Brand Set 2 Flashcards
How much can pension advice cost through your employer without counting as a benefit in kind? How often can it be paid?
£500
Per tax year
Employer is per tax year
When does SERPS apply?
1978-2002
When does S2P apply?
2002-2016
When did SGP apply?
1961-1978
What is the current state pension name and when did it come into place?
Full New State Pension
2016
What are the key requirements for paying pensions advice allowance?
(3)
Up to £500
Up to 3 times in your life
Must be paid directly to the adviser
When does your annual allowance start to taper?
Adjusted net income
exceeds £240k
Adjusted income calculation:
Total taxable income + employer pension contributions { - death benefits received }
(Ignore personal pension contributions)
What is excluded from adjusted income for annual allowance tapering?
Personal pension contributions
Death benefits received
(employer pension contributions count)
What is the BTS adjusted income calculation?
=
+ Salary
+ employer pension contributions
(Ignore) personal pension contributions
- death benefits
What is the % charge for taking the excess of your pension over the LTA as
1. Income
2. Lump sum
- 25%
- 55%
Which people might be entitled to a higher LTA?
- non-UK residents
- individuals who transferred benefits from QROPS
- divorcees
(& then those with Primary or Fixed Protection)
Would a benefit in kind be considered within your total relevant UK earnings
Yes
I take my small defined benefit pension as a lump sum
What is the name given to the lump sum?
Cash Equivalent Transfer Value
Must be less than £30k - I just didn’t want to put a number on the front - it makes it too recognisable
The Trivial Commutation Rules allow…
(3)
Allows individuals with DB schemes
To commute the scheme to a lump sum
Without requirement to purchase an annuity
So presumably if you try to take a lump sum from your DB without this, then you are usually required to purchase an annuity with the money
I take my defined benefit pension as a lump sum
Trivial Commutation Rules apply
How is it taxed?
Similar to a DC withdrawal, it’s 25% tax free and 75% is taxed at a marginal rate
I take my defined benefit pension as a lump sum
Which rules must apply for this to be allowed without requiring an annuity purchase?
The Trivial Commutation Rules
I want to take an old DB Pension I built up as a lump sum, I’m 79 and it is worth £24k. Assume this does not exceed the LTA. How would this be treated for tax purposes?
As if fully crystallising a DC worth the same amount:
£6k (25%) tax free
£18k (75%) taxed at my marginal rate
What are the requirements of the Trivial Commutations Rules?
- Less than £30k pension value
- Over 55 y/o
- Not in excess of LTA
- Not in already in payment
+75
Death benefit
Uncrystallised pension funds
Lump sum paid to family
What is the LTA position?
What is the income tax position?
No test on the LTA
Taxed at the marginal rate of the recipient
What is the Primary Protection LTA equation?
( A-Day Val / £1.5m ) X £1.8m
£1.8m - the underpinned LTA - will remain like this in the equation until the SLA exceeds it
If HMRC withdraws registration of a registered pension scheme, then what tax is applied and how is it calculated? Who pays this?
40% of
the funds held immediately before de-registration
Paid by scheme administrator
“A de-registration income tax charge”
Registered pension fund is transferred to a QROPS.
What charge is levied against excess over the LTA?
25%
One way to think about this is that he hasn’t really taken a lump sum but HMRC want some so they charge as if he was taking it as income
To qualify as a QROPS, the scheme must…
Bonus points if you can say what it might not specifically require
(2)
- Be established in a country which has a double taxation agreement with the UK,
- and regulated by the relevant authorities in its own country
Does not need to meet UK regulation
What is the current total minimum level of contribution under auto-enrolment?
8%
of qualifying earnings
At least 3% from employer
A Section 143 Valuation is …
an actuarial assessment
carried out when the PPF is taking over assets
of an insolvent company’s pension scheme
Determines if the scheme has sufficient assets to pay at least the PPF level of compensation
Once an individual declares bankruptcy and a bankruptcy order is made, who will be appointed to administer their estate?
A trustee in bankruptcy
Once a company goes into administration, who is appointed to deal with their assets?
