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R01 > Chapter 2: Retail consumer > Flashcards

Chapter 2: Retail consumer Flashcards

1
Q

Income tax bands for 23/24

A

0-12570 (0%)
12570-50270 (20%)
50270-125410 (40%)
125410+ (45%)

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2
Q

What are the key aspects of a KYC

A
  1. Current financial situation
  2. Investment objectives
  3. Client knowledge and understanding
  4. Impact of advice given
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3
Q

What are some main considerations when making recommendations

A
  1. KYC assessment
  2. Recommendations within client risk profile
  3. Considering affordability, suitability, debt repayments, tax
  4. Providing level of service disclosed up-front
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4
Q

What is cashflow modelling used for

A

Analysing a clients situation throughout their lifetime in order to stress test

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5
Q

What are suitability reports

A

Provide background to recommendations and WHY a course of action is being recommended. Justification for decision, advantages and disadvantages, and any needs that are not addressed in the current recommendation

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6
Q

What is the hierarchy of needs

A
  1. Budgeting
  2. Managing debt
  3. Borrowing
  4. Protection
  5. Savings and investments
  6. Retirement planning
  7. Estate planning
  8. Tax planning
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7
Q

What is MaPS

A

Money and Pensions Service that offers free advice on personal finance - succeeded now by Money Helper

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8
Q

What are the three types of expenditure

A
  1. Essential (Mortgage, tax)
  2. Day to day (food, travel, education)
  3. Non-essential (clothes, going out)
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9
Q

What are signs of debt problems

A
  1. Use of payday loans
  2. Adding debt to mortgage
  3. Using credit cards to pay bills or taking cash advances
  4. Minimum payments on credit cards
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10
Q

What are debt repayment plans

A

Self managed arrangement where repayments are negotiated with creditors

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11
Q

What are debt management plans

A

Involves an adviser who is licensed under the Consumer Credit Act, where the adviser negotiates with creditors and payments are made by the individual to the adviser, who pays the creditor

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12
Q

What is debt consolidation

A

Negotiating a new loan of mortgage extension that pays off previous loans and lowers monthly repayments - likely that the repayment terms are longer even if less per month

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13
Q

What is an Individual Voluntary Agreement

A

IVA are where an insolvency practitioner will negotiate the repayment terms with the creditors (creditors get back less than owed) for a 5 year period. This is legally binding and reviewed each year, this avoids ‘bankruptcy`

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14
Q

What is a mortgage

A

Security offered to the lender in exchange for a loan (not the loan itself)

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14
Q

What is bankruptcy

A

When debt is 5k+, a creditor will file for bankruptcy of the debtor and a trustee will take control of the debtors assets. Creditors are repaid in a set order and the debtor may lose their home, however bankruptcy is discharged after 1 year where no further liability to repayments

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14
Q

What is assignment

A

Transfer of ownership from lender to borrower - usually conducted by registering a charge on the property on the Land Registry. Once the loan is repaid, the assignment ends and the borrower assumes full ownership (equity of redemption)

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14
Q

What is the Mortgage Market Review

A

MMR came into effect in 2014 and reduced the number of interest only mortgages given and generally more careful assessment

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14
Q

What are the main types of mortgage interest rate options

A
  1. Fixed
  2. Discounted (rate is set % lower than standard variable rate)
  3. Capped (upper limit)
  4. Capped and collared (upper and lower limits)
  5. Foreign currency
  6. Equity-linked (shared ownership with lender)
  7. Flexible reserve (Repayments act as a reserve which can be drawn down on again in the future)
  8. Equity-release (Takes a loan out against their property)
  9. Offset (interest on savings directly pays mortgage interest as bank account is linked)
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14
Q

What is the Mortgage Credit Directive

A

Rules that increase the level of consumer knowledge regarding mortgage costs. Includes initial document disclosure and 7-day reflection period

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14
Q

What are the two classes of BTL mortgages

A

Accidental (regulated, for consumers) and Professional (unregulated, for businesses)

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15
Q

What age is appropriate to consider equity release

A

60+

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15
Q

What is a lifetime mortgage

A

Equity release mortgage where the individual still owns the property
Can be
- Roll up (interest added through the term and paid on sale)
- Fixed repayment (no interest but premium paid on sale)
- Interest-only (interest paid monthly and loan repaid on sale)
- Home income plan (loan buys an annuity, repaid on sale)
- Shared-appreciation (lender owns equity and receives share pf profit)

