unspecific Flashcards
(43 cards)
What incentive does an employer receive from the Government to provide access to financial
advice for members of its pension scheme?
A. The cost of pensions advice up to £500 per annum for each employee is not a taxable benefit for employees.
B. The Government matches the amount paid by the employer up to £250 per annum for each
employee.
C. The Money and Pensions Service will offer a grant of up to £1,000 to the employer.
D. The employee can take up to £500 from their defined contribution scheme every tax year to pay for the cost of advice
A. The cost of pensions advice up to £500 per annum for each employee is not a taxable benefit for employees.
Since 6 April 2017 it has been possible for a member of a defined contribution scheme to
take a tax-free ‘pensions advice allowance’ from their arrangement to redeem against the
cost of financial advice. A payment of up to £500 can be taken in a tax year, subject to a
maximum of three payments being taken over the member’s lifetime. The money must be
paid directly to the financial adviser, but the retirement financial advice can be holistic and
the advice does not have to be limited to advice about the arrangement the £500 has come
from. The withdrawals can be taken by the member at any age.
When an employee is auto-enrolled into a qualifying pension scheme, he should be aware that
A. charges are capped at 0.5% in all schemes used for auto-enrolment.
B. the employer’s contributions must at least match his own contributions.
C. he can take a part of his fund tax free at retirement.
D. if he does not opt out within one month, he is obliged to maintain pension contributions during that employment.
C. he can take a part of his fund tax free at retirement.
A Section 32 buy-out policy includes provision for the employees contracted-out portion of State Earnings-Related Pension Scheme (SERPS) by the provision of a guaranteed minimum pension (GMP). If the fund value is insufficient to provide the GMP element, which party is liable for the shortfall?
A. The ceding employer.
B. The ceding provider.
C. The current provider.
D. The individual
C. The current provider.
The main reasons for transferring benefits from an occupational pension scheme into a
section 32, rather than a personal pension, prior to A-Day were:
- the guaranteed minimum pension (GMP) liability from a contracted out defined benefit
scheme could be secured within the section 32, meaning the section 32 provider had to
guarantee to provide benefits at least equivalent to the GMP at the member’s SPA; - the maximum benefits that could be provided by the section 32 were subject to
occupational pension scheme rules, rather than individual pension scheme rules. This
meant that, in some circumstances, the member could achieve higher tax-free cash
and/or lump-sum death benefits.
Marc is a higher-rate taxpayer. He was the beneficiary of an uncrystallised pension fund valued at £450,000, which had belonged to his mother and represented her only pension benefits. His mother died on 15 July 2024, having turned age 75 on 31 May 2024. If Marc takes the entire fund as a lump sum, what is the tax treatment?
A. It is not subject to tax.
B. It is subject to Inheritance Tax.
C. It is subject to a 45% tax charge.
D. It would be taxed at Marc’s marginal rate
D. It would be taxed at Marc’s marginal rate.
Over age 75 so client is liable to tax at marginal rate
Gordon is employed and has a salary of £65,000. He has NOT yet made a pension contribution for the tax year 2024/2025 and has a total unused carry forward allowance of £70,000. What is the maximum tax-relievable personal contribution he can make in the tax year 2024/2025?
A. £60,000
B. £65,000
C. £70,000
D. £130,000
B. £65,000
It is also important to note that the level of the member’s relevant UK earnings in each of the
previous three tax years is not an issue. If the member is carrying forward to 2024/25 then
any personal contribution that they make in 2024/25 will be assessed for tax relief purposes
against their relevant UK earnings in 2024/25. Earnings in previous years are not taken into
account; just the balance of any unused annual allowance.
you can only contribute up to relevant earnings in that year, previous years do not count, so he could only contribute up to £65k even though he has a carry forward of £70k
How is dividend income earned by a pension fund treated for tax purposes?
A. It is tax free.
B. Any dividend income which applies to an individual investor, in excess of their dividend
allowance, is subject to dividend tax.
C. It is subject to Capital Gains Tax and deducted from the fund.
D. It is subject to dividend tax and deducted from the fund
A. It is tax free.
You don’t pay tax on dividends from shares in an ISA or pension.
If your investments are held in an Individual Savings Account (ISA) or pension, they will be shielded from UK dividend tax and will not count towards your annual ISA allowance or annual pension allowance.
