Chapter 1 Flashcards
What is the PSNCR?
Public Sector Net Cash Requirement
Funds the government need to meet spending target shortfall
Taxation - Government Spending =PSNCR
What did TOPA (2014) introduce?
Taxation On Pensions Act was introduced in 2015 to provide flexible ways to take pension income e.g. FAD, UFPLS etc.
Why were workplace pensions such as NEST introduced?
Encourage individuals (especially low earners) to contribute a minimum amount to retirement planning - since 2019, every employer has to provide one
What are the 3 elements to calculate a Final Salary DB pension and what do they mean?
Years of Service - Employee joins scheme
Accrual Rate - Rate at which benefits accrue
Final Salary - Basic Salary at time of leaving scheme
What is a commutation factor?
Amount of PCLS available for every £1 of secure income
Benefits of DB schemes
Guaranteed Benefits
Scheme costs met by employer
Employer responsible for scheme funding
Additional Scheme Benefits Available
Drawbacks of DB scheme
Too expensive for many employers
Little member access to pension freedoms
Underfunding can lead to employer insolvency or loss of guaranteed benefits - risk mostly lies with employer
Benefits of DC schemes
Guaranteed Contributions
Employer meets scheme costs (if employer scheme)
Capital Growth potential
Access to pension freedom options and choices
Leave Lump Sum
Drawbacks of DC schemes
No benefit guarantees
Dependant on contributions, growth and market - risk mostly lies with employee
What are earmarked funds?
Own their own pension pot - DC
Why was Single Tier State Pension introduced?
Simplify state pension and ensure no one would be worse off - historically people could opt out of state pension for a reduced value
How does the government raise monies?
Debt Management Office issue long term gilts and offer NS&I products
What is auto-enrolment?
Compels employers to make contributions for eligible job holders
