Brand set 3 Flashcards
What is the underpinned LTA?
£1.8m - the value of SLA before reductions
Specific to Primary protection
Once SLA surpasses £1.8m - use that figure in Primary Protection equations
What is the primary protection equation?
(£x / £1.5m) * £1.8m
Other ways to think about the same equation:
(£x / £1.5m) * [underpinned LTA]
PPF * [underpinned LTA]
What range of pension savings were required for Primary Protection?
£1.5m - £1.8m
Think about the equation - it wouldn’t make sense if £x was less than £1.5m
Can Primary Protection holders make contributions?
Yes
What is the min value for Primary Protection to apply?
£1.5m
How can Primary Protection be lost?
If divorce reduces value to less than £1.5m
Market performance is irrelevant
Market performance drops pension value to £1.35m. I have Primary protection. What are the consequences?
Primary Protection is not lost if investment performance is the reason for the drop below £1.5m
How often must my company re-enrol eligible jobholders (who previously opted out) into the pension scheme?
Every 3 years
The company I own has insufficient resources to run it’s DB scheme anymore
- who is the body concerned?
- what is the name of the thing that can be issued against me?
Sorry for the shit question
The Pensions Regulator
Can issue a financial support direction
But not fines and restoration orders for this reason alone
What kind of arrangement is an offset order?
A clean break arrangement
You don’t get any of my shit and I don’t get any of yours
I have a DB pension.
I have just been divorced.
We are applying an offset order.
How is the amount to be offset calculated?
Using a CETV
and taking into account income tax payable on any pension
Re-marriage would not impact this order
My ex is remarrying. How does this impact our offset order?
What is an offset order?
It does not impact it
As it was taken out at divorce
A clean break arrangement where you dont get each others pensions on divorce
On divorce, can my S2P entitlement be shared?
Yes
On divorce, can my public sector scheme pension be shared?
Yes
On divorce, can my AVCs be shared?
Yes
On divorce, can my new full new state pension entitlement be shared?
No
I have a pension sharing order with my ex. Is the taking of benefits inter-dependent?
No
I have an earmarking order with my ex. Is the taking of benefits inter-dependent?
Yes
Why is the employer’s definition of pensionable remuneration important to DB members?
Because the pay is usually a factor of the final salary, or final “pensionable remuneration”
(e.g. bonuses/overtime/commission/BIKs..)
What name is given to the type of liability that a DB pension is?
Open ended
What contributes to the potential liability of running a DB scheme?
(3) - what could make running your DB scheme more difficult?
- Age & marital status
- Number of deaths (pre retirement)
- Returns of underlying investments
Company profits would not contribute to this issue
What is the legal minimum escalation for DB schemes in payment between 1997 and 2005?
5% to a max of CPI
What is the legal minimum escalation for DB schemes in payment now?
Since when has this minimum been in place?
2.5% to a maximum of CPI
Since 2005
If the trustees of a DB scheme have developed a recovery plan, this means that…
The scheme is in deficit
If my DB pension scheme which I’m a trustee for is in a deficit, what must I do?
Develop a recovery plan
If I leave my company’s DB scheme within 2 years and they allow a refund of my contributions, what is the tax position?
First £20k is 20%
Everything after is 50%
What does the 20% up to a certain amount and 50% thereafter apply to?
Sorry for the crappy card just 5/5 if dont want to see again
If you leave your DB scheme within 2 years of service
It’s 20% to £20k and 50% thereafter
PCI Pension contributions are tax free.
True/False?
False
How does Pension Contribution Insurance work?
(3)
Covers pension contributions in event of incapacity to work
Both member and employer contributions are covered
Payments begin after a deferred period
Not tax free payment
BS3 Q.40
How long is the commutation period?
12-months
The amount of time in which the payment must be made
BS3. Q41
What is the total limit for Trivial Commutations?
£30,000 across all schemes
BS3. Q41
What age can Trivial Commutation apply?
From 55
BS3 Q.41
How is the trivial commutation payment taxed?
25% tax free
75% marginal rate
BS3 Q.41
What are two options for taking income from FAD?
Regular withdrawals
Short term annuities
Unclear if this is exhaustive
BS3 Q.43
What is the “critical yield”?
(Definition)
“the investment growth rate required
in income drawdown
to provide and maintain an income
equal to that available under an annuity”
BS3 Q.44
What is type A critical yield?
The growth rate needed to provide an income equal to that under an equivalent immediate annuity
BS3 Q.44
How do you calculate a person’s individual GAD rate?
[(Generic GAD rate) * fund value less PCLS]
Generic GAD rate often given as £x per £1,000
BS3. Q.45
How do you calculate an individual’s maximum income from capped DD?
[(Generic GAD rate) x (fund value - PCLS)] x 1.5
BS3 Q.45
What is the minimum income I can take from my Capped DD if I’m 76?
£0
76 is a red herring (I think)
BS3 Q.45
Employers must automatically enrol all workers …
(2)
Aged between 22 and SPA
Earning above £10,000
BS3 Q.1
Who does the Pension Protection Fund protect?
Only
Members of DB pensions
Where the employer has become insolvent
BS3 Q.2
How are State Pensions funded?