Claudia, aged 57, has triggered the money purchase annual allowance (MPAA) in the current tax year, as a result of accessing flexi-access drawdown for the first time. She should be aware that the MPAA will apply
A. in the current tax year only.
B. in the current and all subsequent tax years.
C. until the next review date of the drawdown arrangement.
D. until Claudia reaches State Pension age.
B. in the current and all subsequent tax years.
once MPAA is triggered it doesn’t stop
Harper, aged 45, has been told she has a life expectancy of less than 12 months. Having received acceptable evidence from her consultant, her pension provider has said she is able to take her entire pension fund, valued at £2,000,000, as a serious ill health lump sum. Harper should be aware that
A. the full amount can be paid to her tax free.
B. she is entitled to £1,073,100 tax free, with the remaining £926,900 subject to tax at her marginal
rate.
C. the full amount is taxed as pension income.
D. she is entitled to £1,073,100 tax free, with the remaining £926,900 subject to tax at 45%.
B. she is entitled to £1,073,100 tax free, with the remaining £926,900 subject to tax at her marginal rate.
SIHLS is tested against the LSDBA (£1,073,100) anyting after that is then taxed at clients marginal.
Simon is considering purchasing a property to live in using the funds from his self-invested personal pension (SIPP). He should be aware that
A. as long as he pays enough rent to cover the mortgage payments, there are no further tax charges.
B. as long as the property is kept in the pension fund for at least 10 years, there are no tax
implications.
C. he would be subject to an unauthorised payment charge on the value of the property.
D. he would be subject to Capital Gains Tax on the value of the property
C. he would be subject to an unauthorised payment charge on the value of the property.
Unauthorised payments charge The unauthorised payments charge is an income tax charge applied to an unauthorised payment made (or deemed to be made) for the benefit of any scheme member or any sponsoring employer.
The list of ‘taxable property’ covers residential property (with minor exceptions, e.g. a caretaker’s flat) and this is defined in great detail, e.g. beach huts are residential property, but student halls of accommodation are not. The list also covers tangible moveable property, which basically means personal chattels (e.g. antiques, art and cars) but excludes certain business assets valued at not more than £6,000.
If a self-invested pension scheme, directly or indirectly, purchases a prohibited asset the scheme and/or the member is subject to one or more of the unauthorised payments tax charges
Jason resides abroad and receives income from a pension purchased in the UK. There is no double taxation agreement in place. In respect of the taxation of his UK pension income, he should be aware that the income will
A. be paid net of basic-rate tax only.
B. be taxable under PAYE in the UK and may be taxable in his country of residence.
C. normally be paid gross.
D. only be taxable in his country of residence.
B. be taxable under PAYE in the UK and may be taxable in his country of residence.
The position regarding the taxation of the income is as follows:
* individuals who are classed as UK residents are taxed in the usual manner;
* those who are deemed to be non-residents and who live in a country which has a double taxation agreement with the UK do not pay UK tax on their State Pension, but may pay tax in the country in which they live; and
* those living in a country that does not have a double taxation agreement with the UK pay UK tax and may also be taxed in the country in which they live.
John, aged 60, works on a part-time basis. He intends to take the benefits from his former occupational pension scheme which includes a pension commencement lump sum (PCLS) of £38,000. He currently pays £300 gross per month into a personal pension and once he receives his PCLS he plans to pay in a single contribution of £15,000 gross. He should be aware that in respect of recycling
A. the entire PCLS is likely to be treated as an unauthorised payment.
B. only the £15,000 single contribution is likely to be treated as an unauthorised payment.
C. only £7,500 of the £15,000 single contribution is likely to be treated as an unauthorised payment.
D. the single contribution will be allowed as it is less than 40% of the PCLS
A. the entire PCLS is likely to be treated as an unauthorised payment.
An individual may decide to recycle part or all of the PCLS back into a registered pension scheme as a contribution. The member would receive tax relief on this contribution, even though it had come from the pension scheme and had already received tax relief. The Government sees recycling of the PCLS as abuse of the tax simplification rules.
Therefore HMRC treat the entire PCLS as an unauthorised payment where all of the following conditions are met.
- The individual receives a PCLS which, when added to any other PCLS drawn in the previous twelve-month period, exceeds £7,500.
- The PCLS means that the pension contribution paid on behalf of the individual is significantly greater than it would otherwise be.