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15
Q

What is the home reversion scheme

A

% of house is sold to the lender and the original owner can live in the property and pay ‘peppercorn’ rent

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15
Q

What additional qualifications does an adviser need to have to give advice on equity release mortgages

A

CII Long-Term Care CF8

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16
What is the sale and rent back arrangement
Selling your home to a private firm at a reduced price when in financial difficulty (avoids repossession)
17
What Islamic purchase plans are used commonly
Ijara (bank leases to individual) Murabaha (bank sells to individual by monthly payments at a higher price than house purchase)
18
What is a structured loan
Loan with fixed payment terms and penalties for early repayment (Car financing)
19
What is level term assurance
Set term and sum assured where payment is made on death (used for interest only mortgages)
20
What is decreasing term assurance
Set term and decreasing sum assured until the end of the term (used for capital and interest mortgages)
21
What is a family income benefit
Type of DTA with set term that pays out regular payments for the remainder of the term, following death of the life assured (low-cost assurance for young families
22
What is increasing term assurance
Sum assured can be increased with increasing premiums (form of guaranteed insurability used to combat inflation)
23
What is convertible term assurance
Policy can be converted to more permanent (WOL or endowment) (used when there are future underwriting concerns)
24
What is renewable term assurance
Option to renew the policy at the end of the term (used when there are future underwriting concerns)
25
What are endowment policies
Policy that involves life assurance and investment where a lump sum is guaranteed at the end of the term or on death (can be unit-linked)
26
What are whole of life policies
Sum assured guaranteed on death provided premiums are up to date, with no end date. Flexible WOL plans are popular where individuals can choose how much sum assured they want and it can be changed throughout life (premiums will reflect the sum assured)
27
What are the main types of sickness and health policies
1. Income protection (long term, permanent payment of approx 60% of earnings paid tax free, deferred period is included, cannot be cancelled by provider) 2. Personal Accident and Sickness (short term 12-24 months, paying lump sum or monthly payments, can be cancelled by provider) 3. Accident Sickness Unemployment (Short term 12-24 months, paying monthly payments, can be cancelled by provider) 4. Critical Illness Cover (Lump sum paid on diagnoses, disability or terminal illness, sometimes include a 'survival period' between 14-30 days where you need to remain alive to claim) 5. Private Medical Insurance (Private medical attention for short term conditions, sometimes subject to moratorium where conditions suffered in the last 5 years wont be covered for first 2 years) 6. Long term care (Payment towards elderly care, can be immediate [lump sump premium is invested and income funds care] or [pre-funded [just in case insurance]
28
What is payment protection insurance
Insurance against the inability to pay back a loan due to poor health or injury (for a max of 2 years)
29
What is mortgage payment protection insurance
Insurance against the inability to pay back a mortgage due to poor health or injury. Ancillary costs such a insurance or endowment premiums are also covered. There is a deferred period for 30-180 days (max 2 years)
30
What is meant by short term, med term and long term savings
Short - up to 5 years Med - 5-15 years Long 15+ years
31
What was a HTB ISA
For a first home worth 450k (London) or 250k (outside of London), the government would match 25% of deposits up to 3k maximum (replaced with LISA)
32
What is a LISA
Government bonus of 25% on contributions for a max of 1k per year (4k contributions) Can open until age 39 Can contribute until age 50 Can use on home worth 450k or draw on at age 60
33
What are the main savings accounts at NS&I
Direct saver, Investment account
34
What are regular income products at NS&I
Income bonds (taxable)
35
What are some guaranteed returns products at NS&I
Guaranteed bonds, Green savings bonds (taxable)
36
What are some tax free products at NS&I
Premium bonds, ISAs, National Savings Certificates
37
What are PIBS and PSBs
Permanent Interest Bearing Bonds (issued by building societies with no maturity date and no obligation to pay interest, but offer higher rates of interest). Upon building society demutualisation, these turn to Perpetual Subordinated Bonds (PBS)
38
