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R04 - Pensions > 7 - Secure pension options > Flashcards

7 - Secure pension options Flashcards

1
Q

What is the max PCLS that an individual can have

A

£268,275

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2
Q

What is small ports payments
How many can an individual take?

A

10k or less
max 3 from non-occupational pension schemes
Unlimited from occupational pension shemes

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3
Q

Can a small pots payment be paid from crystallised funds?

A

Yes and also uncrystallised

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4
Q

Does a member need to have any lifetime allowance to take out a small pot payment?

A

No

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5
Q

What is trivial commutation lump sum

What are some conditions so it can be paid out

A

Respect to DB scheme or “in payment money purchase in house scheme pension”

Member has not been paid a trivial commutation lump sum previously
value does not exceed commutation limit of £30k
lump sum is paid when member has lifetime allowance

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6
Q

When is the nominated date

A

Date chosen by member which pension benefits are valued

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7
Q

What benefits are valued in nominated date

A

All pension rights that have been previously crystallised and assessable against lifetime allowance
Any benefits that are uncrystallised

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8
Q

Are any benefits before 06/04/2006 calculated in nominated date?

A

No

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9
Q

How long is the commutation period for trivial commutation lump sum

A

12 month commutation period, from when first commutation period payment is made. Can start no earlier than nominated date and no longer than 3 months after nominated date.

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10
Q

How many commutation period can an individual have

A

1

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11
Q

What are the two occasions when a trivial commutation lump sum death benefit can be paid

A

A survivor commutes a survivor pension
A member dies within the guarantee period of a pension they are receiving and the recipient of guarantee wishes to commute the remaining payments

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12
Q

Is the max commutation 30k per scheme or all scheme

A

Per scheme

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13
Q

What is commutation of a pension

A

giving up part or all of the pension payable from retirement in exchange for an immediate lump sum.

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14
Q

What is some conditions to commute a survivor pension

2

A

Pension being commuted must be paid to dependent/nominee
The payment made must extinguish the survivor entitlement to both pension amd lump-sum death benefits under the scheme

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15
Q

How do they value previously crystallised benefits

A

Before 05/04/06 - Annual income received x 25 (ignore tax-free cash taken with pension)
After 06/04/06 - Value of BCE in moentary terms (any associated pcls MUST BE TAKEN INTO ACCOUNT)

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16
Q

How do they value uncrystallised benefits

A

DC: Value of fund
DB: Annual pension entitlement at nominated date x 20, plus any PCLS paid in addition to pension

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17
Q

What are the two ways a scheme pension can be paid

A

From scheme assets
Insurance company by scheme admin

(Both for DB scheme or occupational DC scheme)

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18
Q

What are some benefits for a scheme paying pension directly from assets

A

No immediate flow of capital (monthly costs)
Funds remain invested
Scheme has option to secure income at later date to insurer (annuity)
if member dies sooner, scheme retains unused funds for benefit of members

Drawbacks:
Payments must be made
depedentes may live longer than expected

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19
Q

What is a scheme pension

A

A pension entitlement provided to a member of a registered pension scheme, the entitlement to which is an absolute entitlement to a lifetime pension

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20
Q

If the scheme pension is secured through insurance company what is the difference if the policy is in name of member/trutees

A

Member: Pensions payment generally pass directly from insurer to member
Trustees: Pension payments likely to be arranged to go from insurer to scheme -> to member

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21
Q

T/F: A scheme pension is the only way in which a defined benefit scheme can pay benefits on retirement

A

True
Otherwise they must tansfer benefit out of scheme before retirement (drawdown/lifetime annuity)

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22
Q

How is scheme pension taxed

A

Pension income under PAYE

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23
Q

What are the HMRC requirements to qualify as a scheme pension

A

Paid for life of member
Paid at least annualy
incapable of being reduced year on year
paid by scheme admin or insurance company chosen by scheme admin

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24
Q

How many circumstances does HMRC have to reduce annual payments on scheme pension
list 6

A

9
paid on ill health
reduction is to all scheme pension
briding pension - reduced at SPA
Reduced whilst scheme is being wound up
Pension sharing order
court order

