4. Personal Pensions Flashcards
What are the criteria for stakeholder pensions? (4)
- Max charge
- Min cont
- Default option
Max charge 1.5% for first 10yrs then 1%
Min cont cannot be higher than £20
Must offer lifestyling investment as default
Must accept transfers in
Described phased retirement (3)
Arranging multiple mini policies (segments)
Premiums, funds & charges spread evenly
Policyholder takes x segments at a time
Key features with-profits DC scheme (4)
Excess investment returns added to policy as bonus or retained
Bonuses smoothed out to reduce volatility
Market value reduction may apply if benefits taken earlier than stated
Terminal bonus may apply when benefits taken
Key features unit-linked DC schemes:
- Bid/Offer spread
- Allocation rate
- Initial/Capital units
Bid/Offer spread of 5% on each fund
Allocation rate = % of premiums not invested, to cover costs
Allocated to early premiums which carry higher AMC
In what 2 scenarios can benefits be taken earlier than pension age?
Special occupation scheme e.g footballers:
- had to be member by 2006
- LTA reduced by 2.5% per yr below 55 when benefits taken
Incapable of working due to ill health
Joint-life annuity key features (3)
Pays until second death
Lower income than single life
Surviving partner paid 50-100% of initial income
Key feature annuity protection
Tax treatment
Outstanding balance paid as lump sum to beneficiary
If death <75yo, tax-free. If >75yo then tax charge @ marginal
Calculation of new base rate for with-profits annuity
Initial/previous base / (1+ABR) = current base
Current base x (1 + new bonus) = new base
Temporary bonus added but does not affect new base
i.e discount by ABR then uplift/decrease by actual bonus
Key features flexi-access drawdown (4)
Triggers MPAA
Invested in drawdown fund after PCLS taken
Income / lump sums then withdrawn (taxable)
No limits to withdrawals
Key features flexible drawdown (3)
- min income req
Converted to flexi-access in 2015
No limits to withdrawals
Min income req £20k
Key features capped drawdown:
- withdrawal limit
- consequences of breaching
No longer available but pre-2015 continue
Withdrawal limited to 150% of comparable annuity
Retain annual allowance for DC schemes
If 150% cap exceeded, switches to flex-access and MPAA triggered
What are trigger events for MPAA? (5)
Enter flexi-access & withdrawals > PCLS
Take uncrystallised funds pension lump sum (UCFPLS)
Take flexible annuity with ability to reduce rates
Entitled to pension scheme with <12 members
Has primary protection & receive lump sum
Key features short-term annuity (4)
Income paid by insurance co.
Max 5yrs
If purchased from flexi-access, income unlimited
If purchased from capped, income limited to 150% comparable annuity
Key features uncrystallised funds pension lump sum (UFPLS) (4)
Lump sum from uncrystallised DC fund
Triggers MPAA
25% each withdrawal is tax free
Excess over LTA taxable @ marginal if <75yo
Tax treatment of DC death benefits:
Uncrystallised lump sum
Crystallised lump sum
Income
Death <75yo and >75yo
Uncrystallised LS:
<75; tax-free up to deceased’s LTA
>75; taxed @ beneficiary marginal
Crytsallised LS:
<75; tax-free if in draw-down or protected annuity
>75; taxed @ beneficiary marginal
Income
<75; tax-free if via drawdown or joint-life/guaranteed annuity
>75; taxed @ beneficiary marginal
