Chapter 1 - Context of pensions planning Flashcards
What is the main reason that individuals do not save enough into their pension?
a.Preference for other savings vehicles.
b.Distrust of the pensions industry.
c.Lack of affordability.
d.Poor investment returns.
c.Lack of affordability.
Affordability is often cited as the main reason for not saving enough for retirement. People
have many demands on their income and other needs may take priority
Chapter reference 1D1
An employer has arranged for his employees to receive pensions advice from a financial adviser at a cost to the company of £700 for each employee. What is the employees’ tax position in relation to these advice costs?
a.Each employee will incur a taxable benefit in kind of £700.
b.Each employee will incur a taxable benefit in kind of £200.
c.Each employee will incur a taxable benefit in kind of £500.
d.The employees will not incur a tax charge for this advice.
b.Each employee will incur a taxable benefit in kind of £200.
An employer may be
prepared to pay a financial adviser to give their employees,Under HMRC rules such advice costs are not treated as a benefit in kind for the employee. The exemption for income tax and National Insurance purposes is £500 per tax year
Chapter reference 1D
Under current legislation, a 52 year old employee is most likely to receive his State Pension:
a.at the age of 68.
b.at the age of 66.
c.at the age of 67.
d.after the age of 68.
c.at the age of 67.
legislation has been implemented to increase the SPA to age 67 for
both men and women by 2028. In addition, the SPA must be reviewed in each parliament.
Until April 2010 the State Pension age (SPA) was 65 for men and 60 for women, but women’s SPA was gradually increased from 60 to 65 over eight years
Chapter reference 1A1
How many years of National Insurance Contributions must an individual have paid or been credited with to be eligible for a full new State Pension?
a.35.
b.40.
c.30.
d.45.
a.35.
To be eligible to receive the full new State Pension an individual must pay (or be credited with) National Insurance contributions (NICs) for 35 years
Chapter reference 1A1
When death benefits are paid from a defined contribution pension plan, a nominee is defined as any individual:
a.nominated by a successor to receive the death benefits.
b.nominated by a dependant to receive the death benefits.
c.other than a dependant, nominated by a member to receive the death benefits.
d.other than a successor, nominated by a member to receive the death benefits.
c.other than a dependant, nominated by a member to receive the death benefits.
A nominee is any individual, other than a dependant, nominated by the member to
receive the benefits from a pension plan upon the member’s death.
Chapter reference 1E3A
Hideki is a sole trader who employs one member of staff. If he makes a contribution to his employee’s personal pension plan, this will be treated as:
a.an employee contribution, which will be awarded tax relief at the employee’s marginal rate of income tax.
b.salary sacrifice, which will reduce the employee’s salary for income tax and national insurance purposes.
c.a business expense, which will be offset against Hideki’s income tax liability.
d.a business expense, which will be offset against Hideki’s corporation tax liability.
c.a business expense, which will be offset against Hideki’s income tax liability.
contributions made by employers are treated as a business expense for corporation tax
or income tax purposes
As Hideki is a sole trader, he doesn’t pay corporation tax, leaving income tax the only relivable tax.
Chapter reference 1D
What has been the primary reason for the reduction in the number of defined benefit schemes available to employees?
a.Increasing annuity rates.
b.Reduction in longevity.
c.Increasing costs.
d.Removal of tax relief.
c.Increasing costs.
The decline of the defined benefit scheme. This has largely been due to their growing cost, mainly as a result of increased longevity and falling annuity rates.
Chapter reference 1C
Which factor will NOT affect the level of income a member will receive from a defined benefit pension scheme?
a.Pensionable service.
b.Accrual rate.
c.Pensionable remuneration.
d.Investment returns.
d.Investment returns.
The benefits that a defined benefit scheme will provide will be based on the following three factors:
-
pensionable service: this is usually the employee’s period of membership in
the scheme -
pensionable remuneration: this is the definition of salary that is used to calculate the
member’s benefits -
accrual rate: the rules of the scheme will determine the rate at which benefits accrue,
e.g. 1/60th of pensionable remuneration for each year of pensionable service.
Chapter reference 1E2
Aditya only has an uncrystallised personal pension. If he wishes to access his benefits flexibly, he can take them in the form of a:
a.flexi-access drawdown or capped drawdown.
b.capped drawdown or UFPLS.
c.flexi-access drawdown or UFPLS.
d.flexi-access drawdown, capped drawdown or UFPLS.
c.flexi-access drawdown or UFPLS.
Flexi-access: There are no restrictions on the amount of income that can be
drawn each year.
UFPLS: Up to 25% of the UFPLS will be tax-free,with the balance taxable as the member’s pension income via PAYE. The member can take as much or as little as they like from the fund as an UFPLS.
Capped-Drawdown: it is no longer possible to set up a new capped drawdown plan, though individuals who have already designated funds into one can continue in it. They have the
option of changing to flexi-access drawdown.
Chapter reference 1E3A
Which Government initiative is intended to encourage people to save towards their retirement?
a.The end of contracting out via defined benefit pension schemes.
b.The introduction of compulsory membership of occupational pension schemes.
c.The introduction of the new State Pension.
d.The introduction of full flexibility in how pension benefits can be taken at retirement.
d.The introduction of full flexibility in how pension benefits can be taken at retirement.
the introduction of auto-enrolment
has increased the amount that people are saving towards their retirement. The introduction
of pension flexibility for defined contribution schemes may also help
SILLY QUESTION WORDING, B states the pensions are COMPULSORY which they are not, they are auto-enrol
Chapter reference 1C
As well as life expectancy, annuity rates are based on expected returns from which type of underlying investment?
Annuity rates are based on life expectancy and expected returns from gilts.
Chapter reference 1A2
State Pensions are funded on a ‘pay as you go’ basis. What does this mean?
‘Pay as you go’ means that the National Insurance contributions of the current working population pay for today’s pensioners’ State Pensions.
Chapter reference 1A2
Outline four taxation incentives associated with a pension scheme.
In order to encourage saving via a pension, the following incentives are offered:
- income tax relief on contributions made by individuals
- contributions made by employers are treated as a business expense for corporation tax or income tax purposes
- the investment profits of the fund are exempt from income tax and capital gains tax
- the ability to take part of the proceeds as a tax-free cash lump sum, known as the pension commencement lump sum
Chapter reference 1D
In recent years, the fastest population increase has been in the number of
people aged:
a. Under 16.
b. Under 35.
c. 65 to 75.
d. 85 and over
d. 85 and over
The fastest population increase has been in the number of
people aged 85 and over
Chapter reference 1B
Paul reached his State Pension age in March 2016. He had always been selfemployed. Which State Pensions, if any, did Paul build up an entitlement to?
a. No State Pension.
b. Basic State Pension only.
c. Basic State Pension and SERPS only.
d. Basic State Pension, SERPS and the S2P.
b. Basic State Pension only.
Since Paul has always been self-employed, and retired before April
2016, he has only built up an entitlement to the Basic State Pension.
Chapter reference 1E1
