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R04 > Brand set 3 > Flashcards

Brand set 3 Flashcards

1
Q

What is the underpinned LTA?

A

£1.8m - the value of SLA before reductions

Specific to Primary protection

Once SLA surpasses £1.8m - use that figure in Primary Protection equations

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2
Q

What is the primary protection equation?

A

(£x / £1.5m) * £1.8m

Other ways to think about the same equation:

(£x / £1.5m) * [underpinned LTA]

PPF * [underpinned LTA]

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3
Q

What range of pension savings were required for Primary Protection?

A

£1.5m - £1.8m

Think about the equation - it wouldn’t make sense if £x was less than £1.5m

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4
Q

Can Primary Protection holders make contributions?

A

Yes

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5
Q

What is the min value for Primary Protection to apply?

A

£1.5m

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6
Q

How can Primary Protection be lost?

A

If divorce reduces value to less than £1.5m

Market performance is irrelevant

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7
Q

Market performance drops pension value to £1.35m. I have Primary protection. What are the consequences?

A

Primary Protection is not lost if investment performance is the reason for the drop below £1.5m

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8
Q

How often must my company re-enrol eligible jobholders (who previously opted out) into the pension scheme?

A

Every 3 years

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9
Q

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

A

The Pensions Regulator

Can issue a financial support direction

But not fines and restoration orders for this reason alone

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10
Q

What kind of arrangement is an offset order?

A

A clean break arrangement

You don’t get any of my shit and I don’t get any of yours

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11
Q

I have a DB pension.
I have just been divorced.
We are applying an offset order.
How is the amount to be offset calculated?

A

Using a CETV

and taking into account income tax payable on any pension

Re-marriage would not impact this order

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12
Q

My ex is remarrying. How does this impact our offset order?

What is an offset order?

A

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

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13
Q

On divorce, can my S2P entitlement be shared?

A

Yes

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14
Q

On divorce, can my public sector scheme pension be shared?

A

Yes

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15
Q

On divorce, can my AVCs be shared?

A

Yes

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16
Q

On divorce, can my new full new state pension entitlement be shared?

A

No

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17
Q

I have a pension sharing order with my ex. Is the taking of benefits inter-dependent?

A

No

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18
Q

I have an earmarking order with my ex. Is the taking of benefits inter-dependent?

A

Yes

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19
Q

Why is the employer’s definition of pensionable remuneration important to DB members?

A

Because the pay is usually a factor of the final salary, or final “pensionable remuneration”

(e.g. bonuses/overtime/commission/BIKs..)

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20
Q

What name is given to the type of liability that a DB pension is?

A

Open ended

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21
Q

What contributes to the potential liability of running a DB scheme?

(3) - what could make running your DB scheme more difficult?

A
  • Age & marital status
  • Number of deaths (pre retirement)
  • Returns of underlying investments

Company profits would not contribute to this issue

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22
Q

What is the legal minimum escalation for DB schemes in payment between 1997 and 2005?

A

5% to a max of CPI

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23
Q

What is the legal minimum escalation for DB schemes in payment now?

Since when has this minimum been in place?

A

2.5% to a maximum of CPI

Since 2005

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24
Q

If the trustees of a DB scheme have developed a recovery plan, this means that…

A

The scheme is in deficit

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25
Q

If my DB pension scheme which I’m a trustee for is in a deficit, what must I do?

A

Develop a recovery plan

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26
Q

If I leave my company’s DB scheme within 2 years and they allow a refund of my contributions, what is the tax position?

A

First £20k is 20%
Everything after is 50%

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27
Q

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

A

If you leave your DB scheme within 2 years of service

It’s 20% to £20k and 50% thereafter

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28
Q

PCI Pension contributions are tax free.

True/False?

A

False

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29
Q

How does Pension Contribution Insurance work?

(3)

A

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

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30
Q

How long is the commutation period?

A

12-months

The amount of time in which the payment must be made

BS3. Q41

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31
Q

What is the total limit for Trivial Commutations?

A

£30,000 across all schemes

BS3. Q41

32
Q

What age can Trivial Commutation apply?

A

From 55

BS3 Q.41

33
Q

How is the trivial commutation payment taxed?

A

25% tax free
75% marginal rate

BS3 Q.41

34
Q

What are two options for taking income from FAD?

A

Regular withdrawals
Short term annuities

Unclear if this is exhaustive

BS3 Q.43

35
Q

What is the “critical yield”?

(Definition)

A

“the investment growth rate required

in income drawdown

to provide and maintain an income

equal to that available under an annuity”

BS3 Q.44

36
Q

What is type A critical yield?

A

The growth rate needed to provide an income equal to that under an equivalent immediate annuity

BS3 Q.44

37
Q

How do you calculate a person’s individual GAD rate?