By current NICs
BS3 Q.3
Order and date the following:
S2P, SERPS, SGP, State Basic Pension, Full New State Pension (FNSP)
SGP [‘61-‘78]
SERPS [‘78-‘02]
S2P [‘02-‘16]
FBSP [‘16-today]
State Basic Pension applied in conjunction with SERPS and S2P
Relevant UK Earnings Calculation:
Is earned income included?
Yes
Relevant UK Earnings Calculation:
Is rental income included?
No
Relevant UK Earnings Calculation:
Are charitable donations included?
No
Relevant UK Earnings Calculation:
Are pension contributions included?
No
My circumstances:
I earn a salary
I receive rental income
I make pension contributions
I make charitable donations
Which elements are used to calculate my relevant UK earnings?
Only salary
Pension contributions and donations are not earnings. Rental must not be relevant.
In 2021/22 I contributed to my pension and so did my employer.
When calculating how much AA I have used, which of the two are included?
Both
BS3 Q.7
I earn nothing this tax year. I take an UFPLS withdrawal.
Does the PCLS element take up any of my PA? If so, how much?
It does not
BS3 Q.8
In 2006 I crystallise a pension worth £750k when the LTA was set at £1.5m.
How much LTA do I have remaining in 2022/23?
£536,550
If you used up some of your LTA back in the day, it is calculated as a percentage used. That is, 50% used, so 0.5 x £1,073,100
BS3 Q.9
I have protected PCLS over £25k from an Executive Pension Plan (EPP).
If I take my PCLS and leave the remaining funds uncrystallised, do I lose my scheme specific PCLS protection?
Yes
BS3 Q.10
I have protected PCLS over £25k from an Executive Pension Plan (EPP).
If I take my PCLS, but also withdraw the full remaining plan, do I lose my scheme specific PCLS protection?
No
BS3 Q.10
I have protected PCLS over £25k from an Executive Pension Plan (EPP).
If I transfer to a deferred annuity due to scheme wind up, do I lose my scheme specific PCLS protection?
No
BS3 Q.10
I have protected PCLS over £25k from an Executive Pension Plan (EPP).
If I transfer my benefits as part of a bulk transfer, do I lose my scheme specific PCLS protection?
No
BS3 Q.10
If I am nominated as the beneficiary of my uncle’s DC plan, which of the following benefits are available to me?
- Lifetime annuity
- Scheme pension
- FAD
- Lump sum
- Lifetime annuity
- FAD
- Lump sum
Scheme pension is only available to dependants
BS3 Q.11
Why might an employee view trust based pension schemes as more valuable than contract based schemes?
Question under review
Because the scheme provides the protection of trustees, unlike contract based which is outsourced to a third party
BS3 Q. 27
Who do “trigger events” get reported to?
The Pensions Regulator
BS3 Q.29
What was put in place that meant that trustees for authorised pensions must be ‘fit and proper’
The Pension Schemes Act 2017
BS3 Q.29
I want to set up a pension to invest directly in the stock market. Which would you recommend and why?
A SIPP
Although SSAS would also offer this opportunity, I cannot set one up - it must be set up by a company
BS3 Q.30
What are the minimum standards required of stakeholder pensions?
(4)
- Accept transfer payments from other pensions
- No transfer charges
- Accept minimum contributions of £20 per month
- Maximum annual fund charge of 1.5%, reducing to 1.0% after 10 years
Transfer Transfer Minimum Maximum
BS3 Q.31
What is the difference between a
“defined benefits lump-sum death benefit”
and a
“pension protection lump-sum death benefit”?
Pension protection lump sum is paid from a DB scheme in payment
DB lump sum death benefit is paid before any benefits are crystallised
BS3 Q.32
Define mortality gain
Annuity rates are set assuming that some of the members will die early. The money saved from the early deaths is mortality gain.
BS3 Q.34
Define mortality cross subsidy
When the money saved from early deaths of some annuitants is used to pay for the late deaths of others
BS3 Q.34
Define mortality drag
The extra return required
from drawdown investments
to offset the loss of the cross subsidy
that exists within an annuity
BS3 Q.34 [8/44]
What is the name of the risk associated with choosing drawdown over annuities?
Mortality drag
BS3 Q.34
What is the key relationship between the MPAA and capped drawdown?
As long as the income stays within the capped amount, the MPAA is not triggered
BS3 Q.35
A State Pension benefit statement provides you with…
an estimation of your State Pension based on your NICs record
BS3 Q.36
How are savings considered when assessing eligibility for State Pension Credit?
“Any savings are deemed to provide an income of £1 for each £500 of savings over £10,000”
BS3 Q.38 good example
Which class of NICs do not count towards your state pension entitlement?
Class 4
BS3 Q.39
What are the main risks an adviser should make a client aware of when they are thinking of designating funds into FAD?
(3)
- Potentially high charges for admin and reviews
- The investment performance can cause your fund to go up or down
- The potential of fund depletion
BS3 Q.46
With regards to expenditure, what should I be aware of for when I retire?
(4)
- NICs likely cease
- Pension contributions likely cease
- Likely no longer need income protection
- Likely no longer need to accumulate savings
BS3 Q.47
Do all fixed interest securities have a fixed redemption date?
No
BS3 Q.48
What occurs at the fixed redemption date of a Fixed Interest security?
It is redeemed at the nominal value
BS3 Q.48
All fixed interest securities provide a guarantee of capital at maturity and during their term.
True or false?
False
BS3 Q.48