– A ‘significant increase’ is taken to be ‘more than 30% of the contributions that might otherwise have been expected’ and the cumulative sum of extra contributions exceeds 30% of the PCLS. - The additional contributions are made by the individual or by someone else, such as an employer.
- The recycling was pre-planned.
How does a higher-rate taxpayer receive tax relief when making contributions to an occupational pension scheme under a net pay arrangement?
A. At the basic tax rate as soon as the contribution is paid, with higher-rate relief paid via self-assessment.
B. At the basic tax rate only as soon as the contribution is paid.
C. At the employee’s marginal tax rate as soon as the contribution is paid.
D. All tax relief is paid via self-assessment.
C. At the employee’s marginal tax rate as soon as the contribution is paid.
Net pay arrangement: the employer takes members’ contributions from their pay before it’s taxed
Paul died in August 2024, aged 78, after taking a pension commencement lump sum of £100,000 and placing his remaining pension provision into flexi-access drawdown in November 2023. His widow Suzi, aged 72, was an additional-rate taxpayer. If the crystallised fund remaining was £75,000 what was the net amount received by Suzi?
A. £33,750
B. £41,250
C. £45,000
D. £75,000
B. £41,250
Flexi-access and after age 75 means taxed at marginal rate
£75k x 0.55 = £41,250
Scheme X and scheme Y are both occupational pension schemes but only scheme X is covered by The Pension Protection Fund. This is because
A. scheme X started in 1995 and scheme Y started in 2002.
B. scheme X was contracted-out and scheme Y includes a bridging pension.
C. scheme X is a defined benefit scheme and scheme Y is a defined contribution scheme.
D. scheme X is contributory and scheme Y is non-contributory.
C. scheme X is a defined benefit scheme and scheme Y is a defined contribution scheme.
The Pension Protection Fund (PPF) covers people in the UK who are members of defined benefit pension schemes.
defined contribution pensions are protected if the pension provider is authorized by the Financial Conduct Authority (FCA)
An employer has set up a group personal pension scheme for its staff. The scheme members
should be aware that
A. the employer must match members’ contributions up to 5% per annum.
B. higher-rate tax relief is granted at source.
C. if a member leaves service within two years, he may receive a refund of his own contributions.
D. members’ contributions can continue after leaving service.
D. members’ contributions can continue after leaving service.
Mary and Jim are in the process of divorcing. In respect of their pension funds, offsetting would involve
A. Jim becoming a deferred member of Mary’s pension fund.
B. Jim transferring an amount into Mary’s pension fund.
C. Mary making a lump-sum contribution into Jim’s pension fund.
D. Mary retaining her own pension fund by transferring other assets to Jim.
D. Mary retaining her own pension fund by transferring other assets to Jim.
An employer has asked the trustees of its qualifying occupational defined contribution pension scheme to introduce higher charges for deferred members of the scheme. The trustees should be aware that
A. all member-nominated trustees must agree to such a change before it can be implemented.
B. the trustees can levy a higher charge on one class of member to another.
C. the trustees have a duty to take into account the interests of all members.
D. the trustees must put the interests of members who are nearer to retirement ahead of younger members
C. the trustees have a duty to take into account the interests of all members.
Kevin, a higher-rate taxpayer, has been a member of an occupational defined benefit pension
scheme for 18 months and has made personal contributions of £6,000 gross. If he now leaves the scheme, how will any refund be treated for tax purposes?
A. It will be subject to a 20% tax charge.
B. It will be subject to a 50% tax charge.
C. It will be taxed at Kevin’s marginal rate of tax.
D. £5,000 will not be subject to tax and £1,000 will be taxed at Kevin’s marginal rate of tax
A. It will be subject to a 20% tax charge.
An employee who leaves the scheme after less than two years may be entitled to a return of their own personal contributions – known as the short service refund. This is not obligatory, as the scheme may instead offer a preserved pension. If the member has completed at least three months’ service in the scheme, they must also be given the option of a cash equivalent transfer value (CETV).
If a refund of member’s contributions is awarded, the tax treatment is as follows:
- the first £20,000 of any refund is taxed at 20%; and
- any excess is taxed at 50%.
The tax liability falls on the scheme administrator, who can deduct the tax from the member’s refund.
Paul became a deferred member of a defined benefit occupational pension scheme in January 2014, after two years’ service. What minimum rate of revaluation, if any, will be applied to his deferred benefits?
