07. Secured pensions Flashcards
What is crystallisation?
The taking of an income or the provision of a lump-sum payment (in the form of a PCLS, an UFPLS or as a lump-sum death benefit).
DC schemes don’t have to offer any flexible access options. Members would need to ___.
transfer their benefits to a scheme that does.
PCLS: In most cases ~ of the fund is paid tax free, with the balance taxable as pension income via PAYE assuming member has sufficient ~~.
- 25%
- LSA available.
Small pots payments relate to ~ schemes.
DC
The limit for small pots payments is:
3 small pots from non-occupational schemes at £10k each
(or unlimited number from unconnected occupational pension schemes)
Are small pots payments from uncrystallised funds tested against the member’s LSA or LSDBA?
No.
Trivial pots payments relate to ~ schemes.
DB
The commutation limit for trivial pts payments is £~?
£30k.
For trivial pots payments, what is the nominated date?
The date, chosen by the member, on which all their pension benefits are valued.
How long does the member have to start commuting their trivial benefits from their nominated date before they’d have to choose another nominated date & start again?
3 months.
Any small pots payments made before the nominated date are ___ when calculating the total for trivial pots benefits.
not included
Any trivial pots payment must be made within how long from the *commutation period**? i.e. the start of when the 1st commutation payment was made.
12 months.
How many commutation periods can an individual have in their lifetime?
Just 1.
Name 2 occasions when a trivial commutation lump-sum death benefit can be paid.
- a survivor commutes a survivor’s pension; or
- a member dies within the guarantee period of a pension they are receiving and the recipient of the guarantee wishes to commute the remaining payments.
The maximum trivial commutation lump-sum death benefit is £30,000 ___, not ___.
- per scheme
- across all schemes.
Name 2 conditions in order to be able to commute a survivor’s pension for trivial commutation lump-sum death benefit.
- must be paid to a dependant or nominee of the member
- payment must extinguish the survivor’s entitlement to pension & lump-sum death benefits under the scheme.
How do you value annuity income / income drawdown in payment before 6 Apr 2006?
Annual income being received / Max GAD withdrawal at 5 Apr 2006 x 25.
How do you value annuity income / uncrystallised DB scheme in payment after 5 Apr 2006?
Income at commencement x 20 + any PCLS taken.
Name 2 ways a scheme pension can be paid.
- directly from the scheme’s assets; or
- by an insurance company selected by the scheme administrator
Name 4 benefits of paying a scheme pension directly from the scheme assets.
- capital
- funds
- rates/health
- health
- no immediate outflow of capital
- funds remain invested
- may benefit from an increase in annuity rates or worsening of member’s health
- benefits from ‘mortality gain’
Name 4 drawbacks of paying a scheme pension directly from the scheme assets.
- £
- health
- risk
- ease
- payments must be made no matter what
- members/their dependants may live longer
- scheme retains longevity & investment risk
- more admin for scheme
What is the only way a DB pension can pay benefits in retirement?
A scheme pension.
Before a DC pension can offer a scheme pension, what must it offer?
A lifetime annuity.
Name 3 ways a scheme pension can provide a benefit following the death of a member.
- a dependant’s scheme pension;
- a guarantee period; and
- a lump-sum death benefit.
Dependant’s scheme pension choice of how to receive income for:
- DB scheme
- DC scheme
- no choice
- can choose to buy a dependant’s annuity rather than a dependant’s scheme pension
A dependant’s scheme pension doesn’t have to be paid for life:
- surviving spouse
- children
- may cease if spouse remarries
- independence age may be reduced from 23 to 18 or 21 (scheme rules)
It is not possible to commute a dependant’s scheme pension for a cash lump sum except on the grounds of ~.
triviality.
What is the maximum guarantee period for a scheme pension?
10 years max.
Name 3 ways a scheme can cease payment to a recipient under a guarantee.
- they get married
- they reach 18
- they stop being in FT education.
Name 4 criteria which might make lifetime annuities more attractive.
- lower ATR
- low/no capacity for loss
- need a guaranteed income
- no desire to manage investment of their pension fund
- longer life expectancy
- medical condition so cn get enhanced annuity rate
What is a flexible lifetime annuity?
A lifetime annuity set up on or after 6 April 2015 that allows the income paid from the annuity to fall by more than the ‘prescribedamount’.
When a lifetime annuity is purchased from uncrystallised funds, what is the timeframe for paying a PCLS?
No earlier than 6 months before or 12 months after the date the member becomes entitled to the lifetime annuity.
Unlike a scheme pension, how does a lifetime annuity differ?
Can choose how you wish to set up the income
Name 3 ways a lifetime annuity can provide a benefit following the death of a member.
- survivor’s annuity
- guarantee period
- annuity protection
What are the 2 main factors affecting annuity rates?
- long-term bond yields
- longevity expectations
Annuity rates fall as interest rates ~.
fall
If life expectancy of the annuitant pool is slightly lower, annuity rates will be slightly ~.
higher
Impaired life annuities offer higher annuity rates to who and why?
Individuals with lower than average life expectancies (typically < 5 years) as the annuity provider would expect to pay them an income for a shorter period of time.
Name 2 methods an annuity provider can calculate the annuity rate for an impaired life annuity.
- assess how long they are expected to live then treat them as older
- Anderson Mortality Tables
What are enhanced annuities?
Similar to impaired life annuities, enhanced annuities offer higher rates to individuals with particular medical conditions or lifestyles (e.g. diabetes sufferers, smokers and the obese).
Name 2 investment-linked annuities.
- with-profit annuities
- unit-linked annuities
Why is a unit-lined annuity higher risk than a with-profit annuity?
No smoothing of returns in good years to level out the bad years.
Taking income from which type of lifetime annuity will trigger the MPAA, conventional or flexible lifetime annuities?
Flexible annuities.
What is the difference between conventional & flexible annuities regarding decreasing income?
Conventional: limited ability to decrease.
Flexible: can decrease by greater amount.
Scheme pension does not trigger the MPAA rules unless the scheme pension is paid directly from the funds of what?
A DC pension with less than 11 other members (including dependants) receiving a schemepension.
Guarantee periods for:
- scheme pensions
- lifetime annuities
- max 10 years
- no time limits
