5 - Defined Contributions Flashcards
Appropriate pension plan
Contacting our portion of personal pension building up rights known as ‘protected rights in both contracted our occupational or individual DC scheme’. But these no longer exist
Trust or contract based?
- Occupational DC scheme
- Individual DC scheme
Occupational - trust based
Individual - Contract based
Differences between trust based and contract based scheme
Trust:
- tax relief at net pay
- short service refund if less than 31 days
- protected by trustees and trust deeds
Contract:
- tax relief at source
- refund not available
- protected by law and provider
Master trust
Multi-employer scheme where each employer has its own section. Helping employers avoid cost of running own scheme.
Regulated by TPR
Must have 1 board & 1 legal trust
What must a master trust do otherwise they are wound up?
Be authorised by the TPR or they are wound up
Types of DC scheme:
- Contracted-in money purchase scheme (3)
- Scheme established by employer who sets the rules and employer contributions will be made usually atleast once a year
- Able to take all options for withdrawal when reach pension age
Tax:
- can use net pay relief or at source method
- employer makes contributions gross and claims corporation tax relief
Types of DC scheme:
- Contracted out money purchase scheme (2)
No longer a single scheme but benefits are ‘protected rights’ meaning:
- Funds cannot be used for additional PCLS
- Minimum escalation levels built into any income
- A 50% pension provided to beneficiary on death
Since abolition all funds have converted to ‘ordinary rights’ scheme for DC but remain the same for DB scheme
Types of DC scheme:
- Executive pension plan (1)
Typically used for higher earners historically as they had better tax free cash benefits but now subject to the same tax regime
Types of DC scheme:
- Small self administered scheme (3)
All members of the scheme are a trustee and can have influence and make investment decisions but all decisions made must be unanimous
Has special features:
- Range of permitted investments such as shares in sponsoring employer, upto 5% of fund value in one sponsoring employer & upto 20% limit on all shares invested into sponsoring employer
- ability to borrow money upto 50% of scheme value
- ability to borrow money to a sponsoring employer upto 50% of net asset value, max. 5yrs, secured 1st charge and interest due
Trustee must workout what is paid to member beneficiaries on death
Types of DC scheme:
- Targeted money purchase scheme
Combines DC and DB scheme.
- Build DC sum but benefit target set in line with DB principles and paid as final salary when retire
- Regularly reviewed to ensure meeting target but if target not met then will be topped up by employer
- Usual tax rules apply
Types of DC scheme:
- Section 32 policy
Purpose is to accept a transfer from a contracted out DB scheme with an element of GMP in the CETV
- maintain guarantees of having GMP
- Cannot be worse off than if stayed in DB scheme
- 50% dependent pension provided if member dies
Types of individual DC schemes:
- Retired annuity contract
No longer in use and old rules have been abolished so now tested as normal DC scheme. Unique features are:
- pension paid gross and tax paid via self assessment
- can get a guaranteed annuity rate from when took out pension policy
Types of individual DC schemes:
- Personal pension plan
Were used as a way of opting out of earnings related state pensions
Have a wide range of investment options but high costs
Types of individual DC schemes:
- Stakeholder pension plan
Brought out by gov. and aimed at those with a lower income as is a low cost plan but has fewer investment options
Simplified advice process - Those giving advice on SPP use a decision tree and do not use a fact find
Usual tax rules
50% dependent benefit if member dies
Previously had no minimum requirement for employer contributions - some employers would therefore not contribute
Stakeholder shells
Employers that did not contribute to stakeholder pension for employees (has been fixed so now a min.)
