offshore bond can invest in a wide range of investments including collectives, not a narrow range.

There is no cap on maximum equity exposure; this depends on the individual’s attitude to risk / capacity for loss.

The bond could be disposed of whilst Pat is resident overseas and therefore not be subject to UK tax, hence answer.

The tax withdrawal facility is 5% not 15% and is tax-deferred rather than tax-free. It is based on the original investment rather than the current fund value.

Question 24

Does a scheme administrator need to be appointed for a SSAS?

Answer 24

A scheme administrator must be appointed for a SSAS as this is a requirement for any registered pension scheme. The scheme administrator does not have to be FCA approved for a SSAS however

Question 25

John has died, aged 77, whilst taking flexi-access income withdrawals. He leaves a crystallised pension fund value of £1,475,000 to a trust. In relation to death benefits… This is a multi-response question. Select one or more correct answers from the choices. 1.they are IHT-free if distributed within two years of John’s death 2.the entire lump sum payment will suffer a 45% tax charge 3.the lump sum can be left to any beneficiary or nominee 4. John’s wife must be one of the beneficiaries on his death LEARN RULES FOR WHEN SOMEONE DIES POST 75

Answer 25

B & C There is no two-year distribution rule if death is aged 75 onwards. Crystallised lump sum death benefits will be subject to a tax charge of 45% on the entire amount if left to trustees or personal representatives. They can be left to any beneficiary or nominee, if scheme rules permit this.

Question 26

Jeff and Lisa are considering their plans for retirement. Jeff is thinking of using a registered pension scheme (RPS), Lisa a Lifetime ISA. Which of the following statements are TRUE? This is a multi-response question. Select one or more correct answers from the choices. 1.The internal tax treatment of both is the same 2.A Lifetime ISA allows contributions up to £4,000 annually 3.An ISA will be available earlier than a pension scheme 4. ISA contributions are likely to be greater than an RPS

Answer 26

A & B Lifetime ISAs can be accessed at age 60, RPSs at age 55 (57 from 2028) so NOT C There is no restriction on how ISA proceeds can be used. The internal tax treatment of both ISAs and an RPS are the same (tax free) Lifetime ISA contributions are limited to £4,000 annually, RPS to 100% of gross earnings.

Question 27

John contracted out of State Pensions for ten years, back in the 1980s. When he reaches state pension age, which of the following statements are TRUE? This is a multi-response question. Select one or more correct answers from the choices. 1.His Single Tier State Pension levels will be unaffected 2.His foundation amount is likely to be lower than the maximum single tier 3.He is less likely to qualify for a protected payment 4.He will have foundation greater than the maximum single tier

Answer 27

B & C Contracting out meant lower NICs payments and a lower State Pension entitlement. As a result, John is likely to have a lower foundation amount. With a lower foundation he is unlikely to qualify for a protected payment.

Question 28

Peter has died, aged 52, leaving an un-crystallised DC pension fund of £1,350,000. His DC pension provider currently does not offer any ‘pension freedom’ options. He is survived by a wife, Sue, and two daughters, Alice 24, and Sarah 18. With regard to death benefits… This is a multi-response question. Select one or more correct answers from the choices. 1.Sue may take the entire pension fund as a lump sum tax-free 2.Alice is unable to receive a dependant pension 3.Sarah is eligible for a dependant pension for five years 4.Sue, Alice, or Sarah could receive a lump sum from Peter’s DC scheme

Answer 28

Peter’s funds exceed the lump sum and death benefit allowance so cannot all be paid tax-free. He has died pre age 75, so this will be a RBCE and any excess taken as a lump sum will be taxable at the marginal rate of his beneficiaries. Alice is aged over 23 so cannot receive a dependant pension, whereas Sarah, at 18, could receive one for the next five years. All three could receive a lump sum from Peter’s DC pension scheme.

Question 29

Sally is married to Joe, and utilising capped income drawdown. She is considering buying a short-term annuity for some more secure income. Before making this decision, she should consider… This is a multi-response question. Select one or more correct answers from the choices. 1. how competitive current annuity rates are 2. the form of benefits she wishes to leave Joe if she dies 3.the effects of mortality drag on her short-term annuity 4. the Critical Yield A from age 70 onwards 5.the Critical Yield B from age 70 onwards

Answer 29

Annuity rates will affect the level of income Sally can have through short-term annuities. Sally needs to consider the form of benefits she wishes to provide for Joe on her death. The only option with a short-term annuity is a five-year guaranteed period.