25
What are the conditions for a lump sum to be treated as a PCLS in a scheme pension
Enitltment must be linked to scheme pension entitlement, must be paid no earlier than 6 months before an no later than 12 months after the date member becomes entitled to scheme pension
26
What must a scheme admin of a DC purchase scheme pension what must they offer member first
Choice of lifetime annuity
27
How many ways a scheme pension can provide benefit following death of a member
3 A dependent scheme pension A guarantee period A lump-sum benefit
28
How do DB/DC schemes differ in a dependent scheme pension when giving money
DB - Dependent has no choice about format of income DC - Scheme admin must give dependent choice between annuity/scheme pension - they can have option of flex-acess drawdown
29
What is the difference between scheme pension payable to member and a dependent scheme pension
Does not have to be paid for life of dependent - surviving spouse - cease if spouse remarries - child reduces age of indepdence from ages 23 - 18/21 - Does not have to be paid annually
30
What is the limit of money that a dependent receives if member dies before 75
no limit paid as dependent scheme pension
31
What is a guarantee period in relation to scheme pension
generally no more than 10 years regardless of member death it will continue to pay
32
What are HRMC conditions to cease payments
Get married Reaches age of 18 ceases to be in full-time education
33
What are the options payable in lump-sum death benefits
3 Defined Benefit lump sum: Only payable from DB scheme Pension protection lump sum: Only payable from scheme pension from a DB scheme Annuity protection lump sum: Only payable from a scheme pension that arises from DC scheme
34
Can a lump sum be a defined benefit lump sum if it meets payment condition to be a pension protection lump-sum death benefit or a trivial commutation lump sum death benefit?
No
35
What is a pension protection lump sum death benefit
A DB scheme -> guarantees a certain amount of pension will be provided. The amount paid = guaranteed amount - scheme pension paid to member
36
Compare Defined benefit lump-sum death benefit and a pension protection lump-sum benefit
Defined benefit lump sum death benefit: Can be paid in respect of crystallised and uncrystallised funds No upper limit to payment It is a BCE 7 if member dies before 75 and benefits paid in 2 year window. Amounts paid excess in member available lifetime allowance taxed as recipeient pension income after 75 - no BCE or payment made outside window Pension protection lump sum death benefit: Can only be paid from crystallised funds Maximum payment permitted is crystallised amount of scheme pension for lifetime allowance purposes less amount of scheme pension paid to member Not a BCE, not tested against member lifetime allowance
37
Annuity proteciton lump sum
DC scheme Can be paid whatever age member is when they dead Calculation Amount of scheme pension or annuity which crystallised for lifetime allowance purposes less Gross amount of scheme pension/annuity which been paid to member Not a BCE No time limit
38
What is a lifetime annuity
Can only be bought using DC funds. Funds can be uncrystallisd or previously crystallised held in capped drawdown/flexi access
39
What is the factor to determine the amount of income for lifetime annuity
Size of fund used to buy annuity Annuity rates - members age - Options selected (guarantee period, survivors pension/ amount of income increase in payment)
40
What is a flexible lifetime annuity
A lifetime annuity set up on or after 06/04/2015 - allows income paid from annutiy to fall by more than prescribed amount
41
What is conventional lifetime annuity
A lifetime annuity set up on or after 06/04/2015 - DOES NOT allow income paid from annutiy to fall by more than prescribed amount
42
What are HMRC requirements for lifetime annuity contract purchased on or after 06/04/2015
Annuity purvhased from insurance company Annutiy must be payable for members life Nothing stopping income paid from lifetime annuity reducing by more than amount prescribed by HMRC
43
What are the three ways a insurance comapny can set a lifetime annuity
1. Level income or rising by fixed amount 2. An income that varies using any methods 1-5 (indexation, with profits, indexation/withprofits, slected rate of growth, flexible withdrawls) 3. An income that decreases by any method set out in contract
44
How can a lifetime annuity fluctuate in payment
1. Indexation - RPI, market value of freely marketable assets (change in income cannot exceed change in index) 2. With profits variation - annuity invested in insurance company with profit fund 3. Combo of 1/2 4. Variation of 1/3 but member annuity starting level assumed annual level of growth between 0-5% 5. Flexible withdrawls (must review at least once in every 5 years)
45
What two methods are conventional lifetime annuity and which method is flexible?
Indexation, with profits - conventional indexation/with profit (flexible)
46
What happens when a PCLS is taken to the remainder of the balance
The member can choose how to set up income - frequency, proteciton , survivor pension income UNLIKE DB scheme (scheme pension)
47
How is the income paid from annuity taxed
Member pension income via PAYE
48
What are the 3 ways a lifetime annuity can provide a benefit following death of a member
Survivor annuity a percentage of member income Guarantee period Annuity protection
49
What is survivor annuity - HMRC child not a child who must it be paid by
Must be paid to by an insurance company Child (earlier of) - Child ceasing to be dependent - Dying - Marrying.entering a civil partnership not a child - survivor death - Re-marriage/entry into civil partnership
50
Guarantee peiord - two exceptions comapred to scheme pension
Length of guarantee period Taxation of income payments received under guarantee
51
How is survivor annuity taxed
pre 75: tax free after 75: taxed under paye - pension income
52
What is the guarantee period for lifetime annuity
limitless after 06/04/2015
53
Can a pre 06/04/2015 lifetime annuity transfer to a flexible lifetime annuity
no only a conventional lifetime annuity contract
54
What are the two main factors affecting annuity rates
Long term bond yields Longevity expectations
55
What are the most common investment linked annuties
With profits Unit-linked
56
How do with profit annuities work?
Retruns on with-profit funds are paid as bonuses
57
How do unit-linked annuties work
Annuity income varies on return of life office unit-linked funds
58
Compare Scheme pension and lifetime annuity Income PCLS MPAA Lifetime Allowance Death benefit options - guarantee Death benefits option - continuing income Death benefit option - lump sum
**Scheme pension:** **Income:** Level of income set at outset, can only decrease in limted circumstances as HMRC Taxed via PAYE **PCLS:** DB scheme will determine level of PCLS taken DC scheme max 25% **MPAA **not trigger if paid directly funds of DC pension with less than 11 other members receiving scheme pension Income is assessed using BCE 2 PCLS is assessed using BCE 6 **Guarantee period** - no more than 10 years, continuing income under guarantee taxed as survivor pension income via paye **Continuing income** - only available to those qualifying as dependents taxed as dependent pension income via paye **Lump sum - ** DB: Defined benefit lump sum or pension protection lump sum DC: Annuity proteciton lump sum **Lifetime Annuity:** **Income** - Level of income at outset. Conventional lifetime annuity limited ability to decrease Flexible lifetime annuity can decrease **PCLS** - member can decide how much PCLS - 25% **MPAA** - Taking income from conventional no MPAA, Receiving income from flexible YES MPAA **Lifetime allowance** - Income assessed using BCE 4 PCLS assessed using BCE 6 **Guarantee period** - Guarantee period no time limit imposed pre 75 - tax free post 75 taxed as survivor pension income via paye **Continuing income** - Available to any nominated survivor - pre75 tax free post 75 taxed survivor pension **lump sum** - Only annuity protection lump sum pre75 - tax free no lifetime allowance test post 75 - taxed as pension income Paye - paying to individual

R04 - Pensions (10 decks)

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