Chapter 2 & 3

Question 1

Which scheme operate net pay and how does this work

Answer 1

Silly name as taken from gross pay
Usually DB/Occ, Not GPP,
Employee conts taken from employee gross pay BEFORE tax deducted saves income tax at marginal rate.
Does matter what tax band as same method.

Question 2

Which scheme operate Relief at Source and how does this work

Answer 2

Source - Stake
DB, Personal, Stakeholder, GPP
Provider claims basic rate tax relief

Question 3

Which scheme operate Relief on Making a Claim and how does this work

Answer 3

RAC
All tax relief as self assessment

Question 4

What is adjusted net income

Answer 4

Total income from all sources less certain deductions i.e. personal pension cont

Question 5

When is self employed tax relief paid

Answer 5

1 - on a/c 31st Jan current year i.e. 2022 - 50% of 2021/22 liability
2. 31st July following end of tax year i.e. 2022 - 50% of 2021/22 liability
3. 31st Jan 2023 following end of tax year (for 2021/22) - difference between tax liability & two payments made. ALSO tax relief for current tax year received.

Question 6

What are the requirements for recycling PCLS

Answer 6

If ALL apply
PCLS & any other from 12 months exceeds £7500
Significant increase - more than 30% of expected
Cumulative sum excess 30% of PCLS

Would cause entire PCLS to be unauthorised

Question 7

What is the AA tax charge

Answer 7

if over PIP (tax year) then taxed at marginal rate tax i.e. basic, higher or additional

Question 8

How is DC input calculated

Answer 8

conts paid by the member or someone else before 75
NOT conts by member after 75 and any investment income/return

Question 9

How do you calculate the DB input at opening & closing of PIP

Answer 9

Open values times by 16 and revalue by CPI
Closing times by 16 NO CPI

Question 10

How is threshold income calculated

Answer 10

£200k - Threshold before adjusting (TA)
Take gross taxable income (inc Divi’s)
MINUS gross member pension conts
PLUS salary exchange
MINUS lump sum death benefits.
If over then do Adjusted

Question 11

How is adjusted income calculated?

Answer 11

Take gross taxable income (inc Divi’s)
PLUS employer pension conts
MINUS lump sum death benefits.
If over £240k then reduce £1 for every £2 over, if less then no taper

Question 12

How does carry forward work within own business

Answer 12

Up to £40k per tax year - not salary
Would only get tax relief up to % of salary

Question 13

What happens when the MPAA is triggered

Answer 13

Applies from following day of trigger and for ALL other tax years

Question 14

What is not a trigger for MPAA

Answer 14

If designate for drawdown & only take PCLS
UFPLS IS a Trigger

Question 15

How do you calculate an excess of LTA

Answer 15

There is a limit of 25% of available LTA TFC, minus this (if applicable) then work out any excess.
If cry then no TFC

Question 16

How is a scheme pension valued for LTA

Answer 16

Income x20

Question 17

How is a drawdown at age 75 valued for LTA

Answer 17

market value at 75 minus market value when designated

Question 18

How is a Transfer overseas value valued for LTA

Answer 18

Use the transfer value and IGNORE any preserved pension

Question 19

What is not a BCE

Answer 19

If tsfr from PP to ISPP
or if take benefits from RAC

Question 20

If a member has previously drawn benefits after A-day how are these valued for BCE

Answer 20

Calculate percentage of LTA for previous BCE, ROUND down, PCLS gets added seperately

Question 21

Sophie’s capped drawdown pension commenced in 2005 and is still a capped drawdown pension when she crystallises further benefits in 2022/23. For lifetime allowance purposes, her pension will be valued as the:

Answer 21

25 x 80% of max annual amount at date of BCE

Question 22

When may an individual be entitled to higher LTA

Answer 22

if not UK resident
Tsfr from overseas
Pre 06/04/2006 pension credit/share
After 06/04/2006 pension credit already in payment (started on/after 06/04/2006)
Primary Protection
Fixed 2012/2014/2016

NOT ENHANCED protection - as not higher LTA - instead based on value

Question 23

From 2028 what will the Normal Retirement Age change to (Not state pension age)

Answer 23

Due to change from 55 to 57

Question 24

What are the requirements if a client has a protected retirement age

Answer 24

Scheme must be taken in full
Reduced LTA - 2.5% by every COMPLETE year taken before NRA

