10 Pensions Flashcards
What are two different types of pension schemes?
Occupational and personal
What are the two different types of occupational pension scheme?
Defined benefit scheme and money purchase scheme
What is a defined benefit scheme?
The benefits obtained on retirement are linked to the level of earnings of the employee.
What is a money purchase scheme (or ‘defined contribution’ scheme)?
The benefits obtained depend upon the performance of the investments held by the pension fund.
Who may personal pension scheme contributions may be made by?
Individual and any third party i.e. employer, spouse, parent ect
When is pension tax relief available?
When the scheme is a registered scheme and the individual is a UK resident under 75 years old
What is the tax relief maximum annual amount?
Higher of £3,600 or 100% of the individuals relevant earnings
What is tax relief available on?
Lower of gross pension contributions and maximum annual amount
What does relevant earnings include?
Taxable trading profits, employment income and profits from furnished holiday lettings but not investment income.
What can an individual with no relevant earnings claim up to?
£3,600 PA
When does an employer deduct pension contributions for an occupational pension scheme?
Before tax
What are payments made into a pension scheme made by employers?
- Tax deductible
- Exempt employment benefit for the employee
- Added to the pension contributions paid by the employee to reach the annual maxiumum
How is the deduction recorded in the employers profit and loss?
Add back any amount charged and deduct the amount paid. This is recorded the amount paid.
What is the annual allowance?
£40,000 for the last three years
What can you do with the annual allowance?
Bring forward unused allowance
What years was the annual allowance £40,000?
1415, 1516, 1617
What years was the annual allowance £40,000?
1314
How is the annual allowance calculated in relation to more than one year?
FIFO
How is the tax charge calculated when the annual allowance is exceeded?
The tax charge is calculated as if the excess is the individual’s top slice of income (i.e. taxed last after all sources of income, including dividends) at non-savings rates.
How is the annual allowance tax charge taken?
Through self-assessment or through the pension scheme
How is the annual allowance reduced for high-income individuals?
Adjusted income - £150,000 x 50%
What is the limit to which annual allowance can be reduced to?
Only can be reduced to is £10,000
Under what circumstances do you reduce the annual allowance?
The restriction applies to individuals with ‘adjusted income’ exceeding £150,000.
How is the adjusted income calculated for the reduction in annual allowance?
Net income + Occupational pension scheme contributions for employee and any scheme employer contributions
What is the lifetime allowance?
£1 million 2016/17
What is the minimum age for accessing your pension fund?
55
In a money purchase scheme how much can an individual take tax free?
25%
When does lifetime allowance apply?
When the individual becomes entitled to take benefits out the scheme
When does the tax charge on the lifetime allowance apply?
If the value of the pension fund at that time exceeds the lifetime allowance a tax charge applies