Question 30

Jasdeep, aged 56, is changing employers after one year, in July this year, and is unsure of the best action to take in relation to her occupational DC scheme. She should be aware that… This is a multi-response question. Select one or more correct answers from the choices. 1.a short-term refund of her personal contributions would not be available to her 2. the preserved benefits she is entitled to would be revalued up to scheme NRD 3.taking a CETV and transferring to her new employer’s scheme may be an option 4.the asset allocation of any preserved benefits would be switched to low risk 5. she could crystallise her benefits immediately if scheme rules permit this

Answer 30

A short-service refund is only possible if service is less than 30 days in a DC OPS. Jasdeep has one year’s service, so this option is not available to her. Transferring her CETV into a new employer’s scheme may be possible. Immediate crystallisation, as Jasdeep is over 55, may be permitted if this is allowed in the scheme rules.

Question 31

When pension simplification came in, Jack registered his 1,550,000 pension fund for primary protection. Which of the following is Jack allowed to do, without losing this transitional protection Make further personal contributions into a RPS Taking all benefits tax free when he reaches retirement Receiving Limitless contribution tax relief on all pension contributions Avoiding unauthorised payment taxes and double taxation

Answer 31

Answer = A Primary protection would give Jack his own lifetime allowance (now his own LSDBA) which would have been higher than the standard allowance He can continue to make contributions but IS NOT sheltered from tax charges if he: Crystallises more than his limit Exceeds the AA in contributions Receives any unauthorised payments

Question 32

What happens if someone is under 75 and dies and their pension is not distributed within 2 years?

Answer 32

The entire amount will be charged at the recipients marginal tax rate

Question 33

Salary, bonuses & P11D benefits count as relevant relevant earnings for pension contribution purposes Interest and Dividends do not

Question 34

If someone makes contributions into NEST and it is returned to them, what is the most likely reason for this?

Answer 34

They are no longer classed as a relevant UK individual

Question 35

If a pensioner member retires at the scheme NRD and later on that scheme is taken over by the pension protection fund, what affect will this have on their benefits going forward?

Answer 35

If you retire at scheme NRD you are 100% protected by the PPF for all benefits in payments. The benefits must be escalated in line with the PPF minimums

Question 36

What is a big benefit of public sector schemes over private schemes

Answer 36

Public sector pension schemes such as the NHS are able to use the transfer club meaning members can transfer their pension to another public sector scheme with no loss in benefits This is very likely not to happen in private schemes (This is in chapter 4)

Question 37

When a scheme is wound up TPR expects it to be complete in a reasonable time frame

Answer 37

This is something the trustees must be aware of

Question 38

Sometimes people can crystallise their DB scheme pension on the grounds of ill health retirement. For it to be allowed without being classed as an authorised, what is the requirement

Answer 38

The member cannot carry out their own occupation and they have ceased work

Question 39

Why is it that if AA bond yields decrease, then the funding rate for the DB scheme increases?

Answer 39

Because the discounting rates used by the actuary will be lower, leading to higher scheme technical provisions

Question 40

What is the guaranteed minimum pension?

Answer 40

A minimum pension amount that certain workplace defined benefit (DB) schemes in the UK must provide to members who were contracted out of the State Earnings-Related Pension Scheme (SERPS) between 6 April 1978 and 5 April 1997. It ensures the pension from the employer’s scheme is at least as much as what the member would have earned under SERPS during that period if they remained contracted in.

Question 41

Remember: Any pension scheme whether DB or DC, that contains guarantees will be classed as safeguarded Guaranteed annuity rates are one as well as GMP and benefits from a DB scheme

Question 42

If someone has a life expectancy of less than 1 year and they commute their pension under the ill health rules, is any tax payable? 4.05 in study buddy has perfect questions showcasing this

Answer 42

Payment of a lump sum in event of serious health is a RBCE. If the person commutes more than their LSDBA they would be subject to income tax at their marginal rate on ANY EXCESS This is chapter 5

Question 43

Guaranteed pension period on death and a 50% spouses pension are two different benefits. What are the differences?

