Analysing the client’s financial situation – Retirement provision Flashcards
Outline the factors that Joshua and Amina should consider when deciding whether to increase their monthly pension contributions to their workplace schemes. (16 points)
- Affordability/expenditure.
- Liquidity/accessibility/normal minimum pension age due to increase to 57, likely to increase further.
- Views on pensions.
- Provision vs target amount.
- Annual allowance/contribution history.
- ATR/CFL.
- Availability of further matched contributions.
- Pound-cost averaging.
- Changes to tax rules/legislation.
- Priority vs other objectives/insurance cover.
- Child Benefit tax charge.
- State Pension entitlement
- Tax relief on contributions/40% for Joshua & Amina.
- Tax free income growth/IHT free/25% PCLS.
- Flexible death benefits/tax free before age 75.
- Low cost/ease of admin.
Explain the factors Joshua and Amina’s adviser should consider when evaluating whether the current investment holdings within their ISAs and pensions are suitable for their needs. (11 points)
- Significant UK weighting/limited diversification.
- ESG focus may limit investment opportunities.
- Andrea’s views on ESG investing/specific areas of concern/do existing funds align.
- Her understanding of ethical investing such as positive and negative criteria, ESG factors.
- Equity investments are appropriate given time horizon.
- Charges/platform.
- Performance/versus benchmark.
- ATR/CFL.
- Target date/intended retirement date.
- Fund switches/alternative fund options.
- Legislation/economic/market conditions.
Outline the strengths and weaknesses in Joshua and Amina’s current investment and pension provision and whether they are likely to be suitable to meet their retirement needs. (11 points)
- Limited pension provision.
- They have a long time horizon to make contributions.
- Good/suitable level of emergency funds.
- Good level of ISA savings/scope to use future allowances.
- Scope to make further pension contributions/Joshua’s contributions are minimal.
- Contribution method is not tax efficient/consider further company contributions.
- Amina is an ESG investor/may limit investment opportunities.
- May also have higher charges/more volatility/potentially lower growth.
- Heavy exposure to UK/country weighting.
- Equity weighting appears appropriate for time horizon.
- Need to know asset/sector allocation for some holdings.
State the key risks associated with the investment in Amina’s UK ethical equity fund. (6 points)
- Concentration risk/weighted towards UK.
- Political/government/economic risk.
- Limited scope for diversification with ESG.
- Market risk/systemic risk/capital loss/volatility.
- Regulatory/legislative risk.
- Event/non-systematic/environmental/operational risk.
Explain to Amina the screening processes that can be used by ethical fund managers and give the reasons why a fund manager may choose not to invest in a particular company. (11 points)
- Positive screening.
o Companies that meet set criteria/ethical standards/values. - Negative screening.
o Avoids companies which breach criteria/ethical standards/do not align with values. - Poor corporate governance.
o Unethical business practices/tax practices/excessive remuneration. - Does not meet screening criteria.
o Poor employee welfare standards.
o Tobacco/alcohol/gambling/arms/.
o Pollution/nuclear power/oil.
o Animal testing.
Explain to Amina the potential advantages of ESG investment. (6 points)
- Holdings can be aligned with personal values.
- Positive impact on society.
- Strong corporate governance.
- Lower legal and reputational risk/positive brand image.
- Some evidence of better potential long-term returns.
- Greater transparency and accountability in dealings.
Describe the issues that an adviser will need to consider when formulating a sustainable and responsible investment strategy for Amina. (14 points)
- Strength of her beliefs/motivation/shades of green.
- Positive/negative screening.
- ESG factors.
- Range of funds/restricted fund choice/less diversification.
- Lack of standardisation in assessing ESG status.
- Companies not required to disclose all information relating to sustainability practices/ can make comparison difficult.
- Higher costs due to additional research.
- Potential for greenwashing.
- Fund performance/increased volatility.
- Reputation of fund manager/expertise.
- ATR/CFL.
- Tax wrappers/Investment wrappers.
- Ethical banking.
- Timescales/objectives.
State the key factors that a financial adviser should take into consideration before recommending a fund switch within Joshua and Amina’s workplace pensions. (9 points)
- Fund choices available/ethical options.
- Actual return/benchmark/against other funds.
- Ongoing charges.
- Cost of switches.
- ATR/CFL
- Inflation.
- Intended retirement date.
- Liquidity/market conditions.
- Vesting intentions.