Chapter 10 - Retirement planning considerations Flashcards
Duncan has a low capacity for loss and wants to use his personal pension plan to provide him with a guaranteed, inflation proofed, income for life. Which of the following best meets his needs?
a.An index linked conventional lifetime annuity.
b.Phased annuity purchase.
c.A series of UFPLS payments.
d.A flexi-access drawdown pension.
a.An index linked conventional lifetime annuity.
no real specific notes, just read the chapter
Chapter reference 10D1
A small self-administered scheme [SSAS] has assets of £1m and the trustees wish to invest some scheme assets in the sponsoring company’s own shares. If the company’s value is £100,000, the maximum value of shares the SSAS can hold is:
a.£19,999.99.
b.£4,999.99.
c.£99,999.99.
d.£49,999.99.
d.£49,999.99.
The total value of shareholdings in the sponsoring employer that an occupational scheme
(i.e. a SSAS) can hold is limited to:
- under 5% of scheme assets in any one sponsoring employer; and
- under 20% of scheme assets, where the shareholdings relate to more than one sponsoring employer.
However, the shares in any one sponsoring employer of the scheme must still be less
than 5%.
Chapter reference 10B6A
Ruth will crystallise her pension fund and take the maximum pension commencement lump sum. She then needs an income that can be stopped and started as and when required. Which of the following best meets her needs?
a.Phased flexi-access drawdown.
b.Phased annuity purchase.
c.Flexi-access drawdown.
d.A unit linked annuity.
c.Flexi-access drawdown
No real specific notes, just read the section
Chapter reference 10D1
What is a potential benefit of using pension funds to purchase a buy-to-let property?
a.If the pension funds are used in conjunction with a mortgage the investment will be leveraged, which may increase the returns achieved.
b.When the property is sold there will be no liability to Capital Gains Tax.
c.Tax relief on mortgage interest is paid at the investor’s highest marginal rate of Income Tax.
d.The property will be outside of the estate for Inheritance Tax purposes.
a.If the pension funds are used in conjunction with a mortgage the investment will be leveraged, which may increase the returns achieved.
- If the client’s pension fund is significant it may be possible to just use the tax-free PCLS to either buy the property outright or as a deposit on the property. This would not result in any income tax liability (in respect of accessing their pension) for the client.
- Using the PCLS as a deposit and taking out a buy-to-let mortgage may make sense for someone in good health who expects to live for many years. The big attraction is that the investment will be leveraged – i.e. the returns on the geared investment could be significantly higher than the cost of the mortgage leading to higher returns overall.
- Once the property has been bought, the ongoing rental income plus the capital value of the property may protect against the risk of running out of cash during the client’s lifetime.
Chapter reference 10F2A
What is NOT a condition that must be met if a small self-administered scheme makes a loan to its sponsoring employer?
a.The interest rate charged must be no lower than 1% above the average base rate of the six main clearing banks.
b.The loan must be repaid in equal annual instalments of capital and interest.
c.The loan must be secured as a first charge on assets that initially have a value at least equal to the loan plus the interest.
d.The loan must not last for longer than three years and can only be rolled over once.
d.The loan must not last for longer than three years and can only be rolled over once.
They should not last for longer than five years, although at the end of the original term it is possible to roll over loans for one further period of no more than five years (without replacing the existing security), if the employer is having difficulties in meeting payments due
Chapter reference 10B6B
Archie is aged 25 and is a member of his employer’s workplace pension scheme. The scheme has a normal pension age of 65 and Archie is invested in a medium risk lifestyle fund. It is most likely that the de-risking process will start:
a.no sooner than 35 years’ time.
b.in 25 - 30 years’ time.
c.in 30 - 35 years’ time.
d.in 25 - 35 years’ time.
c.in 30 - 35 years’ time.
To deal with this situation some pension providers offer a lifestyling option. With this option
the investment mix of the pension fund is automatically moved away from equities and into
fixed interest investments and cash as retirement approaches.
the switching begins between five and ten years before the individual’s selected retirement age
Chapter reference 10B5A
If a client wants a high proportion of their pension fund to be held in cash, with the balance held in funds where there may be a limited degree of fluctuation in value, they are most likely to be categorised as having a:
a.high attitude to risk.
b.medium attitude to risk.
c.medium to high attitude to risk.
d.low attitude to risk.
d.low attitude to risk.
Low risk is
The client is a cautious investor and wants a high proportion of pension funds to be in
cash or other guaranteed investments. Some pension investments could be in funds where there may be a limited degree of fluctuation of values in return for prospects of modest
long-term growth.
Chapter reference 10B1
The OJH Ltd small self-administered scheme [SSAS] has assets valued at £780,000 and outstanding borrowing of £130,000. As a result the maximum loan the trustees can make from the scheme to OJH Ltd will be:
a.£325,000.
b.£390,000.
c.£260,000.
d.£195,000.
a.£325,000.
Loans from an occupational scheme to the sponsoring employer must not exceed
50% of the net value of the scheme’s assets at the date the loan is granted.
IDK why they arent including the value of the assets already borrowed as it says they should in the book, probably due to the word ‘maximum’ in the question so dumb wording
Chapter reference 10B6B
Penny has earned income of £60,000 in 2024/25. If she withdraws £25,000 from her ISA and £25,000 from her flexi-access drawdown fund, how much income tax will she pay on these withdrawals?
a.£5,000.
b.£20,000.
c.£10,000.
d.£7,500.
c.£10,000.
Flexi-access generally uses all the PCLS so the client is paying income tax on the income from this.
ISA withdrawals are tax free
Chapter reference 10D1C/10F1
Why might a 68 year old with an uncrystallised pension valued at £80,000 and a mortgage-free house worth £680,000, use equity release to provide a £30,000 lump sum instead of taking capital from the pension?
a.The costs associated with equity release are likely to be lower than those associated with taking the lump sum from the pension fund.
b.They will not be able to take £30,000 out of the pension as a lump sum.
c.The rate of interest associated with the equity release is likely to be very low.
d.Equity release will reduce the value of the estate for inheritance tax purposes leaving the pension fund untouched, which will be outside of their estate.
d.Equity release will reduce the value of the estate for inheritance tax purposes leaving the pension fund untouched, which will be outside of their estate.
When deciding whether to use equity release rather than take an income from a pension
there are a number of considerations:
* equity release will reduce the value of the client’s estate for IHT purposes and may allow
them to leave the more IHT efficient pension untouched
* if the value of the house is less than the available nil rate band, the costs associated with taking an income from the pension tend to be less than those associated with equity release (e.g. equity release costs can include valuation, arrangement and legal fees)
* the rate of interest associated with the equity release can be very high, so individuals may prefer to access their pension initially and then release equity from their house later in retirement
* the release of capital may affect the homeowner’s tax position and entitlement to State benefits.
Chapter reference 10F2B
