10 - Indirect Investments (A & B)

Question 1

Which type of products can you “wrap” with a tax wrapper?

Answer 1

Pension and ISA

Question 2

How do you know if a pension scheme is registered?

Answer 2

It will have a PTSR

Question 3

Although registered pension schemes benefit most people, what are the 2 main disadvantages?

Answer 3

1. Restriction on investment input
2. Restriction on access

Question 4

How much can the employed/self-employed currently invest into a registered pension scheme per year and to what age?

Answer 4

£60,000 annual allowance or;
Current qualifying earnings 100%.
Max. age 75.

Question 5

How much can the unemployed invest into a registered pension scheme each year, to still gain basic tax relief?

Answer 5

£3,600

Question 6

What happens to your annual allowance if you flexibly access your pension benefits from age 55?

Answer 6

Annual allowance is removed and replaced with money purchase annual allowance (MPAA)

Question 7

What is the current MPAA amount?

Answer 7

£10,000

Question 8

What is the purpose of the MPAA?

Answer 8

Created to stop people from trying to avoid tax on current earnings or gain tax relief twice, by withdrawing pension savings and then paying them straight back in again.

Question 9

How does the tapered annual allowance (TPAA) for pensions work and who does it apply to?

Answer 9

For qualifying earnings £260,000 +, the £60,000 is reduced by £1 for every £2 over £260,000, to a minimum of £10,000.

Question 10

What is the TPAA formula?

Answer 10

(Annual Allowance – ((Earnings - £260,000) / 2)

Question 11

What is the tapered annual allowance for someone with earnings of £360,000?

Answer 11

£10,000

Question 12

MPAA affects one one type of pension, which is?

Answer 12

Money purchase (DC)

Question 13

Triggering MPAA can be avoided when accessing your pension, in which 3 ways?

Answer 13

1. Cashing in small pots
2. PCLS
3. Annuity

Question 14

How does the small pots exemption work?

Answer 14

Cash in up to three small pots of up to £10,000 each, without affecting annual allowance

Question 15

How much unused annual allowance can you carry forward?

Answer 15

Previous 3 tax years but only at that tax years rate (for example, £40,000 AA 2022/23 tax year)

Question 16

If you have carry forward available, why might you not be able to use it?

Answer 16

Triggered MPAA

Question 17

What was the lifetime allowance and why was it abolished?

Answer 17

£1,073,100
To encourage 50-64 year olds back to work, to increase employment in the labour market

Question 18

What’s the largest PCLS you can take?

Answer 18

£268,275 (25% x old lifetime allowance), unless protected

Question 19

At what age can you take benefits from your pension?

Answer 19

55 today, 57 in 2028

Question 20

Tax-free benefits are available on pensions where the owner died under which age, and under what conditions?

Answer 20

75, if taken out within 2 years or arranged to be taken via drawdown

Question 21

What are the 3 ways in which you can access your pension?

Answer 21

1. PCLS
2. UFPLS
3. Annuity

Question 22

What is capped drawdown and who reviews the caps, and how often?

Answer 22

Where your annual withdrawal limit is capped, amount reviewed by GAD every 3 years.

GAD is the Government Actuarial Department

Question 23

What are the 3 main benefits of converting from capped to flexi-access drawdown?

Answer 23

1. No capped limit
2. No need to pay for GAD reviews
3. No charges for taking one off payments

Question 24

Once switched from capped to flexi-access drawdown, can it be switched back?

Answer 24

No

Question 25

Borrowing to fund property purchase or any other investment cannot exceed how much of the net value of the fund?

Answer 25

50%