Chapter 7 & 8

Question 1

Features of Small Pots

Answer 1

DC
From retirement age, ill health or protected
£10k maximum
Limit of 3 from non-occupational & unlimited if unconnected Occ.
Can split PPP of £30k into 3 however cannot split EPP
Not tested against LTA or MPAA

Question 2

Features of Triviliality

Answer 2

DB & in-payment money purchase in-house pension (payable by scheme admin)
£30k maximum & must extinguish all entitlement
Lump sum paid if available LTA
All assets must be valued (DB/DC inc cry for LTA - check if rec income as if so no TFC)
The nomination date & must start within 3 months otherwise start the process again
Take within 12 months of first payment
Not tested against LTA or MPAA

Question 3

When can a Trivial lump sum death benefit be paid

Answer 3

Can be commuted at the outset or any time afterwards
Max of £30k per scheme
Must extinguish all entitlement under the scheme

Question 4

How do you value benefits crystallised before A-day

Answer 4

Income on 05/04/2006 - Annual income x 25 (IGNORE TFC)
Income After 05/04/2006 - Value of BCE in monetary terms plus PCLS (i.e. for income x20)

Question 5

Scheme Pension Benefits & Drawbacks from assets

Answer 5

Benefits - no immediate lump sum paid out as capital, member/dependant could die earlier and scheme keeps remaining funds, income escalates by no less than statutory minimum
Drawbacks - Additional admin, have to decide options at outset

Question 6

Reasons why stop or reduce scheme pension

Answer 6

Reasons - bridging pension, pension sharing, forfeiture of entitlement from regs (fraud),
NOT abatement or LTA charge

Question 7

Setting up a pension income

Answer 7

DB rules of scheme determine benefits, esc by min of statutory increases
Scheme pension possible to phase in if scheme allows

Question 8

What is the maximum guarantee period for a scheme pension?

Answer 8

10 years (term certain) but no restrictions on who can receive

Question 9

How often do withdrawals on flexible annuities need to take place

Answer 9

At least once every 5 years

Question 10

What are the features of a survivors annuity

Answer 10

No PCLS, can include an annuity for dependant and/or nominee (i.e. wife & son), Tax treatment determined by previous holder when they died
Pre 75 then tax free
Survivors annuity cannot include any death benefit (i.e. WP or income)

Question 11

How can a member transfer an annuity?

Answer 11

They cannot insist, it’s only if both companies agree and give a value for the annuity. The terms could be changed on transfer.

Question 12

Which factors affect annuity rates

Answer 12

long term bond yields & longevity or impaired life

Question 13

What is the most cost effective annuity option

Answer 13

Guarantee, esculation usually costs the most. Look at when it commences yearly vs monthly

Question 14

What happens on a with-profits annuity if the rate set at 4% and actual growth is 3£

Answer 14

The initial income will be reduced

Question 15

When can a client not take UFPLS?

Answer 15

If have primary and/or enhanced protection
More than 25% scheme specific TFC
UFPLS does not have PCLS although 25% can be tax-free

Question 16

When would a capped drawdown review be due following a 75th birthday

Answer 16

Start of the pension year following birthday, annual reviews and within 60 day window ending on the new reference date.

Question 17

If designating new funds to drawdown then how does the recalculation occur

Answer 17

If existing plan then one basis amount is applied and only one three-year reference period. No new pension year. Basis is immediately recalculated.

Question 18

What are the features of a short-term annuity?

Answer 18

Not exceeding 5 years and need to use drawdown funds to purchase

Question 19

What are the drawdown death benefit options?

Answer 19

Survivor FAD
Lump sum death benefit
Survivor annuity
NOT Survivor Capped

Question 20

What are the features of survivors FAD

Answer 20

Can take as much or little as they want
No limit on how many times funds can be passed down
Outside survivors estate for IHT

Question 21

How will a like-for-like drawdown transfer affect the max pension & basis amount

Answer 21

These will continue in the new scheme as if the transfer has not occurred. Pension year & reference period do not change

Question 22

When does an OMO statement need to be sent

Answer 22

no more than 2 months after age 50

Question 23

When must a firm send an retirement remainder & what needs to be included

Answer 23

at least 6 weeks before retirement date & recommend they seek guidance or advice.

Question 24

When providing a guaranteed annuity quote how should the cost be shown

Answer 24

as a single montetary value, net of any adviser charges

Question 25

What risk factors should be mentioned in a drawdown suitability

Answer 25

Inv return may be lsess
levels of income may not be sustainable
tax implications

Question 26

What does a critical yield show

Answer 26

Takes account of mortality drag and cost of drawdown compared to annuity.

Question 27

What does a Type A critical yield show

Answer 27

growth rate on drawdown to provide & maintain income equal to annuity rate age 65, 70 & 75
Allows standard tables but preferred if client specific

Question 28

What does a Type B critical yield show

Answer 28

growth rate needed to provide & maintain a secured level of income. Must also send Type A
If type A is higher then plan to take and maintain a lower income that could be from an annuity.

Question 29

What are vulnerable capability markers

Answer 29

Learning difficulties
No/low access to support
Low knowledge or confidence in managing finances
NOT Mental condition or over indebtedness

Question 30

Why is a differences between phasing from an annuity vs FAD

Answer 30

Less investment risk with annuity
Can take at any time
Income taxed as PAYE
cry determined by income needed & annuity rate
FAD - more tax efficient, can control income & amounts more than annuity, If only take TFC then no MPAA, no need to select survivors benefit at outset, higher lump sum death benefit compared to annuity

Question 31

Calculation of phased annuity - finding how many segments needed (A) and checking this meet target income

Answer 31

value/segments = Y
25% of Y is PCLS
75% of Y times by annuity rate = gross income (Make sure to do this first)
Deduct tax i.e. x80% for basic = net income (Z) plus PCLS
Target income/Z = A (rounded up)

A times PCLS & A times net income = target income

Question 32

FV needed to get target income with no segments

Answer 32

Change to per £100 of fund with £25 as TFC
£75 x annuity rate, deduct tax and add to TFC
This becomes a percentage
target income/percentage i.e. 0.xxxx

Question 33

How to get net income from cry amount

Answer 33

i.e. 20k cry fund value - take 25% of FV as TFC
75% of FV/100 times by annuity rate then deduct tax
Add together for net income