Brand set 1 Flashcards
Which of the following count as “pensionable remuneration as employee earnings” for DB accrual and DC Annual Allowance calculations:
Basic Salary
Bonuses
Dividends
Basic salary and Bonuses count
Dividends do not count
How does a self-employed individual obtain higher rate tax relief on a contribution to a personal pension?
Reducing the income tax paid
on their balancing payment
Self-employed pay 3 instalments of tax. 31st Jan and 31st of July pay 50% each of the previous tax year’s Income Tax liability. Following this a balancing payment is made on the following Jan 31st to account for things such as the above.
If the benefits of a £60k p.a. DB pension fully commences in 2022/23, what is the calculation for LTA purposes?
(£1,200,000 - £1,073,000) * 0.55
2022/23 is post A-Day so the “valuation factor” is 20:1. Therefore it’s 20 times the annual salary. All excess after LTA is charged at 55%.
What is the Pre-A-Day valuation factor?
25:1
If doing another LTA test Post-A-Day then the 25:1 valuation factor remains for all pensions which started paying Pre-A-Day
What date is A-Day?
6th April 2006
How is your LTA reduction calculated for early retirement?
For every year below 55 your LTA is reduced by 2.5%.
What is the tax on the spousal death benefit in the following scenario?
- Pension member died younger than 75 y/o
- Claimed within 2 years
- Taken as lump sum
Income tax free
LTA test
What is the tax on the spousal death benefit in the following scenario?
- Uncrystallised DC pension
- Member died older than 75 y/o
- Claimed within 2 years
- Taken as lump sum
(2)
Full sum taxable at marginal rate
No LTA test
What do annuity rates reliably follow?
Gilt yields (positively correlated)
What is the accrual rate on all DB schemes?
[Trick question] - It is always determined by the scheme’s rules. A common one is:
[3/80] x [salary] x [years of service]
What is a successor?
It is the nominee of a nominee of a DC pension scheme
[With regards to DC death benefits] What is the criteria for a “dependant”?
Any one of the following:
1. Spouse at time of death
2. Child under 23
3. Child who is disabled (determined by scheme administrator)
4. None of the above but scheme administrator still thinks they were financially dependant
What is a Retirement Annuity Contract most similar to?
Personal Pension Plan
What does SSAS stand for? What is it most similar to?
“Small Self-Administered Scheme”
Very similar to a SIPP but even wider range of investments available
What are the key differences between a SIPP (2) and a SSAS (5)?
SIPP is
set up by an individual for themselves
and is contract based.
SSAS is
set up by “the company”
as a group pension
under trust
for the directors and senior members of staff.
Can accommodate additional benefits
DB Scheme member dies age 68 in receipt of benefits. Scheme continues to pay out to spouse.
What is the name of the benefit received by the spouse?
How is it taxed?
“Dependant’s Scheme Pension”
Paid as income
Taxed as their pension income under PAYE
You could think of it as not really changing at all: still income still taxed at marginal rate
What is the difference between a DB Pension and a Scheme Pension?
Scheme pension provides an income in retirement
DB’s are a type of scheme pension which guarantees the amount whilst saving
All DB’s are schemes but not all schemes are DBs
What is the Cii definition of a Scheme Pension?
A pension wherein the administrator uses the balance of the fund
to secure an income for life for the member.
Who’s LTA does a pension term assurance benefit get tested against?
The member
(As a posed to the beneficiaries’ LTAs)
DC Pension member
(under 75) dies
with uncrystallised pot of £1,500,000.
Benefits are paid to dependant as an annuity within 2 years of death.
What is the tax?
25% charge on funds over LTA
Income taxed at marginal rate
Annuities paid to dependant with 2 year conditions satisfied are subject to a 25% tax charge of funds in excess of the LTA.
The annuity payments are then charged at marginal rate.
Who’s LTA does a pension term assurance benefit get tested against?
The member
(As a posed to the beneficiaries’ LTAs)
DC Pension member (under 75) dies with uncrystallised pot of £1,500,000. Benefits are paid to beneficiary as a lump sum within 2 years of death.
What is the tax?
Income tax free
LTA test - 55% on excess over LTA
DC Pension member (under 75) dies with uncrystallised pot of £1,500,000. Benefits are paid as a lump sum to a trust within 2 years of death.
What is the tax?
Trustees pay 45% of the fund’s value in excess of the member’s remaining LTA
Between Fixed & Individual Protection, which protects you in the event that your pension fund falls in value?
Why?
Individual protection
Because you are able to contribute funds to bring the value back up again
Who’s LTA does a pension term assurance benefit get tested against?
The member
(As a posed to the beneficiaries’ LTAs)
Between Fixed & Individual Protection, which protects you in the event that your pension fund rises in value?
Why?
Fixed Protection
Because the LTA was not set at your fund value but at the previous LTA amount so there is still room for growth.
What is the minimum employer contribution for auto enrolment purposes (and since when)?
