Chapter 4 - State Pensions and Pension Products Flashcards
Basic State Pension
Max £125.95 per week 18/19 Must be claimed. Paid 4 weekly 30 years NIC credits Triple Lock - NAE (Nat Ave weekly Earnings), CPI, 2.5%
Earnings Related Schemes
Must earn LEL for Class 1 NICs and not be contracted out of state scheme.
1961 - 75 First Scheme - Graduated - April 61 and April 75.
Death, 50% payable to spouse. Small amounts.
1978 - SERPS
Upper band earnings. Between upper and lower, so 25% of middle band could be accrued.
2002 - S2P. To help low earners.
2003 - Pension Credit
Could contract out but since April 2012 only through employer DB scheme.
Single Tier State Pension - From 6 April 2016
35 years of NICs to get max £164.35 per week.
Minimum 10 years credits (NOT allowed other persons NIC record to boost your own STP)
If protected payment, this added to basic and increases by CPI. (STP by Triple Lock)
Class 3A NICs can be purchased up to max of extra pension of £25 per week. Ended April 2017.
State Pension Age
2018 Dec to 2020 October - both men and women age 66.
2026 April to 2028 April - increase to 67.
Deferring State Pension
Can only do this once.
Increased income or lump sum. But post 6/4/16, increased income only.
Min deferral 1% per - 5 (10.4%pa) - 9 (5.8%pa) weeks
Pre 6 4 2016 - Lump sum min 52 wks, Interest 2% pa
Post 2016 - No lump sum
Death
- Pre spouse deferred benefits
- Post at best up to 3 mths
Payment of State Pension Overseas
UK res for 6 months
EEA country or Switzerland
Reciprocal agreement with UK.
Tax
In UK, taxed as usual
Outside, taxed in own country if double taxation agreement.
If no double taxation agreement, taxed as per UK AND own country.
Secured Income - Scheme Pension
DB or MP. Should know this!!
Table page Ch 4 page 10
Type of income
Member options - scheme/annuity or DD
How secured - Scheme or ins comp/ MP or ins comp
Level of pension - scheme rules/fund value
Payment options - scheme rules/member chooses
PCLS - scheme rules/ 25%
PCLS availability - Both LTA limited up to 6 mths before
Escalation - scheme rules statutory min/member no statutory minimum
Guarantee - scheme rules 10y max / same but unlimited for Lifetime Annuity
DB lump sum death benefit only / None
Payment Protection 20x less paid / same but selected by member
Dependants - 50-66 / seleced by member
Lifetime Annuities
New Flexible Lifetime Annuities since April 2015
Conventional can avoid MPAA if paid by insurance company, payable for life and/or guarantee period, income must be level, rising or variable in line with HMRC criteria.
Investment Linked
WP or unit linked
Flexible annuities trigger MPAA rules.
UFPLS
Since April 2015
Can only be taken from uncrystallised MP fund.
MPA or ill health age.
If under 75
Sufficient LTA
If not, UFPLS must be reduced.
Or if payment does exceed LTA, excess taxed at 55% or put in flexi access drawdown and taxed at 25%.
If over 75
UFPLS of any size
Tax free part restricted to 25% of remaining LTA.
UFPLS cannot be taken if Primary and/or enhanced protection in place where lump sum protected is for more than £375k.
Scheme specific TFC > 25%
Lifetime allowance enhancement factor is less than 25% of proposed UFPLS.
Tax - LTA charge, income tax and IHT.
Unsecured Income - Drawdown
Capped or Flexi-Access 1/3 of amount in FAD TFC (i.e. 25%) Annuity rates may fall Mortgality Drag Ongoing charges rules could change Triggers MPAA - income taken No limit to successors Month 1 tax for ad hoc, coding for regular IHT protection as under trust
Short Term Annuity
Max term 5 years
If drawdown used to fund, risk is loss of investment growth…might have been better if left in the fund.
Why would you recommend short term annuity? Need good case….
Phased Retirement
Can do phased annuity purchase.
Funds crystallised periodically to provide fixed income amounts.
PIE
Pension Increase Exchange
Ch 4 pg 13
Risk - inflation, longevity
Cost - Advice, lower accrual, misselling and legal
Income - Breakeven point