A

[(Generic GAD rate) * fund value less PCLS]

Generic GAD rate often given as £x per £1,000

BS3. Q.45

38
Q

How do you calculate an individual’s maximum income from capped DD?

A

[(Generic GAD rate) x (fund value - PCLS)] x 1.5

BS3 Q.45

39
Q

What is the minimum income I can take from my Capped DD if I’m 76?

A

£0

76 is a red herring (I think)

BS3 Q.45

40
Q

Employers must automatically enrol all workers …

(2)

A

Aged between 22 and SPA

Earning above £10,000

BS3 Q.1

41
Q

Who does the Pension Protection Fund protect?

A

Only

Members of DB pensions

Where the employer has become insolvent

BS3 Q.2

42
Q

How are State Pensions funded?

A

By current NICs

BS3 Q.3

43
Q

Order and date the following:

S2P, SERPS, SGP, State Basic Pension, Full New State Pension (FNSP)

A

SGP [‘61-‘78]
SERPS [‘78-‘02]
S2P [‘02-‘16]
FBSP [‘16-today]

State Basic Pension applied in conjunction with SERPS and S2P

44
Q

Relevant UK Earnings Calculation:
Is earned income included?

A

Yes

45
Q

Relevant UK Earnings Calculation:
Is rental income included?

A

No

46
Q

Relevant UK Earnings Calculation:
Are charitable donations included?

A

No

47
Q

Relevant UK Earnings Calculation:
Are pension contributions included?

A

No

48
Q

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?

A

Only salary

Pension contributions and donations are not earnings. Rental must not be relevant.

49
Q

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?

A

Both

BS3 Q.7

50
Q

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?

A

It does not

BS3 Q.8

51
Q

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?

A

£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

52
Q

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?

A

Yes

BS3 Q.10

53
Q

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?

A

No

BS3 Q.10

54
Q

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?

A

No

BS3 Q.10

55
Q

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?

A

No

BS3 Q.10

56
Q

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
A
  • Lifetime annuity
  • FAD
  • Lump sum

Scheme pension is only available to dependants

BS3 Q.11

57
Q

Why might an employee view trust based pension schemes as more valuable than contract based schemes?

Question under review

A

Because the scheme provides the protection of trustees, unlike contract based which is outsourced to a third party

BS3 Q. 27

58
Q

Who do “trigger events” get reported to?

A

The Pensions Regulator

BS3 Q.29

59
Q

What was put in place that meant that trustees for authorised pensions must be ‘fit and proper’

A

The Pension Schemes Act 2017

BS3 Q.29

60
Q

I want to set up a pension to invest directly in the stock market. Which would you recommend and why?

A

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

61
Q

What are the minimum standards required of stakeholder pensions?

(4)

A
  • 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

62
Q

What is the difference between a

“defined benefits lump-sum death benefit”

and a

“pension protection lump-sum death benefit”?

A

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

63
Q

Define mortality gain

A

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

64
Q

Define mortality cross subsidy

A

When the money saved from early deaths of some annuitants is used to pay for the late deaths of others

BS3 Q.34

65
Q

Define mortality drag

A

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]

66
Q

What is the name of the risk associated with choosing drawdown over annuities?

A

Mortality drag

BS3 Q.34

67
Q

What is the key relationship between the MPAA and capped drawdown?

A

As long as the income stays within the capped amount, the MPAA is not triggered

BS3 Q.35

68
Q

A State Pension benefit statement provides you with…

A

an estimation of your State Pension based on your NICs record

BS3 Q.36

69
Q

How are savings considered when assessing eligibility for State Pension Credit?

A

“Any savings are deemed to provide an income of £1 for each £500 of savings over £10,000”

BS3 Q.38 good example

70
Q

Which class of NICs do not count towards your state pension entitlement?

A

Class 4

BS3 Q.39

71
Q

What are the main risks an adviser should make a client aware of when they are thinking of designating funds into FAD?

(3)

A
  1. Potentially high charges for admin and reviews
  2. The investment performance can cause your fund to go up or down
  3. The potential of fund depletion

BS3 Q.46

72
Q

With regards to expenditure, what should I be aware of for when I retire?

(4)

A
  1. NICs likely cease
  2. Pension contributions likely cease
  3. Likely no longer need income protection
  4. Likely no longer need to accumulate savings

BS3 Q.47

73
Q

Do all fixed interest securities have a fixed redemption date?

A

No

BS3 Q.48

74
Q

What occurs at the fixed redemption date of a Fixed Interest security?

A

It is redeemed at the nominal value

BS3 Q.48

75
Q

All fixed interest securities provide a guarantee of capital at maturity and during their term.

True or false?

A

False

BS3 Q.48

R04 (7 decks)

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