8 - Aims Of Retirement Planning

Question 1

What is the main document used in advice process?

Answer 1

Fact find

Question 2

The younger the client and further away from retirement means what?

Answer 2

Harder it is to accurately predict income requirements post pension age

Question 3

Factors to consider when reach retirement age regarding expenses (2)

Answer 3

What expenses will increase and what expenses will reduce

Question 4

Difference between attitude to risk and capacity for loss

Answer 4

ATR - Extent client will accept risk for possible higher rewards

CFL - effect of losses on standard of living for client

Question 5

Smaller RPS when compared to overall wealth means they are more likely to take more or less risks with pension investments?

Answer 5

More

Question 6

Cash flow modelling

Answer 6

Assessing clients current and forecasted wealth along with their income and expenditure to get an overall picture of their current and future finances to help with the recommendation

Question 7

Stress testing

Answer 7

Used in conjunction with cash flow modelling. Demonstrates effect of various factors on income e.g. market crash or living to be very old, etc.

Question 8

Pound costing average

Answer 8

Regularly purchase units at different prices to reduce effect of market volatility

Question 9

Safe withdrawal rate

Answer 9

Using 30yr retirement, this is the rate a client can withdraw their pension and ensure it lasts their life time

Question 10

Equities

Answer 10

Shares in a company

Question 11

With profits fund

Answer 11

Give annual bonuses based upon profits throughout the year

Question 12

Smoothing within a with-profits fund

Answer 12

Holding back profits in very good year and save for a bad year to help even out bonus payments

Question 13

Which operate to their NAV out of OEIC & Unit trust?

Answer 13

Both

Question 14

Investment trust

Answer 14

A milk red company that invests in funds diversely

Question 15

Life style pension funds

Answer 15

Pension that is pre-programmed to switch to lower risk investments 5 or 10yrs before retirement to around 75% GILTS & 25% cash

Question 16

Target date pension fund

Answer 16

Aims for a set retirement age and starts with higher risk investments then when approaching retirement age switches to lower risk such as fixed interest securities and cash

Question 17

Difference between a SIPP and a small self administered scheme

Answer 17

SIPP - cannot lend

SSAS - can lend (upto 50% of net assets)

• Both can lend for commercial purposes and both limited to 50% of net assets

Question 18

Restriction of a SSAS?

Answer 18

No more than 5% can be invested into one sponsoring employer

Question 19

EIS & SITR, SEIS, VCT

Answer 19

IT:
EIS & SITR
- 30%
- £1m/£2m
- 3yr min. holding period for relief
- Carry back contributions allowed
- Further income and div. fully taxable

SEIS
- 50%
- £100k
- 3yr min. holding period for relief
- Carry back contributions allowed
- Further income and div. fully taxable

VCT
- 30%
- £200k
- 5yr min. holding period for relief
- Carry back contributions NOT allowed
- Further income and div. are not taxed

CGT

EIS & SITR
- Exempt on disposal
- 3yr min. holding period
- Ability to offset losses - Yes
- Re-Investment relief - Yes
- CGT - Deferred until sale

SEIS

• Exempt on disposal
• 3yr min. holding period
• Ability to offset losses - Yes
• Re-Investment relief - Yes
• CGT - 50% exempt, 50% subject to CGT

VCT

• Exempt on disposal
• No min. holding period
• Ability to offset losses - No
• Re-Investment relief - No
• CGT - Exempt immediately

IHT

EIS & SITR
- Only not subject to IHT if written in trust

SEIS
- Only not subject to IHT if written in trust

VCT
- None