Question 25

When must PCLS be paid

Answer 25

Between 6 months before and 12 months after entitled to pension

Question 26

How are small pots taxed

Answer 26

No LTA test for LTA
If unc then 25% TFC, 75% taxable
If cry then all under PAYE

Question 27

Which schemes can be taken as triviality

Answer 27

DB and in payment in house DC scheme pension

Question 28

How is an ill health commutation taxed

Answer 28

Pre 75 tax free up to LTA - 55% on excess
Post 75 all taxable as PAYE

Question 29

When is the MPAA triggered for secured scheme members

Answer 29

If less than 11 other members (including dependants) on/after 06/04/2015

Question 30

Who can have a scheme pension upon the members death

Answer 30

Dependant only, not nominee

Question 31

What is the 2 year window

Answer 31

when benefits designated to income/lump sum
date admin notified or could reasonably be expected to know about death

Question 32

What is the tax treatment of a DC death benefit lump sum - uncry or unused

Answer 32

If cry then funds unused
Before 75 (in 2 year window) - Tax free within LTA, excess 55% - There will be LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge

Question 33

What is the tax treatment of a DB death benefit lump sum

Answer 33

Maybe multiple of salary including DIS (size of fund is key factor on DIS tax)
Before 75 (in 2 year window) - Tax-free within LTA, excess 55% - LTA test (BCE7)
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge

Question 34

What is the tax treatment of FAD upon death - can be member, dep, nom or successor death

Answer 34

Before 75 (in 2 year window) - Tax-free, NO LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge

Question 35

How is a survivors annuity taxed on death - paid to dep or nom

Answer 35

Before 75 (in 2 year window) - Tax free, NO LTA test
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST
Trustee/personal rep - 45% tax charge

Question 36

How is a survivors annuity taxed on death of dep & nom

Answer 36

Before 75 (in 2 year window) - Tax free within LTA, excess 55% if lump sum/25% if income - LTA test (BCE5D)
After 75 - taxable on bene as PAYE (marginal rate). NO LTA TEST

Question 37

What the options for a dependant of a capped drawdown if they want income

Answer 37

only FAD, no capped dependant income

Question 38

How is a member/dep/nom/successor FAD taxed on death

Answer 38

If uncy then tax free within LTA, excess 55% if lump sum/25% if income - LTA test (BCE5C)

Question 39

What is the primary protection value for benefits already in payment on A day

Answer 39

25:1 and no PCLS taken into account

Question 40

How do you calculate primary protection factor

Answer 40

Value - 1.5m/1.5m = Y (don’t need to change to percent, keep as 0.xx)
After 2012 then underpin of 1.8m - this will be kept even in current tax year
1.8m + (1.8 x Y) = Total LTA
CAN still Accure
Stops you having individual

Question 41

How does enhanced protection work

Answer 41

Not higher LTA instead based on value, locks in pre-a day benefit value - regardless of value
CANNOT Accure

Question 42

How does fixed protection work

Answer 42

2012 - protected until 1.8m, over LTA then 55% tax charge
2014 - protected until 1.5m
2016 protected until 1.25m, no deadline to apply
No new pensions except transfer from existing pension
Cannot hold primary or enhanced protection

Question 43

How does individual protection work

Answer 43

2014 - if value over 1.25 then 1.50 max protected
2016 - if value over 1m then 1.25m max protected - can still apply
CANNOT have if have primary

Question 44

When may primary protection be recalculated

Answer 44

upon divorce with pension share as could take value under 1.5m - only way to lose primary

Question 45

How do you calculate primary PCLS

Answer 45

PCLS x 1.8/1.5 = answer

Question 46

How can you keep additional TFC upon tsfr without protection

Answer 46

if a bulk transfer or wind up

Question 47

How are pension investments taxed

Answer 47

No income tax or CGT
Trading income is taxable

Question 48

What are the unauthorised payments charges & who pays these?

Answer 48

Unauthorised charge - 40% on member if they are alive
Surcharge - over 25% of value of members rights - additional 15% charge
Scheme sanction charge - 40% but would minus unauth charge if paid
Dergistration charge - 40% on scheme admin

Question 49

What would happen to a member if they live abroad with no double taxation agreement

Answer 49

They would be taxed under PAYE & within country of residence

Question 50

What happens if a member living aboad exceeds the LTA when carrying out recognised transfer

Answer 50

then 25% before funds transfer

Question 51

How long can a member be temporarily non resident

Answer 51

Pre 06/04/2017 - 5 tax years
After 06/04/2017 - 10 tax years

Question 52

What conditions must apply if an uncrystallised funds pension lump sum [UFPLS] is to be taken after the member reaches the age of 75?

Answer 52

It can only be taken from funds that were not crystallised before age 75 and the member must have some of their lifetime allowance remaining.

Question 53

Certain members of occ schemes can take benefits at 50 as long as contractual right was in rules before which date

Answer 53

10th Dec 2003