A. Any discretionary rate of revaluation agreed by the trustees may be applied.
B. A minimum rate of 5% per annum or inflation, if higher, will be applied.
C. A rate of 2.5% per annum or inflation, if lower, will be applied.
D. There is no minimum revaluation rate.
C. A rate of 2.5% per annum or inflation, if lower, will be applied.
In line with increases in CPI to a maximum of 5% p.a. for all benefits (in excess of GMP) accrued to 5 April 2009. In line with CPI to a maximum of 2.5% p.a. for accrual after 5 April 2009.
Connor is a member of his employer’s defined benefit pension scheme and wishes to make increased pension contributions. He should be aware that
A. additional voluntary contributions (AVCs) cannot be used to provide tax-free cash at retirement.
B. he may pay additional contributions to a personal pension up to £3,600 per annum only.
C. his employer must offer a salary sacrifice arrangement in relation to additional voluntary contributions (AVCs).
D. the scheme will normally offer the option of paying additional voluntary contributions (AVCs)
D. the scheme will normally offer the option of paying additional voluntary contributions (AVCs).
Before A-Day, members of occupational schemes could buy extra benefits by paying additional voluntary contributions (AVCs), either to an in-house or to a free standing AVC (FSAVC) scheme. Although since A-Day an individual can contribute to any number of registered pension schemes, many employers still offer an AVC scheme in conjunction with the employer’s defined benefit scheme
Therefore, a member of a defined benefit scheme can choose to ‘top up’ their benefits by contributing to an AVC scheme offered by their employer or by contributing to an individual arrangement such as a personal or stakeholder pension.
The technical provisions of a defined benefit occupational pension scheme are the
A. scheme’s actuarial assumptions.
B. scheme’s investment strategy.
C. amount of annual scheme contributions.
D. valuation of the scheme’s liabilities
D. valuation of the scheme’s liabilities.
A statutory funding objective must be set for all private sector defined benefit schemes. Under this objective, the scheme trustees must ensure that the scheme funding meets the scheme’s technical provisions. These are the amount of assets needed to cover the scheme’s future liabilities as they fall due. The scheme assets are valued at market value.
Within what maximum period, if any, should a newly-appointed trustee of a defined benefit
occupational pension scheme reach the required level of trustee knowledge and understanding?
A. Prior to the appointment.
B. Six months.
C. One year.
D. There is no time limit.
B. Six months.
not sure where it says 6 months in the book
We can summarise the general responsibilities of trustees as to:
* maintain the scheme in the best interests of its members and to act impartially at
all times;
* act within the provisions of the trust deed;
* meet the trustee knowledge requirements and inform TPR of certain notifiable events;
* hold and invest the trust assets to achieve the best financial return consistent with
security,
– their powers of investment are set out in the trust deed, and
– the trustees are absolutely bound to use the trust assets, not for their own advantage
(except to the extent that they may also be members of the pension scheme), but for
that of the beneficiaries;
* know and understand the scheme, its provisions and its financial background;
– this includes the associated documentation, such as the scheme explanatory booklet,
scheme accounts and actuarial reports.
What retirement options, if any, exist for an employee, aged 48, who has just been declared unfit to work through ill health?
A. Benefits may be paid in all circumstances subject to HM Revenue & Customs rules only.
B. Benefits may be paid subject to the agreement of the scheme trustees acting in accordance with the scheme rules.
C. Benefits may not be paid in any circumstances until age 55.
D. Benefits may not be paid unless the member has a life expectancy of less than 12 months.
B. Benefits may be paid subject to the agreement of the scheme trustees acting in accordance with the scheme rules.
The scheme rules may also permit early retirement in the event of ill-health, even if this occurs before the age of 55.
The rules of the scheme define how to calculate the pension on ill-health early retirement. This may be in one of several ways:
- based on service to the date of ill-health early retirement, but without any early retirement penalty;
- based on prospective service to the scheme’s normal pension age and the salary at the date of ill health early retirement, again without any early retirement penalty
- somewhere between these two levels.
If the member is in serious ill-health so that their expectation of life is less than a year, the whole pension may be commuted for a cash lump sum.
Under a public sector pension scheme, what is normally the maximum permissible pension
commencement lump sum at retirement?
A. 120/80ths final pensionable salary only.
B. 40/60ths final pensionable salary only.
C. 3 times the residual annual pension payable.
D. 25 times the residual annual pension payable
A. 120/80ths final pensionable salary only.
not sure where this shows in the book
