chapter 2

Question 1

BCE 1-4 with valuations

Answer 1

BCE 1 drawdown pension - defined contribution fund assets to provide for the payment of a drawdown pension during the members lifetime - market value of the fund

BCE 2 - scheme pension - member is entitled to take a pension and is x 20
BCE 3 - excessive increase to scheme pension in payment is increase x 20
BCE 4 purchase of a lifetime annuity member becomes entitled to one under a defined contribution arrangement before 75 crystallised is market value of the memebrs drawdown fund used takeaway the value of the fund designated at outset. uncrystallised is amount used to buy

Question 2

BCEs 5 -D

Answer 2

5 - defined benefit test at age 75.This is when they have not taken it times by 20 plus the lump sum
A- test at the age 75 for drawdown pension the mem reaches 75 with a earlier designated drawdown pension fund which has not been secured by a lifetime annuity/ pension this is market value of the members drawdown pension at age 75 less the market value of that designated to drawdown at outset.
B - test at age 75 for uncrystallsied defined contribution funds. The member reaching age 75 under a defined contribution arrangement in which there are remaining uncrystallised funds test is market amount.
C - uncrystallised funds designated for drawdown following the members death. Member dies and tbe uncrystallised funds remaining are designated before the end of the two year window to a dependant’s or nominees flexi- access drawdown. Market Value designated for drawdown.
D- uncrystallised funds used to purchase an annuity following the members death within the two years this is market

Question 3

BCE to 9

Answer 3

BCE 6 relevant lump sums the member becomes entitled to a lump sum and the amount is the lump sum

BCE 7 relevant lump sum death benefits from uncrystallised funds of a defined contribution or any from a defined benefit. The anoint of the lump sum
BCE 8 - transfer oversees the value transferred to a QROPS
BCE9 - prescribes event where certain payments are made in respect of a member that constitutes a prescribed event

Question 4

LTA

Answer 4

• following the abolition of the Lifetime allowance no lifetime allowance is on any benefits on excess. Instead they pay tax on any amount over for :
• serious il health lump sums
• life time allowance excess lump
• defined benefit lump sum death benefit.
• uncrystallised funds lump sum death benefits

Question 5

relevant UK earnings

Answer 5

• employment from salary wages bonus overtime or commission
• general earnings from overseas crown employment
• income arising from patent right
• Earnings from a trade including partners and trady

Question 6

UK relevant individual

Answer 6

• must be under 75
  and have relevant earnings that will be taxable for that year
  or resident in the uk for some time during that year
  or was resident at some time during the 5 tax years before in which the contribution was made. Relief in these circumstances is a maximum of £3,600.00
  Additionally crown employees can be

If they are not a relevant UK individual then they may make contributions but won’t be eligible for relief

Question 7

tax relief minimum

Answer 7

• the maximum an individual can make is either 100% of earnings or £3,600.00 minimum
• children can receive £3,600.00 on the basis of £0.00 but if they earn more they can contribute more.
• if anyone earns more they would get it at marginal rate of income tax. Also works out £300.00 income tax

Question 8

The Net pay Method and benefits

Answer 8

• occupational schemes allow this but not group individual or stakeholder
• with the net pay method the employee contributions are taken from the employees gross pay before income tax is deducted.

-ie if they want to contribute £100 and they are higher rate tax payer

40% x £100 is £40.00

• Although only income tax is reduced national insurance are calculated on gross salary. National Insurance Contributions are not reducing

Question 9

relief at source

Answer 9

Contributions are paid net of basic rate of tax

• if teh employee is making a contribution of £100.00 the net contribution is £80 and is decudcted from the employees net pay (ie their pay after tax and NICs have been deducted) the pension pricier then reclaims the 20% basic rate tax relief . as the employee is a higher rate tax payer they can claim this via self assessment or their tax code.
• with self assement the additional relief is awarded by adding the cross amount of the continuing to the employees basic rate tax band and higher rate tax band. This providers the additional tax relief by increasing the anmounted taxes at the lower rate.
• stakeholder and personal pensions (including group ones) receive tax relief via the relief at source method.