Question 44

Pension commutation (LOOK AT 4.06 OF study buddy or chapter 6) Someone can only commute a max of 3 pots Per pot, 25% is tax free with remainder at individuals highest marginal rate There is NO 12 month period to commute any small pots The max per small pot is £10000

Question 45

When does the overseas transfer allowance apply? When does the overseas transfer charge apply? What is the charge if the OTA is exceeded and what is the charge if the OTC applies?

Question 46

What is a super long term GILT

Answer 46

A gilt with a term longer than the usual 15 years An ageing UK population leads to greater expense for the UK government, due to higher state pension costs. This in turn usually leads to a greater borrowing requirement some of which is funded through the issue of super long term GILTs. They help annuity providers as they provide a long term income stream to back annuities purchased with then.

Question 47

How can someone pay for pension advice through their pension?

Answer 47

A person can access up to £500 from their pension fund value, up to a maximum of 3 times, to allow them to access advice in relation to their pension.

Question 48

Stephanie has started her first job as an office assistant. She has been ‘auto-enrolled’ by her employer into the company workplace pension scheme, into which her employer contributes the minimum as required by law. What is the total minimum pension contribution Stephanie must pay into workplace pension schemes?

Answer 48

The total minimum annual contribution into a workplace pension scheme is 8%. If her employer pays the minimum contribution required of them which is 3%, then the difference of 5% will be made up with a 4% contribution from Stephanie and 1% tax relief from HMRC on top. b) 4%.

Question 49

Stephanie has started her first job as an office assistant. She has been ‘auto-enrolled’ by her employer into the company workplace pension scheme, into which her employer contributes the minimum as required by law. What is the total minimum pension contribution Stephanie must pay into workplace pension schemes?

Answer 49

The total minimum annual contribution into a workplace pension scheme is 8%. If her employer pays the minimum contribution required of them which is 3%, then the difference of 5% will be made up with a 4% contribution from Stephanie and 1% tax relief from HMRC on top. b) 4%.

Question 50

What happens if an employer contributions take their employees total input period above 100% of their salary?

Answer 50

If tax relief is claimed on the contribution over the permitted amount (100% salary), the employee will pay a tax charge at their marginal rate. It does not matter who the contribution came from.

Question 51

Triviality (small pots) is NOT a RBCE. What does this mean

Answer 51

There is no potential for a lump sum allowance charge

Question 52

How are payments on death to a trust or personal representative treated?

Answer 52

They have a 45% special lump sum death benefits tax charge on the entire payment made, not just any LSDBA excess

Question 53

Why is it bad if a client wants to transfer to a Recognised Overseas Pension Scheme and the scheme doesnt match some of the rules of a UK registered Pension Scheme?

Answer 53

If the rules do not mirror the RPS, such as the age that the ROPS is accessible is 50 rather than 55, the transfer will be classed as unauthourised

Question 54

In a DB pension scheme, who holds and invests scheme assets? Who calculates the DB schemes technical provisions?

Answer 54

In a DB pension scheme, who holds and invests scheme assets? Trustee Who calculates the DB schemes technical provisions? Scheme actuary

Question 55

Are all crystallised pension available to the trustee in bankruptcy to use to pay off creditors? Same question, but for any uncrystallised pensions?

Answer 55

Crystallised pensions are available EXCEPT any state pension and any Guaranteed Minimum Pension Uncrystallised pensions are not, unless it can be shown excessive contributions have been made

Question 56

What type of pension scheme is required to have a minimum of 3 trustees?

Answer 56

A master trust arrangement

Question 57

TPR looks after schemes provided by an employer for employees What is the max fine that TPR can impose on the employer

Answer 57

TPR max fines is £50k for an employer currently

Question 58

Who should a scheme administrator consult first if they are unsure about an area of the pension scheme?

Answer 58

The employers board of directors

Question 59

How often must an active recovery plan be shared with the Pension Regulator?

Answer 59

every 3 years as a minimum

Question 60

When an individual is looking to complete a pension transfer, they may have to prove that they have obtained advice first. Tell me when this is the case and when it is not (Chapter 4)

Answer 60

If the individual has safeguarded benefits less than 30k they DO NOT NEED ADVICE If above they do. WHEN ELSE?

Question 61

Someone would like to access a PCLS from his DB scheme using commutation. However, they have a Guaranteed Minimum Pension due to previously contracting out. What affect will this have on the PCLS?