3% of qualifying earnings
6th April 2019
What was the main purpose of the introduction of the Pension Schemes Act 2017?
(4)
To give The Pensions Regulators
supervisory powers
to authorise and de-authorise
the use of master trusts
What is a master trust?
A regular occupational pension scheme
set up under trust
but is for multiple, unconnected, employers pooling together
offering money purchase benefits
Before a complaint can be sent to the Financial Ombudsman Service, the provider must first investigate and respond to the complaint within how many weeks?
8 weeks
The Pension Ombudsman deals with…
… complaints regarding how occupational and personal pension schemes are run
Who deals with problems regarding the sale and marketing of personal pensions?
The Financial Ombudsman service
Who deals with problems regarding state pensions?
The DWP’s Money and Pensions Service
Who deals with problems regarding how occupational pension schemes are run?
The Pensions Ombudsman
Who deals with the change of trustees on occupational pension schemes?
The Pensions Ombudsman
Who does the Pensions Ombudsman investigate complaints from?
Members and nominees (people who are entitled to something from that pension)
What is an earmarking order?
When a couple is divorced,
if some of the pension of one is included in the settlement
then that amount is “earmarked” for the spouse
The income tax rate on income from an earmarked pension is set at …
The highest marginal rate of the scheme member
Are the Trustees of an occupational pension scheme allowed to recommend employees join the scheme?
Yes
Are the Trustees of an occupational pension scheme allowed to give advice on providers personal pensions?
No
Are the Trustees of an occupational pension scheme allowed to promote an in house AVC?
Yes
Are the Trustees of an occupational pension scheme allowed to criticise, in generic terms, an individual pension?
Yes
What does it mean to have an AVC on an “added years basis”?
If you have a DB scheme you can make AVCs to “add years” onto your accrual rate.
What is the key difference between the pension pots when making a DC AVC and an “added years” AVC?
The DC AVC is invested in an entirely separate pot and can be taken independent of the main scheme.
The added years AVC goes into the same pot.
What is the key difference between the tax relief on contributions when making a DC AVC and an “added years” AVC?
There is no difference
What is the key difference between the PCLS when making a DC AVC and an “added years” AVC?
There is no difference
Who protects members of DB schemes from their employers going under?
The Pension Protection Fund
DB pensions must escalate by how much?
Since when has this been in place?
CPI to a max of 2.5%
After April 2005
What was the legal escalation of benefits required for DB payments prior to the current rules?
What years did this apply?
It used to be CPI to a max of 5%
Between dates April 1997 and April 2005
What is the commutation factor?
The amount your DB income is reduced by relative to how much PCLS you take
The commutation factor says “for every £X PCLS you take, your pension income will reduce by £Y”
[See Example 5.6 page 5/15]
If you retire early from a DB scheme, your pension usually will be reduced by x% per what unit of time?
Months.
It can be easy to trip up in questions. Usually it will say that the member loses x% per month that they leave the scheme early
Members with safeguarded benefits have a statutory right to request a CETV once in every…
12 months
How long do you have to leave a DB scheme and still be entitled to a refund on contributions?
2 years
If you get a refund on DB contributions as you have left a company, what is the tax rate and how is it paid?
20% up to £20,000 and 50% thereafter
Paid by scheme administrator (so received net)
When the administrators of a DB scheme calculate an early leaver transfer value, the process of converting the lump sum value of pension benefits at retirement to a capital value in today’s terms is known as:
Discounting
Figure out how much pension income they have already accrued.
Then, using annuity rates life expectancies etc.
figure out what lump sum they would have needed in retirement to purchase the appropriate annuity
and then discount that back to todays value with expected inflation rates
What is an “in-specie contribution”?
A contribution in the form of assets such as shares
Who is responsible for the registration compliance of stakeholder pension schemes?
The Pensions Regulator
How are the roles of the FCA and the financial ombudsman different with regards to their responsibilities around the sale and marketing of pensions?
The FCA supervise and regulate
The Financial Ombudsman handles complaints
Who supervises the firms that manage the funds within pensions?
The FCA
What type of DC pension does not receive an annual statutory money purchase illustration?
Retirement Annuity Contracts as they’re older ones
(& SSAS)
What is the name of the illustration which you receive annually if you are a DC member?
A Statutory Money Purchase Illustration
What types of DC schemes do get a Statutory Money Purchase Illustration?
Personal Pensions
Stakeholder Pensions
SIPPs
Not SSAS or RACs
What is the statutory escalation required for annuities purchased through personal pensions?
There is none required for ones for annuities purchased through personal pensions
If the declared bonus rate in a with profit fund is less than the selected anticipated bonus rate, how does this impact your payments?
The deficit will be reconciled by reducing your payments the following year
What is a pension protected annuity?
A type of annuity where
If you die before the full intial sum is returned
The remainder is paid to your beneficiaries
As an annuity protection lump sum
under 75 tax free
over 75 taxed @ marginal rate
BS.1 Q34
What is an annuity protection lump sum?
