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IAD paper 3 > Chapter 3 - Retierment Planning > Flashcards

Chapter 3 - Retierment Planning Flashcards

1
Q

Role of the government with pensions

A

The gov offers pensions tax incentives that no other product receives. The gov objectives is to ensure that people in the uk can have an aliquoted standard of living when in retirement.

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2
Q

Challenges facing uk gov with retirement

A

Increased population and life expectancy means the need of the state pension is ever increasing so the age is increasing for it. Equal sex age now and increasing the actual age.

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3
Q

Types of pensions

A

Work place (occupational)
Personal pension (sipp or sass)

These can wither be a DC or DB pension

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4
Q

Defined benefit scheme

A

These are always occupational schemes and it is where you are guaranteed a certain benefit. Usually a proportion of final salary based off service. Ie one 60th of the final salary x the number of years up to a max amount.

This means you know what your pension will be.

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5
Q

Defined contribution

A

This is about the amount contributed into the fund and the effects of the investment program it is under.

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6
Q

Tax incentives for pension

A

Income tax relief on contributions
Pension grow free of income and CGT
Lump sum tax free element

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7
Q

The state pension

A

This is based of NIC payments a person has made.
Can claim within 4 months of SPA currently 66 for both genders 67 by 2028 & 68 2039
Before 2016 you get basic state pension and now after you get new.

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8
Q

Basic state pension

A

169.50 a week but increase with either 2.5% - prices - or earning which ever is highest.

You have to had 30 years of qualifying NIC to get.

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9
Q

New state pension

A

10 years of full Nic to get any amount and 35 for the full amount. 221.10 is the full amount. Per week.

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10
Q

DB pensions

A

These are a promise to pay a pension based on number of years service, pensionable salary and accrual rate.

Payments must increase in line and an agreed saturtory amount

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11
Q

Advantages and disadvantages of DB schemes

A

Ad :
Know what your getting
Will inflate
Helps staff retention
No investment risk
Dis:
Employer carry investments risk
Must have trustees
Costly
Employerngoes bust then pensions suffers.

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12
Q

Ad vs dis of DC scheme

A

Ad:
Employer knows where their commitment ends
Good fund performance is good
Lower cost
Access at 55
Dis
Run out of money
Performance reliant
Member carry risk

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13
Q

Pension contributions and their tax

A

Can be made by an individual or employer or third party.
Max contribution per year is gross 100% of their income or 3600 which ever is higher. To receive the tax relief then
Be under 75
Uk res
Uk earnings

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14
Q

Pension tax relief and how it’s received

A

You are taxed on your income at source so any contributions made the administrator immediately claims the 20% back. If your are higher or addisitional you need to do the self assessment to get the 20/25% back.

The net pay method is where their gross pay is is reduced by the pension contribution before income tax, DB schemes work this way.

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15
Q

Annual allowance

A

This is the allowance of pension contributions across personal and workplace pots. That get the tax relief.
Any amount above allowance does not get the Benifit.
60k per year.

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16
Q

Tapered annual allowance

A

Income over 260k. For every £2 over decrease allowance by £1. Max reduction is 50k down to 10k .

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17
Q

Carry forward allowance

A

You can bring forward three years of allowance in one payments if the scheme has been set up.

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18
Q

Money purchase allowance

A

This applies to DC schemes. If you access the money in the fund then the future contributions can only be 10k per year.

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19
Q

Life time allowance (LTA)

A

This is the maximum amount that can receive the tax benefits within a pension any additional amount doesn’t not the the Benifits. It is now £1,073,100.

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20
Q

DB scheme LTA

A

If not draw then x20 the entitlement plus value of any lump sum
If was in payment before a day2006 thenx25

21
Q

Protection pension funds

A

This is where you can protect your allowance based off the size of the funds at certain times. If you had more than the allowance when the rules where introduced then you could protect the allowance you have now as your contributed based of the rules at present.

Means you can benifit from night allowances. Either primary or advanced protection. And inderviduals had three years to do so.

22
Q

Primary protection

A

This is if you had over 1.5m in 2006 and you can work out your protection factor by
Fund size - 1.5m/ 1.5m = additional factor.

To then calculate the actual LTA of an indervidual you:

Fund size + additional factor x fund size.

23
Q

Enhanced protection

A

This protects the full value of the pension rights however no further contributions could be made.