Answer 61

This will reduce the PCLS available as a GMP cannot be used to boost any PLCS

Question 62

A DB scheme is being wound up and is in deficit. The employer is solvent. Who makes up this deficit

Answer 62

The employer as they are solvent If they were insolvent it could go into the remit of the PPF and the FAS

Question 63

What is a targeted money purchase scheme (in chapter 5)

Answer 63

Targeted money purchase schemes are DC schemes that intend to fund the scheme in order to reach a targeted level of benefits. The employer usually funds these

Question 64

Out of a trust based scheme or a contract based scheme, what is likely to be more expensive

Answer 64

A trust based scheme as its more bespoke

Question 65

What is the max guarantee period that scheme trustees can include in a pension for death?

Answer 65

10 years and it is taxable in the recipient's marginal rate irrelevant of when they died

Question 66

Someone has accrued the full state pension but they are now a non UK resident. What affect does this have on their state pension?

Answer 66

It will continue to be paid but, the triple lock inflation proofing is not added to his state pension Depending on the country they move to, they could also suffer from double taxation on their state pension

Question 67

Out of the following which are considered for means testing in relation to guaranteed credit? Working tax credit 5% withdrawals from investment bonds Contributions to a Personal Pension Plan PIP Can guaranteed credit be paid if the person moves abroad What age is it available?

Answer 67

Only working tax credit would be considered for means testing All others are ignored It can be paid if they move abroad but only temporarily Currently 66

Question 68

What are the spreading limits for employer pension contributions

Answer 68

£500,000 - £999,999 2 accounting periods £1,000,000 - £1,999,999 3 accounting periods £2,000,000 or more 4 accounting periods

Question 69

All relevant charges:

Answer 69

Unauthorised payment charge – 40% income tax charge Unauthorised payment surcharge – Payable if value of all unauthorised payments in one year exceeds 25% of value of member’s pension rights or 25% of the value of the pension scheme’s assets (for employer). 15% paid on top of the unauthorised payments charge Scheme sanction charge – Payable if scheme makes at least one chargeable payment in the year. 40% of chargeable amount De-registration charge – 40% on value of fund – scheme administrator is liable Overseas transfer charge of 25% applies to transfers from a UK registered to a QROPS or a QROPS TO QROPS transfer QROPS – authorised to receive transfers from UK RPS, based outside UK but recognised by HMRC has having equivalent standards (it must mirror HRMC rules),

Question 70

What are the conditions for all the RECYCLED tax-free cash to be treated as unauthorised? There are four in total. And all these conditions must be met, for the entire tax-free cash to be treated as an unauthorised payment.

Answer 70

Treated as unauthorised payment where all of the following are met: -PCLS and other PCLS in 12 months exceeds £7,500 -Contribution is greater than 30% due to recycling and the cumulative sum of extra contributions exceeds 30% of PCLS -Additional contributions are made by the individual or someone else - Recycling was pre-planned

Question 71

GMP cannot be commuted for cash - True or false

Answer 71

TRUE

Question 72

What are the trigger events for the MPAA?

Answer 72

read 2.5 BEFORE EXAM

Question 73

What is a QROPS / ROPS? How are transfers to QROPS / ROPS treated? What is the Overseas Transfer Charge (OTC) and overseas Transfer Allowance (OTA) in relation to this NOTE: Transfers to QROPS do not reduce the LSDBA because the pension is being TRANSFERRED. Benefits are not being taken which is where the allowances would be reduced.

Answer 73

QROPS = Overseas pension scheme that has applied for and been given QROPS status by HMRC. ROPS = This is an overseas pension scheme that has received UK tax relief or concessions at some point. It has not however been given any special status by HMRC. Because they are a recognised schemes by HRMC, transfers are classed as authorised transfer (ie, they wont suffer any unauthorised payment charge) The amount transferred to the QROPS is tested against the Overseas Transfer Allowance (OTA) (Set at same level as LSDBA). There are 2 types of Overseas Transfer Charge that may apply. 1 way: the benefits being transferred exceed the OTA and 1 of the 4 exclusions have been met (such as it being transferred to an EEA country). For this, any EXCESS over the OTA is taxed at a flat rate of 25% 2nd way: The benefits are being transferred to a QROPS where no exclusions are met. It does not matter if there is an excess or not. For example, the benefits are being transferred to a non EEA country or the member is not a resident in the country that the benefits are being transferred to. For this, a flat rate of 25% will be paid on ENTIRE amount being transferred.