What dates of birth would be eligible for a Child Trust Fund
Born between 1 Sep 2002 - 2 Jan 2011
39
What is the state retirement age
66 rising to 67 in 2028
39
What are the pension allowances
60k pa or 3600 if no earnings 1,073,100 lifetime limit
40
What is the difference between a lifetime annuity (compulsory purchase annuity) and a purchased lifetime annuity
Purchased lifetime annuity is bought with savings and offers higher rates of payments with more favourable tax treatment. Purchased lifetime annuities have an income element (taxed) and return on capital element (tax free) and the ratio is determined by health and age
41
What are single tier pensions
State pensions for people reaching SPA after 6 April 2016 £185.15 pw Eligibility = 35 years of NIC for maximum / 10 year for minimum
42
What is the basic state pension
State pensions for people reaching SPA before 6 April 2016 Eligibility = 30 years of NIC or 12 months for minimum Top ups for BSP are - Guaranteed Pension Scheme (NIC before 1975 for employees only and is a basic top up) - SERPS (NICs before 2002 for employees only to combat inflation) - S2P (NICs before 2016 for low earners or carers)
43
How do you calculate defined benefits entitlement
By 60th or 80th fractions where you take the years of service as a fraction of 60 or 80 (i.e 20 years of 60th = 20/60 or 1/3) meaning 1/3 of your final salary until you die
44
What is the minimum employer contributions to a DC pension
3%
45
What is NEST
National Employment Savings Trust - low cost workplace pension scheme to encourage saving for your retirement
46
What is an eligible job holder
Aged between 22-SPA earning 10k+
47
How was the IHT RNRB introduced
Introduced in increments of 25k starting at 100k, in 2017/18
48
How are NRBs transferred to spouses
The unused portion in that year is transferred as a percentage (not nominal value) i.e if you used 25% of your NRB, your wife would add on 75% of the NRB allowance at the time to hers, even if the allowance has increased from when you died
49
What is the child benefit
Payment to support bringing up a child Large tax charge if income is over 50k but otherwise non-taxable Not means tested on income
50
What is the Child tax credit
Benefit paid by HRMC regardless if parents work - means tested on income and is non-taxable
51
What is the maternity allowance
Paid to mothers who cannot claim statutory maternity pay Either 90% of average weekly wage or 172.48 (whichever is lower) Taxable
52
What is statutory maternity pay
For mothers, paying for 39 weeks either 90% of average weekly wage or 172.48 (whichever is lower) £123 LEL weekly earnings required to be eligible Taxable
53
What is statutory paternity pay
For new fathers, pays for 1-2 weeks either 90% of average weekly wage or 172.48 (whichever is lower) Must have worked for the same employer for 26 weeks Parental leave can be shared for up to 50 weeks of leave and 37 paid Taxable
54
What is income support
Financial support for those on low incomes means tested non taxable
55
What is the jobseekers allowance
Unemployment benefit for those who work less than 16 hours but looking for full time work NIC record based then means tested after 6 months Taxable
56
What are statutory redundancy payments
Payments made by employer First 30k not taxable then taxable thereafter
57
What is the working tax credit
In-work credits to those on low incomes Means tested Non-taxable
58
What is the attendance allowance
Provides help with paying for care Not means tested Non taxable
59
What is the carer's allowance
Help for someone providing care and working 35 hours a week Means tested Taxable
60
What is personal independence payment
Benefit to help people become more independent if disabled Individual assessment Non taxable
61
What is the employment and support allowance
Paid to those with illness or disability who are aiming to return to work (succeeded incapacity benefit) NIC tested then means tested Taxable when NIC tested then non taxable
62
What is statutory sick pay
Paid by employers up to 28 weeks LEL of 123 pw to be eligible NIC based Taxable
63
What are some other benefits to know
Bereavement Support Payment - If children younger than 20: Lump sum of 3500 then 350 paid monthly for 18 months - If no children younger than 20: lump sum of 2500 then 100 monthly for 18 months Cold weather - £25 daily for extreme cold weather bills Winter fuel - Annual payment of 260-600 for cold weather Council tax reduction Housing benefit - help with rent Local housing allowance - help with rent from private landlord Healthcare travel cost scheme Healthy start scheme Health costs benefit Funeral expenses payment - must be paid back from the deceased estate
64

R01 (1 decks)

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