The lump sum your dependants receive
However much of the original lump sum that you paid
is left unpaid to you in retirement
(e.g. if you paid £300k and £120k has been paid to you in salary before you die, your dependants get £180k)
BS.1 Q34
How is the annuity protection lump sum paid to your dependants if you die under 75 y/o?
It is paid tax free
How is the annuity protection lump sum paid to your dependants if you die over 75 y/o?
Marginal rate
What is the MPAA?
It is your Annual Allowance equivalent once you have started taking an income from your drawdown account.
How much is the MPAA?
£4,000 gross
How is the Annual Allowance tapered?
Reduces by £1 for every £2 earned
Over £240,000
Reduced by a maximum of £36,000
Leaving AA = £4,000
What are the three options for phased retirement?
Phased Annuity Purchase
Phased FAD
Phased taking of UFPLS
Which retirement option may not offer phased retirement? When did this change take place?
Capped Drawdown does not offer phased retirement if you are still in Capped DD post April 2016
What is phased retirement in general?
The gradual crystallisation of benefits
When an individual gradually crystallises pension benefits rather than all in one go to provide an income
They take the PCLS as income and then the remaining amount is used to provide/purchase the income required
It combines the PCLS and the purchased income
How does phased annuity purchase work?
The PCLS plus one year’s annuity income = desired income
Have to crystallise enough to actually purchase the annuity too.
How does phased FAD work?
Instead of crystallising whole pension and taking huge PCLS at once, you only crystallise enough so that the PCLS payment is enough for this year’s income
The advantage is that you don’t trigger the MPAA
How does phased UFPLS work?
Exact same as regular UFPLS
Can you get taxed on State Pension income?
Yes
If you have no Personal Allowance remaining and take a State Pension income, how is the tax organised?
It must be done by self-assessment
Other types of income could include: rent, PLA, interest
There is no easy way to tax them through PAYE hence the self-assessment
What type of income is purchased life annuity income for tax purposes?
Savings income
If you defer your SP income, you can increase the income received. What is the minimum amount of time is must be deferred by?
9 weeks
How do you qualify for a successful claim for the Bereavement Support Payment at the higher rate?
If you claim child benefit
What are the criteria for qualifying for the Bereavement Support Payment?
(3)
- Under SPA
- Living in the UK
- Deceased spouse must have paid half a year’s NICs
Who authorises occupational pension schemes which are placed under a master trust?
The Pensions Regulator
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust is set up between multiple employers with an independent board of trustees
Contract based set up by single employer with financial institution where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
Which two governance boards apply to contract based workplace pension schemes?
Independent Governance Committees
Governance Advisory Arrangements
What two conditions should an employer ensure is in place with a master trust workplace pension scheme to be authorised by the PR?
(in brand set 1 22/23 - there are other conditions)
- all trustees are fit and proper to act in their role
- The scheme is financially sustainable
What is the maximum income from a Capped DD account?
150% of the basis amount
[(Generic GAD rate) x (fund - PCLS)] * 150%
What is the difference between flexible drawdown and flexi access drawdown?
(With regards to the MPAA)
Flexible drawdown had no MPAA (any contributions after taking benefits were taxed). FAD had a £4,000 MPAA introduced.
Hence an “improvement”
When were the flexible drawdown accounts transferred to FAD accounts?
April 2015
When flexible drawdown accounts were transferred to FAD, which of these were triggered?
- BCE
- MPAA
Not BCE as there was a BCE when the initial crystallisation occurred moving the member into Flexible Drawdown
Yes MPAA as they were already in Flexible Drawdown so MPAA would have been triggered by this point anyway
The fixed redemption value is also known as…
The par value
The par value is also know as…
The fixed redemption value
What does the “coupon” represent with fixed interest securities?
The fixed rate of interest given
Do all fixed interest securities has a set redemption date?
No - some are undated
What is a lifestyle pension fund?
The type of multi-asset fund where, as you get closer to your retirement age, it adjusts the risk
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust is set up between multiple employers with an independent board of trustees
Contract based set up by single employer with financial institution where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
Are residential properties allowed to be held within pensions? What are the exceptions?
You are not. However, there are exceptions including caretaker’s flat and student accommodation.
One way to think about this is that these are kind of “purposeful” residential accommodations, not like a beach hut
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust is set up between multiple employers with an independent board of trustees
Contract based set up by single employer with financial institution where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust:
- set up between multiple employers
- with an independent board of trustees
Contract based
- set up by single employer
- with financial institution
- where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust is set up between multiple employers with an independent board of trustees
Contract based set up by single employer with financial institution where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
What is the difference between a master trust and a contract based pension scheme?
(Occupational pension schemes)
Master trust is set up between multiple employers with an independent board of trustees
Contract based set up by single employer with financial institution where each employee has an individual contract with said institution
The employer’s role in contract based occupation pension schemes is primarily to facilitate deductions from the employee’s salary.
