6. Other Issues

Question 1

What 3 options to early leavers of DB schemes have?

Answer 1

If <2yr service, conts refunded without interest
- less 20% tax on first £20k then 50% on rest

If >3m service, preserved; left in scheme and taken at retirement age (revalued)

If >3m service, transfer to new scheme; retain value of benefits incl conts & tax relief

Question 2

By when must written statement of rights be issued to a DB scheme leaver?

Answer 2

2 months

Question 3

In what 3 ways could a pension transferred-in be reflected?

Answer 3

Buys years of service
Buys guaranteed benefits
Transferred into separate DC pot

Question 4

What is a section 32 buyout plan? (3)

Answer 4

When pension scheme winds up
Trustees transfer fund to s32 provider
No longer used post-2006

Question 5

What is required when transferring out a DB scheme (1994-2018) (2)

Answer 5

Transfer value analysis
Rate of growth req in new scheme to match original benefits
- critical yield

Question 6

What is required when transferring out a DB scheme (post-2018)

Answer 6

Appropriate pension transfer analysis
Transfer value comparator

Question 7

Over what threshold of a DB transfer out must the trustees see evidence of independent advice?

Answer 7

> £30k

Question 8

Key features trivial commutation (5)

Answer 8

If total pension <£30k
Whole lot can be taken as lump sum at retirement age
25% tax-free, remainder @ marginal
Can be taken from DB scheme or in-payment DC scheme
Does not trigger MPAA

Question 9

Key features small pots (4)

Answer 9

If any fund <£10k
Can take up to 3 personal pensions and ultd occupational
25% tax-free, remainder @ marginal
Does not trigger MPAA

Question 10

Key features auto-enrolment
- introduction
- min conts
- opted out

Answer 10

Phased in 2012-2019
Min overall cont 8% with min 3% from Er
- can include tax relief in the 8%
Opted-out Ees are auto-enrolled every 3yrs

Question 11

What are the charges for using NEST? (2)

Answer 11

1.8% cont charge
0.3% p.a charge

Question 12

Who enforces auto-enrollment and what penalties can be imposted?

Answer 12

Pensions Regulator
Fixed penalty notice up to £50k + £10k daily

Question 13

When can a Cash ISA include unit trusts & OEICs?

Answer 13

If near-certain that investor can withdraw >95% at any time in first 5yrs

Question 14

Does FSCS cover Innovative Finance ISA?

Answer 14

No

Question 15

Key features endowments (2)

Answer 15

Regular premium
Fixed maturity date & amount

Question 16

Key features investment bonds

Answer 16

One-off premium
Whole-of-life
Non-qualifying so gains taxable
Cumulative 5% p.a deferred tax

Question 17

What investments are free from CGT? (2)

Answer 17

Gilts
Qualifying corp bonds

Question 18

Describe the 2 methods of equity release:
Lifetime mortgage
Home reversion plan

Answer 18

Lifetime mortgage
- interest-only
- rolled & paid at sale/death
- 20-50% LTV depending on age
- no negative equity guarantee

Home reversion plan
- for >70yo
- sell home to provider
- 50-60% of market value
- guaranteed lifetime leaseback
- can do partial reversion eg sell 50%

Question 19

How do you measure correlation (3)

Answer 19

-1; perfect negative
0; no correlation
+1; perfect positive