Consumers Needs And How To Meet Them Flashcards
1
Q
When fulfilling their role, what must an advisor do?
A
Ensure that their recommendations address the personal needs of the customer.
2
Q
Why do many people not pursue private provision?
A
They believe the state will look after them.
3
Q
What does the advisor need, to discover wants and gots?
A
Hard facts
Soft facts
4
Q
What is a hard fact
A
Immutable facts
5
Q
Give 2 examples of soft facts.
A
What age would you like to retire?
How do you feel about investment risk?
6
Q
What is the process of obtaining facts called?
A
Fact finding
know your customer.
7
Q
As well as considering where the customer is now, what should the advisor also give due weight to?
A
What do they want in their future?
What do they want to leave behind?
8
Q
If recommending more than one product, what must the products be?
A
Well researched.
9
Q
When recommending products what should be given to the client?
A
A sutability letter setting out why it is appropriate for their needs.
10
Q
What is the overarching principle that domintes client interaction?
A
Clear, fair, and not misleading.
11
Q
Why do we need to understand the clients attitude to risk?
A
To know what:
Planning approaches
Products
Investments
Are suitable.
12
Q
What are the different life stages?
A
Vulnerable years
Relaxed years (40+)
Anxious years (50+)
13
Q
What 5 distinctions can be found in the vulnerable years?
A
Early years of adulthood
Loss of income could be serious.
Lower savings
High mortgage
Young children
14
Q
What 3 distinctions are in the relaxed years?
A
Higher level of earnings
Older children leave home.
Ill health becomes more likely.
15
Q
What 5 distinctions are in the anxious years?
A
Retirement draws near.
Not much time to top up pensions.
Long-term care takes over from life and health insurance.
Mind turns to passing on assets.
Inheritance tax planning becomes an issue.
16
Q
What is a more amusing breakdown of the life model?
A
Lager years- party years
AGA years- settling down
Saga years- just before retirement
Gaga years- long term care
17
Q
What must a financial planner do as life changes?
A
Adapt the clients financial plan.
18
Q
What 6 times should clients’ plans be reviewed?
A
Annually
Marriage or divorce
Birth/adoption
Change in job
Change in legislation
Other major events
19
Q
What does PIMPSI stand for?
A
Protection
Income Protection
Mortgages
Pensions
Savings and investments
20
Q
What 5 conditions could be set up for protection cover?
A
Dependents
Spouse
Creditors
Funeral expenses
Inheritance tax
21
Q
What does life insurance boil down to?
A
Ensuring that the ‘right money is in the right hands at the right time’
22
Q
What priority should protection be?
A
High for most customers, but some may not have dependents or liabilities, so it is not required.
23
Q
What are the two types of life insurance?
A
Term insurance
Whole life assurance
24
Q
What is term insurance
A
Insurance set for a set period that comes to an end if no claim is made.
25
What is whole life assurance?
Insurance that runs for life provided the contract is maintained.
26
What are the 7 different forms of temporary or term insurance?
Level term
Decreasing term
Increasing term
Family income benifit
Convertible term
Renewable term.
Gift inter vivos
27
What is level-term?
Insurance where the term, sum assured, and premium are all set out and stay the same.
28
What is decreasing term?
Insurance where term and primium are set and sum assured decreases each year.
29
What is increasing term?
Insurance where the term is set and inital sum is assured.
The primium and sum increase each year either by set percentage or in line with a change in inflation.
30
What is family income benifit?
Decreasing term insurance
Has a set term and primium
Sum assured set on income per year.
Pays out yearly upon death until the policy ends.
31
What is convertible term?
A level term insurance with an option to convert to whole life or an endowment at some point without providing further medical evidence.
32
What is renewable term?
It is similar to convertible terms but can be renewed at some point without the need to provide extra medical evidence.
33
What is gift inter vivos?
Policy that covers inheritance tax liability on a gift.
Decreases in line with the application of taper relief.
34
What forms of whole life assurance is there?
Non-profit
With-profit
Unit linked
35
What is non-profit life assurance?
Whole-life insurance where premium is set and the sum assured will be paid on death as long as the contract is upheld.
36
What is with profit whole-life assurance?
Basic level sum is set and increased over time with the addition of an annual revision bonus
Bonus can not be taken away.
On death, a 'terminal bonus' is sometimes paid
This reflects the difference between investment return and the amount paid in in the annual bonus.
37
What is unit linked whole life?