24
Q

Fixed protection

A

This is where if there where any decrease to the LTA then people did not loose the benifit of the pre-exciting LTA

This was the same in 2014 & 2016 for the two decrease but no further additions could be made.

25
Q

The lump sum death benifit

A

This limits the amount of tax free benefit there is when a death occurs before 75. Subtract the 25% form the allowance and then this is the benifit they can receive tax free. If the tax free cash has been taken.

26
Q

Taxation on death for pension

A

Before 75 - lump sum or income can be received tax free to the beneficiaries.
After 75 - received into pension tax free but then will be taxed at their marginal rate . But does not pay inheritance tax.

27
Q

Refund of benifits

A

If you leave a DB scheme within 2 years you can get the contributions back if rules allow.

28
Q

The role of the pension regulator

A

This is the regulator for work place pension
They protect
Improve
Reduce risk
And ensure provision

29
Q

T&C for pension

A

Follow pension freedom in 2015 if a DB is worth more than 30k then you need to get advice to move it.
Advisor must have the necessary training and qualification
Records must be kept indefinitely.

30
Q

Pensions and divorce

A

Pensions can be split in part of divorce settlements. Including after remarriage unless specific order rules out. There are multiple ways or doing this.
Splitting the pension up into two pots at time of divorce.
Offsting against other assets
Pension attachment order paying both parties an agreed amount when taken.

31
Q

Bankruptcy with pensions

A

Any approved pension by HMRC is not included into any bankruptcy issues. And neither can state pensions.

32
Q

Pension protection fund

A

PPF is a compensation scheme designed to protect DB members and covers the following
100% of cover for those who have reach pension age
Payments still rise with in line with agreement
90% of pension for this not currently of age.

33
Q

Financila assitance scheme

A

FAS supports DB members not covered by PPF.

34
Q

Types of governance for a pension

A

Trust deed or contract based.
Trust based operate on the net pay system
Contract based ones must claim back form HMRC

35
Q

Auto enrolment

A

Employers must auto enrol people into the pension this happens if
Above 22
Under spa
Earning over 10k

36
Q

Nest -

A

National employment savings trust this was set up to help employers meet their auto wntrolment obligations.
Charges
0.3pa and 1.8% on additional.

37
Q

DB schemes terminology

A

Actual rate this is the amount of the salary they are eligible for then mu9tipley by service up 2 49 years
NRA nominal retirement age - when you can start drawing
Lump sum included but does then take away for the income received. Lump sums are calculated of a separate actual rate
Can go to beneficiaries including lump sum

38
Q

DC schemes lingo and points

A

Pot is added to built up and invested.
GPP group personal pension - this is set up by employer and instead on occupational schemes they are groups of personal pensions. Contributions are then spit into each pot. Cheaper
Personal pension plan - arranged by individuals ie self employed
Stakeholder - limited charges so people can access
Sipp
Sass

39
Q

Uses for sips and sass

A

You can invest in what you choose - more control but higher risk.
Can lend money to people/ business as way of growth. No more than 5 year term.
Sass no more than 12 members

40
Q

FAD

A

Flexi access drawdown this is where you take some of pension but not all so you may enter into money purchase agreement.

41
Q

Uncrysrtylised funds pension lump sum

A

25%

42
Q

Drawing a pension in full cash

A

25% free and then the rest at marginal rate of income tax.

43
Q

State pensions

A

Before 2016 then BSP 30 years needed f9r this. after this
New state pension If fully qualified 221 per week. 35 years is needed to get full amount.

44
Q

State pension credit

A

This is an income based credit to top up pension income but not for this reaching after 2016.

45
Q

Guarantee credit

A

This tops up income for people is
Live in uk
Income per week lower than 218
Have disabilites of house if cost.
Can’t have over 10k savings

46
Q

Savings credit

A

This rewards people who have low income but still have savings must reach before 2016.
Min income of 180
Age over 65 for every £1 of the threshold 60p is given.

47
Q

Bereavement support payment

A

If spouse dies after 2017 then partner can receive support. As long as 25 weeks of NIC has been paid. If with child then will get - 3500 the 350 a month for 18 months.
No child
2500 then 100

48
Q

Differing state pension

A

Incentives offered by gov
1% added for every 5 weeks so one year = 10.4% extra ie like 22£

49
Q

Types of annuity

A

With profits - investing is done and profits share
Unit linked - linked to an investment and profit is received if done well
Short term up to 5 years
Enhanced/ impaired life
Flex rate
Joint annuity

IAD paper 3 (5 decks)

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