An Administrator
If there is no appointed executor, who is appointed to administer the estate of a deceased individual?
Personal Representative
What are the Guaranteed Minimum Pension (GMP) benefits?
Between 1978 and 1997
Members of DB schemes did not accrue any entitlement to additional State Pension benefits (SERPS/S2P)
If they were contracted out (“bought out”) of the DB scheme
They were entitled to the equivalent amount of benefits as if they had been accruing the additional SP benefits
What is the escalation of GMP benefits and how is it funded?
It is fully inflation proofed
Pain entirely by the state
What is the main reason an employer might decide to provide death in service benefits through a separate insured scheme as opposed to through a DB scheme?
To ensure the DIS benefits do not drain the DB fund
The International Accounting Standards 19
requires that a DB scheme’s surplus or deficit
must be shown on the company…
balance sheet
and the present value of past service liabilities should reflect high quality bond yields, rather than equity yields.
What is pension “Increase Exchange”?
The option of giving up future guaranteed increases to your pension in return for a higher initial pension with no future increases.
A PPF Section 179 valuation is to establish the…
Level of a DB scheme’s assets and liabilities
This is usecd to determine any scheme underfunding which is then used to determine the level of the scheme’s PPF levy
If you are in serious ill health, you may have your pension fund commuted for a lump sum. If your pension fund was in excess of the LTA, and you were under the age of 75, how would the full lump sum be taxed?
Tax free up to LTA
55% thereafter
If I contribute to my pension term assurance, how are the premiums treated for tax purposes?
There is no tax relief
Following December 2006
If my employer contributes to my pension term assurance, how are the premiums treated for tax purposes?
There is tax relief as it is treated as a business expense
After what length of employment must a company offer a preserved benefit?
What is a preserved benefit?
30 days
The value of the fund built up from employee and employer contributions
You can convert this to retirement benefits when you reach 55
If I was being paid benefits from a group IP policy through my employer, how does this impact my annual allowance for contributions?
Group IP benefits are considered taxable, relevant, UK earnings
So the contributions are calculated based on that being your income
Name the three features of targeted Money Purchase schemes
- regarded as a DB / DC hybrid
- it will incorporate regular reviews to monitor the intended benefit levels
- the only promise is the benefit from the DC scheme
May be worth looking into these
How do targetted money purchase schemes work?
They have a targeted benefit level
An actuary regularly determines the contributions required
If “the fund” falls short of the required amount it may be topped up by the employer (however nothing is promised)
Targeted benefit level could be a proportion of the final salary - hence the DB/DC combo
Who else can receive the lump sum benefit from trivial commutation?
Dependants or nominees
My husband just died. He worked for a company for a brief period 20 years ago. If possible, I would like to take his DB pension as a lump sum. What are the rules on this?
- The value must be less than £30,000
- You must be a dependant or nominee
Trivial commutation
Can’t be to a successor (the nominee of a nominee)
Name as many circumstances as possible in which the payments from a scheme pension be reduced.
There are 9
- Pension sharing order (1)
- Scheme pays an annual allowance charge for the member (1)
- Being paid on ill health or until SPA (2)
- Legal/funding issues (5)
Not because of performance of with-profits funds or investments
Think of DB as being guaranteed against poor performance, not against all situations
What are the HMRC requirements for Lifetime Annuities?
(3)
- Payable for life
- Paid at least once per year in arrears
- Cannot be assigned/surrendered
My annuity payment was calculated using an automated points system based on my lifestyle. What type of annuity have I purchased?
(1)
An Enhanced Annuity
I’ve purchased an enhanced annuity. How is the payment calculated?
(2)
Via a points system
based on lifestyle.
I am retiring in 2015. How many qualifying years do I need to be eligible for the full basic state pension?
Bonus points if you know what years are relevant
30 years
This is between 2010 and 2016
2016 being the year they switched to new state pension
I’m retiring in 2018. How many qualifying years do I need to be eligible for the full basic state pension?
Bonus points if you know what years are relevant
35 years
From 2016
I’m self-employed. Which NICs do I pay?
