01. Context of pensions planning

Question 1

What are the 3 sources of where a pension might come from?

Answer 1

• The State.
• A workplace pension.
• A private pension arrangement.

Question 2

What are the 2 dates of the Pensions Act?

Answer 2

1995 & 2004.

Question 3

What did the (2) Pensions Acts do?

Answer 3

• 1995: Set up regulatory & compensation schemes (greater protection for members of occupational pension schemes).
• 2004: Created PPF.

Question 4

When did the Minimum Income Guarantee come into force?

Answer 4

1999.

Question 5

When was State Pension Credit introduced?

Answer 5

2003.

Question 6

When was A-Day?

Answer 6

6 April 2016.

Question 7

Name 2 allowances that A-Day introduced.

Answer 7

• The annual allowance.
• The lifetime allowance.

Question 8

When were stakeholder pensions introduced?

Answer 8

2001.

Question 9

When was automatic enrolment introduced?

Answer 9

October 2012.

Question 10

In 2010 what was the SPA for both men & women?

Answer 10

• Men: 65.
• Women: 60.

Question 11

When was the SPA for both men & women equalised?

Answer 11

November 2018.

Question 12

What is the current SPA and since when?

Answer 12

• 66.
• October 2020.

Question 13

When were pension flexibilities introduced?

Answer 13

April 2015.

Question 14

Name 5 challenges to pensions saving.

Answer 14

• People are living longer.
• Affordability (e.g. rising cost of living).
• Pension scandals.
• Falling stock markets, gilt yields & consequently annuity rates.
• Pensions are complex & people may think State Pension will be sufficient.

Question 15

Name 2 pension scandals.

Answer 15

• Equitable Life in 2000, unable to pay the Guaranteed Annuity Rates promised to customers.
• Robert Maxwell in early 90s, stealing pension monies from Mirror Group pension fund to try and cover up losses.

Question 16

The number of people aged 85 and over in 2020 is expected to roughly ~ by ~.

Answer 16

• double
• 2045.

Question 17

In 2020 there were around ~ people aged 100 and over in the UK. This figure is expected to increase to around ~ by ~.

Answer 17

• 15,000
• 50,000
• 2050.

Question 18

Longer life expectancies - what are the chances of a man aged 65 living to age:

• 92
• 96
• 100

Answer 18

• 1 in 4 chance.
• 1 in 10 chance.
• Just under a 3% chance.

Question 19

Changing annuity rates:

• 1990s
• 2000
• 2023

Answer 19

• Around 15%.
• Around 9%.
• Around 5.6%.

Question 20

Under DC schemes all ~ risk and ~ risk is borne by the ~.

Answer 20

• investor
• annuity
• member.

Question 21

Name 5 incentives of saving for retirement.

Answer 21

• Income tax relief on contributions.
• Employer contributions are treated as a business expense.
• Fund investment profits are exempt from income tax & CGT.
• Ability to take a tax-free sum (PCLS).
• Pension flexibilities.

Question 22

When an employer provides advice to employees, what is it not treated as?

Answer 22

A benefit in kind.

Question 23

When providing financial advice to employees, what is the limit for exemption from income tax & NICs?

Answer 23

£500.

Question 24

Name 6 disincentives of saving for retirement.

Answer 24

• Limit to the amount that can be taken as a tax-free lump sum.
• Limit on the amount of individual contributions which get tax relief.
• Benefits (mostly) cannot be taken before minimum pension age of 55.
• Most find pensions complex.
• Perception they are expensive with high fees.
• General mistrust due to past scandals & bad press.

Question 25

Name the 4 types of State Pension pre 6 April 2016.

Answer 25

• Basic State Pension, plus:
• Graduated Retirement Benefit (1961 - 1975)
• State Earnings Related Pension Scheme (SERPS 1978 - 2002)
• State Second Pension (S2P 2002 - 2016).

Question 26

What are the 3 factors that benefits from DB schemes are based on?

Answer 26

• Pensionable service.
• Pensionable remuneration.
• The accrual rate (e.g. 1/60th)

Question 27

What is a cash balance scheme?

Answer 27

A type of money purchase scheme, but it provides a mix between DB & DC, by promising a certain lump-sum payment at a specified age.