-retirement annuity contracts prior to 2006 used gross and the indivisible reclaimed all their tax relief via relief via self assessment or adjustment to their tax code. this m this is known as the relief on making a claim method. Can continue or change this way

Question 10

timing tax relief

Answer 10

• a payment on account 31 january during the current tax year (31 january 2024 for 2023/24) this is 50% of the previous years liability
• a second payment on account 31 july following the end of the tax year. 2024 for 2023/24 will be 50%
• a final payment on 31 January following the end of the tax year 31 January 2025 for 202324 - this is the difference between the years total tax bill and the two payments on account is made.
• dividends

Question 11

salary sacrifice

Answer 11

• it allows decisions in NI and income tax
• reduces take home pay when no pension has been paid.
• for others it either gives the same amount of higher.
• to work out the relief you need to times the pension contribution by income tax and national insurance ie 20% and 12%
• personal allowance may be reinstated
• saves the corporate NI as well

Question 12

pension recycling

Answer 12

• unauthorised payment for all PCLS where it exceeds £7,500
• date is 1 callander year for the PCLS
• if the PCLS is 30% larger than expected
• the cumulative sum of the extra contributions exceed 30% of the PCLS.
• the recycling was pre planned
• the additional contributions are made by the individual or by someone else such as an employer

Question 13

employer contributions

Answer 13

• no limit
• income tax relievable for sole trader and partner and corporation for limited company as it is gross
• ## must passed wholly and exclusively for HMRC to get behind it

Question 14

employer contributions and accounting periods

Answer 14

• is usually given in the same accounting period
• it is not where a loss is created that can be carried back or where a large single contribution is mede that is subject to spreading for tax relief purposes

Question 15

accounting period

Answer 15

• if it exceeds 210% of the contribution paid in previous chargeable period and the amoubt of the excess ( defined as the amount paid over and above 110% of the contribution paid in the previous chargeable period) is £500,00.00 or more

an employer contribution does not have to spread if the increased contribution is attributable to the funding of cost of living rises for pensioner member or future service liabilities for new scheme entrants

£500,000.00 - £999,999.00 2 accounting periods
£1,000,000 - £1,999,999.00 3 accounting periods
£2,000,000.00 or more 4 accounting periods

Question 16

defined benefit and cash balance pension input period

Answer 16

• get the starting amount of the pension at the start of the year may need to work this out. Then get it times it by 16 and the CPI increase of the september in year before
• get the closing amount of pension and times it by 16
• take the difference of eachother
• this is the total input amount recieved - remember there may be an annual allowance taxed

Question 17

threshold income

Answer 17

(gross income - gross member contribution ) + ( income given up for salary sacrifice or felxi renumeration - taxed lump sum death benefit )

• if it’s over £200,00.00 need to do another

Question 18

Adjusted Income

Answer 18

(gross taxable income + employer contribution) - taxed death benefits

Question 19

annual allowance and carry forward

Answer 19

• the maximum is £60,000.00
• can use carry forward this helps do scheme where someone suddenly gets a spike in money at one time
• they can carry forward allowances.
• need to use current one first
• Must be a pension member
• £40,000.00 for other years

Question 20

MPAA

Answer 20

• UFPLS
• First draws from a flexi access drawdown fund including a flexi annuity.
• notifies scheme administrator that they want to convert a pre2016 april 2015 called drawdown into flexi and does take funds
• takes more than allowed from capped
• received a stand alone lump sum when entitled to primary protection where the lump sum protection was greater than £375,000.00 on 5 April 2006
• received a lifetime annuity where the annual rate of payment can be decreased in other permitted circumstances
• receives a scheme pension directly from the funds of a defined contribution arrangement where they are providing scheme pensions for 11 or less member
• Payment of one of these from an overseas pension scheme that has had relief

Question 21

MPAA rules and benefiqcries

Answer 21

• it is not triggered if a dependant takes benefits from the pension arrangements ie flexible access drawdown or annuity etc when it’s in relation to someone else’s pension

Question 22

MPAA is not set

Answer 22

-PCLS
- trivial commutation
- payment scheme pension from defined benefit arrangement
- small pot
- received a payment from scheme pension paid directly by defined contribution where there are 11 members or more are receiving a scheme pension paid directly from scheme funds
- life time annuity
- received a scheme pension secured by way of an annuity from a defined contribution fund of any size.
-takes no more than maximum from a pre 6 April 2015 capped drawdown
- received a lifetime annuity where payments can not go down expect in prescribed circumstances l.
- received a payment from a dependants ( or nominees or successors flexi- access drawdown fund.