Class 2 and 4
I have 5 employees in 2022. Which NICs will I pay?
Secondary Class 1
I’ve reached SPA in 2022/23. I’m not ready to retire though, and would like to defer my State Pension. What are the rules on this?
(3) Brand 2 Q38
- Must be deferred by a minimum of 9 weeks
- Can only defer once
- Must be taken as an income
Brand 2 Q38
I’m 69 years old and in receipt of my State Pension benefits. I’m moving abroad and want to understand how this will impact my payments.
Do I continue to receive payments?
Yes
Generally, although you won’t be getting increases unless you move to a country which has a reciprocal social security agreement with the UK
Brand 2 Q39
I’m 69 years old and in receipt of my State Pension benefits. I’m moving abroad and want to understand how this will impact my payments.
Will my payments continue to increase?
Yes if
you move to a country which has a reciprocal social security agreement with the UK
Brand 2 Q39
I own a lifestyle fund.
“The switching to low risk securities occurs at pre set times and does not allow for market conditions”
True/False?
True
I have a pension from when I worked at O2 at university. It’s worth very little. What is the title given to the rules surrounding the payment of this?
Small pots payment
Brand set 2 Q42
I have a pension from when I worked at O2 at university. It’s worth very little. What is a small pots payment? Why bother?
If you have small pensions (specific rules allowing) you can take them as a lump sum which does not test against your LTA and does not trigger the MPAA
Brand set 2 Q42
What are the rules around the Small Pots Payments?
(2)
- Max of 3 non-occupational pensions (unlimited occupational ones)
- £10,000 limit per payment
Can be taken from crystallised or uncrystallised payments
Brand set 2 Q42
I’ve been accruing DB scheme pension benefits for 25 years but die before I reach retirement. Why can’t my dependant take the benefits as an annuity protection lump sum?
These can only be taken from schemes through a DC pension
DB pensions have their own death benefit arrangements. Annuity protection lump sum is not one of them and only takes place with DC arrangements
Brand set 2 Q43
What is the maximum length of a short term annuity?
5 years
BS.2 Q44
I am hoping to buy a short-term annuity. It can be guaranteed.
True/False?
True
Can be guaranteed for up to 5 years
BS2 Q.44
I have a FAD. Can my death benefits go to:
- my dependant? or,
- my nominee? or,
- a successor?
Dependant - yes
Nominee - yes
Successor - no
This is called a survivor’s FAD
BS2 Q.45
I have a FAD and die at age 74. What is the tax position on my beneficiary?
Tax free lump sum
It can go as a survivor’s FAD
BS2 Q.45
I have a FAD and die at age 76. What is the tax position on my beneficiary?
Taxed at beneficiary’s marginal rate
Can go as a survivor’s FAD
BS2 Q.45
What is the additional stamp duty paid when purchasing a buy to let property?
Extra 3%
BS2 Q.46
What is the tax relief situation on mortgage payments?
You get basic rate tax relief on mortgage interest
BS2 Q.46
Property investments often move in a different direction to equities.
True/False?
True
BS2 Q.47
I can make a loan to my employer through my SIPP.
True/False?
False
BS2 Q.48
(Definition) Who does cash flow modelling help?
(2)
Those who want to assess the level of income to take from their FAD
Whilst maintaining sufficient funds to meet their objectives
BS2 Q.49
Can I reinvest my PCLS to get more tax relief?
(2)
No because it will fall foul of the anti-avoidance provisions
BS2 Q.49
What are the anti-avoidance provisions?
The provisions in place to stop me from re-investing my PCLS for further tax relief
BS2 Q.49
My mate says that it is possible to reinvest excess pension income into your pension and get more PCLS from this.
True/False?
True
Added benefit is also Death benefits increasing
BS2 Q.50
My mate says that it is possible to reinvest excess pension income into your pension and get better Death Benefits than otherwise.
True/False?
True
Added benefit is also PCLS increasing
BS2 Q.50
What are the benefits to re-investing my excess pension income into my pension?
(2)
Additional PCLS
Additional Death Benefits
BS2 Q.50