Question 74

2.7.8: Trivial commutation ‘Small pots’ triviality Tell me about each specifically: Minimum age Max value that can be taken from either Taxation Timeframe Can both be used separately? Tell me also teh same as above about commuting a dependant pension and if Trivialisation if an OPS is being wound-up

Answer 74

Below are all 4 types of triviality. Remember, trivial commutation is just where individuals with smaller pension funds or benefits can commute them for cash. This avoids small values sitting in pension schemes costing providers a lot to administer Trivial commutation (Applies only to DB schemes) - Min Age = 55 - Max value = £30,000 - Taxation = 25% is tax free, 75% at marginal rate - All benefits must be commuted - Must be complete in 12months ‘Small pots’ triviality (applies to Personal & occupational schemes) - Min Age = 55 - max value = For personal schemes: 3 pots, max £10k in each. For 'unconnected' occupational schemes, unlimited pots but max 10k in each. - Taxation = If pension uncrystallised, 25% is tax free and remaining is added to taxable income. If benefits are already in payment, there is no tax free element and whole lump sum is taxed at marginal rate. -All benefits must be commuted - NO 12 month period Both can be used separately and using small pots will have not affect on triviality and vice versa READ 2.7 Commuting a dependant pension: -No min age -Max value = £30k (including any guaranteed period) -Taxation = Taxable at recipient at marginal rate. If member dies pre retirement recipient may have tax free element -All rights to dependant pension must be extinguished by dependant Trivialisation if an OPS is being wound-up (closed) -No min age -Max value = £18000 -25% tax free, remaining is added to members taxable income -All rights must be extinguished

Question 75

Two critical yields are relevant to capped drawdown advice: Type A and Type B.

Answer 75

Type A shows the net annual growth required to match immediate annuity purchase income. (Immediate income) Type B shows the net annual growth required to sustain a set level of annual capped withdrawals. (Future income)

Question 76

Peter pays £18,000 net annually into his personal pension plan. He is a higher rate taxpayer. His employer pays £10,000 gross annually on his behalf. Calculate Peter’s total pension input. £28,000 £30,000 £32,500 £40,000

Answer 76

£40,000 Peter’s contribution will be grossed up by 20% tax relief as his personal pension plan will use the relief at source tax relief method. £18,000 ÷ 0.80 = £22,500. Employer contributions are paid gross. £22,500 + £10,000 employer contribution = £32,500 total pension input. NOTE: The relief at source method is most used by individual or group pension schemes. This is why the question has grossed it in this way even tho they are a HRTP. Peter must claim through assessment to get the additional relief for being a HRTP

Question 77

Jack is aged 57, and has two DC pensions, a £150,000 personal pension, and a £357,000 self-invested personal pension. He has £22,000 in total annual contributions. He has crystallised his personal pension, taken £37,500 as PCLS, and as planned, recycled £20,000 as an SIPP contribution. This means that… the £20,000 will be classed as unauthorised. the £37,500 will be classed as unauthorised. the £150,000 will be classed as unauthorised. None of Jack’s personal pension will be classed as unauthorised.

Answer 77

All Jack’s PCLS will be taxed as an unauthorised payment. He has failed all four conditions set down by HMRC. This recycling was pre-planned, the PCLS is more than £7,500, both 30% conditions have been met, and the contribution was made by Jack. DO NOT CONFUSE WITH MPAA RULES which also prevents recycling cash. The rules above are specifically for PCLS This is what is triggered if a person has successfully triggered the MPAA (ie trigger event + £10k in DC pension input) Upon successfully triggering the MPAA the annual allowance is split into 2 parts. 1 part being the MPAA for any DC pensions and the other part being the AAA for DB pensions as seen below. £10k MPAA for DC pensions £50k AAA for DB pensions This will remain forever. Carry forward can be used for the AAA but NOT for the MPAA

Question 78

Is a serious ill health lump sum a RBCE if they are below age 75?

Answer 78

Yes If Paul has insufficient LSDBA remaining, any excess will be taxed at his marginal income tax rate The sum within his LSBDA will be tax free

Question 79

If someone has ill health and must leave work early how is DB benefits calculated?