Question 23

alternative allowance

Answer 23

• this is £50,000.00 for db and
• pensions savings tested against the MPAA are not tested against the annual allowance.
• if they go over this there is an alternative amount due - taxed at marginal rates

Question 24

MPAA cash balance meant arramagment - paying half way through

Answer 24

• unlike pre and post the the allowance is divided up into an apportionment
• if you triggered the MPAA on the 265th day of the period the proportion of the amount tested is 100/365 times the pension input amount.

Question 25

MPAA half way through

Answer 25

• only the amount afterwards is tested against the MPAA
• could contribute more than £10,000.00 before.
• must pay the annual allowance if not
• can not carry forward the unused amount. However you can carry forward the unused alternative allowance.

Question 26

MPAA and alternative allowance

Answer 26

• MPAA is under £10,000.00
• ie £3,000.00 is under this
• if someone had an amount of db pension input and the amount of MPAA is below £10,000.00 ie £2,000.00 this amount would be added to the DB and tested against the annual allowance to ensure that there want too much going in

Question 27

paying the annual allowance

Answer 27

• member usually does it via self assessment.
• can ask for ‘scheme pays but must be over £2,000.00 and the members pension savings in tbe pension scheme for the same tax year has exceeded the annual allowance of £60,000.00
• the tapered annual allowance and MPAA are not taken into consideration when defending if the scheme pays.
• the scheme can pay if the amount is less than £2,000.00 and and the input of their scheme is less than £60,000.00 but it’s up to them.
• in a db the adjustment is to the benefits that the member had accrued. the scheme must be able to prove it is fair and reasonable

Question 28

annual allowance in practice person with a £90,000.00 salary contributes £30,000.00. £40,000.00 employer

Answer 28

= £70,000.00 gross and £10,000.00 over
- as she earns £90,000,00 we do £90,000.00 - her contribution£30,000.00 70,000.00 take personal allowance is £47430.
- add £10,000.00 £57430 then as this number falls in the higher rate 10,000.00 times 40% is £4,000.00 fee

Question 29

PRe A day valuation

Answer 29

• if it’s a scheme to life time annuity times it by 25 this assumes the PCLs h as been taken
• for capped drawdown 25 x 80% maximum income at the date of the BCE
• 25 x 80 % of maximum pension at the point the members drawdown pension turned into a flexible one
• this is only calculated when the client is taking a BCE post a day. it’s taken once to see how much they have left and it will not change even if the government tables change its a one off value against the standard lifetime allowance

Question 30

pension credit pre a day

Answer 30

• the day of the credit is transfer
• to calculate the amount the amount is first time see by RPI to get

SLA

this gives a decimal pint percentage which is enhancement of the Lifetkme allowance

Question 31

pension credit after 2006

Answer 31

• this is for pensions in payment

pension credit
———————– = percentage but lta
SLA

• if this is generated before April 2012 different theme apply and it is uplifted by £1.8million
• the uplift is added to the standard life time allowance at the date of the BCE ie if the percentage is 0.78 if would be SLA + (1.8 million x 0.78)

Question 32

higher life time allowance

Answer 32

• individuals may be entitled to one if they have transferred benefits in from an overseas scheme

a have an entitlement to benefits arising from a pension credit in respect of a sharing order following a
divorce before 2006

• pension sharing order following divorce that was acquired on or after then and derieved from a pension that was already in payment to the original member at the time ( must have started on or after 6 April 2006
• primary protection and have benefits in respect of a pre a day scene
• fixed progression 2013 as a result of the reduction of the lifetime allowance from 1.8 million to 1.5 million
• fixed protection 2014 of indivisible prediction 2014 as a result of the reduction of the lifetkme allowance from £1.5 million to £1.25 million on 6 April 2014
• Fixed protection 2016 when it went from £1.25 million to 1

Question 33

self assment tax payment

Answer 33

1 31 January - 50% of the previous year ie 31 January 2024 ( 2023/2024)

2 31 July - 50% of the previous year ie 31 July ie 31 July 2024 for (2023/2024)

3 Balancing Payment 31 January following end of year ie 31 January 2025 for (2023/2024)