Answer 79

DB schemes choose most generous option so it will be based on the potential service and potential final salary that the person could've had if it wasn't for illness

Question 80

How LSA, LSDBA and LTA all work

Answer 80

LTA = Now abolished. Cap of on total value of pension savings that could be accumulated without a big tax charge on the excess LSA =

Question 81

How much tax relief do you get per year? What if you have unused carry forward? Can you get more tax relief than the AA?

Answer 81

Tax relief = higher of 3600 (gross) or 100% of gross salary If you contribute more to your pension than the Annual Allowance due to carry forward, you could potentially receive higher annual allowance in tax relief if you salary is high enough. If however, you exceed the annual allowance (whether you have carry forward or not) you wont get tax relief as you will pay the Annual Allowance Charge which obs cancels out any relief

Question 82

Out of the following, which would be classed as taxable property for a SIPP and therefore be an unauthorised payment Care homes Commercial property Residential property Indirect property

Answer 82

Residential property is not permitted in RPS’s and therefore classed as taxable property and will suffer an authorised payment tax

Question 83

How long does a scheme trustee have to inform the pension regulator that an employer has not made their scheduled payment into the DB scheme

Answer 83

TPR must be told in 30 days for any non payments

Question 84

What is an eligible jobholder What is a non eligible job holder What is an entitled worker

Question 85

Trustees can delegate many of their responsibilities to the scheme administrator. True or false

Answer 85

True, but they cannot delegate ultimate responsibility

Question 86

Trustees can delegate many of their responsibilities to the scheme administrator. True or false

Answer 86

True, but they cannot delegate ultimate responsibility

Question 87

True or false; The scheme administrator must be approved by the FCA The scheme administrator must be registered with the pensions regulator The scheme administrator must be independent to the sponsoring employer

Answer 87

False, they don’t have to be registered or approved (think how much effort that would be) The scheme administrator must be independent to the sponsoring employer = True

Question 88

If an overseas qualifying pension schemes allows the member to take benefits from age 50, why as a financial advisor would you not advise them to transfer the pension to it?

Answer 88

Because she is accessing the pension before 55 and HMRC will treat this as an unauthorised payment

Question 89

Remember. Eligible job holders are auto enrolled No eligible job holders can opt in (and employer must say yes) Entitled workers can ask to join (but employer may say no)

Question 90

If annuity rates rise CETV falls If discounting rates rise CETV falls And vice versa

Question 91

If annuity rates rise CETV falls If discounting rates rise CETV falls And vice versa

Question 92

Phased retirement

Answer 92

Phased retirement is literally just where 25% is taken tax free and the remaining 75% is used for something else For example, if you choose phased annutiy purchase, 25% is tax free and 75% is used to purchase an annuity

Question 93

Secured Income Options: Scheme Pensions & Annuities Lump Sums on death: Scheme pension = If ALLOWED BY SCHEME, pre/post age of 75 & non crystallised/crystallised rules apply for tax. If already crystallised you just deduct the amount they have already received in income from the protected lump sum amount, and the remaining amount is the lump sum that the receiptant receives! There is a 45% flat rate, if paid to a trustee or personal representative Annuity = Tax rules are exactly the same as with the scheme pension when paying a lump sum. Income on death: Scheme pensions = always taxable on death, regardless of the age the deceased was. (Therefore, no LSDBA test as its income). Scheme pensions can offer a guaranteed period (max 10 years) Annuities = tax free if below 75, taxable on PAYE if above 75 (also must be post April 2015 and within 2 years to be tax free if pre 75). Annuities can offer a guaranteed period (no time limit) For annuities dependant income can be paid to both a dependant AND nominee & there is no limit on amount payable to recipient on death (for scheme pension the limit is 100% of what the member was receiving).

Answer 93

SECURED INCOME: 6.3.1: Scheme pension. Annuity death benefits: very similar to scheme pension except there is no limit on amount payable, it can be paid to a dependent AND nominee & income is tax free if member dies pre 75. No limit on guarantee period

Question 95

Short service refunds =

Answer 95

DB schemes = less than 2 years DC schemes = less than 30 days First 20k = 20% tax 20K + = 50% tax

Question 96

In a SSAS all members are trustees and there can be an unlimited number.

Question 97

Any safeguarded benefits for than £30k require financial advice