Similar to with-profit life assurance, but the sum assured is linked to a unit linked fund, and the client selects an estimated level of return, which sets the premium.
38
What are the 3 way unit linked can be set up?
Minimum cover
Balanced cover
Maximum cover
39
How is minimum unit-linked cover set up?
Minimum level of life cover to meet tax 'qualifying rules' and qualify the life policy.
Most of the premium is invested to produce an investment pot, which can be taken at a later date.
Effectively a savings plan.
40
What is balanced unit-linked cover?
Sum assured is selected on a middle growth estimate.
If the estimate is achieved, some of the premiums in the early years can be used to subsidise the later years.
This allows the premium to remain level for life.
41
What is maximum unit-linked cover?
Highest level set for premium.
A very high growth estimate is used, meaning that for the premium to remain the same for life, a high return is needed.
42
What is an endowment?
A savings plan associated with a mortgage, similar to minimum cover whole life assurance.
Part of the premium is used to provide a life cover that pays the mortgage on death. The rest is invested to provide a lump sum on maturity to repay the loan.
43
What are the 4 basis of life cover?
Own death
Joint life first death
Joint life second death/last survivor
Life of another
44
What does it mean to use a trust?
The owner of life policies (settlor) puts them into the hands of trusted individuals (trustees) to look after the proceeds for the benefit of other people (beneficiaries).
The proceeds can then be laid out without probate.
45
What is the difference between mortality and morbidity?
Mortality - likelihood of death.
Morbidity - likelihood of illness.
46
What are the 7 types of income protection?
Income protection
Critical illness cover
Payment/mortgage protection insurance
Redundancy protection
Personal Accident and Sickness Insurance
Accident sickness and unemployment cover
Long-term care insurance
47
How does income protection work?
Pays out an ongoing income if the customer is unable to work due to sickness or accident.
Plans have a deferred period before benefits commence.
48
How does critical illness cover work, and how are its premiums handled?
Pays out a lump sum when the claimant is diagnosed, provided they live for 30 days after. (I'm most cases)
Premiums set for life (guaranteed) or reviewable (change due claims.)
49
How does payment/mortgage protection work?
Short-term general insurance policies (usually 2 years) that pay loans or mortgage payments if Ill or made redundant.
50
How does redundancy protection work?
Replaces income, specifically to pay loans or mortgages, if insured lose their job via redundancy.
Voluntary redundancy is not covered.
51
How does personal accident and sickness insurance work?
Short-term policies that pay out a lump sum or income or both if unable to work due to sickness or injury.
52
How does accident sickness and unemployment cover work?
Pays out on sickness or unemployment.
It is similar to MPPI but not associated with a loan.
53
How does long-term care insurance work?
Pays out a sum-assured to cover care costs if unable to undertake daily activities.
Can be either pre-funded or immediate needs.
54
What other type of insurance might be useful to get people back to work?
Private medical insurance (PMI)
55
What needs to be considered when selecting private medical insurance?
Some will undertake a full underwriting process looking at the actual position of the patient.
Some will employ a moratorium.
This excludes from cover any condition for which has been seen within a certain period.
56
What European rulling affects all protection policies?
They must be charged on a unisex basis.
57
What does mortgage mean?
The use of property as collateral or security for a loan.
58
What are the two most basic home loan structures?
Capital and interest repayment
Interest only.
59
How does capital and interest repayment work?
The borrower pays back the capital over the length of the term.
In the early years, more of each payment is made up of interest, as time goes capital outstanding falls, and less interest is due meaning more can go on the capital.
60
How does interest only work?
The borrower makes payments of interest throughout the term but must repay the capital in full at the end of the term from other sources.
61
Historically, what were interest only mortgages popular with? And why was this bad?
Endowment policies
Many endowment policies were set up with unrealistic assumptions of growth and failed to produce enough capital to cover the loan.
Particularly with 'with profit' endowments as bonuses are added based on the life companies' performance. Bonuses were much lower than expected, causing early encashing of investments. This led to an early surrender charge known as a Market Value Reduction.
62
Following the mortgage market review (MMR), how is it possible to take an interest only mortgage?
Clearly defined plan for repayment
Borrow an amount determined by affordability.
Don't borrow on income multiples.
63
What are the different 10 interest rate options?
Variable
Fixed
Capped
Collar
Cap and collar
Tracker
Discount
Offset
Deferred interest
Foreign currency
64
What Sharia compliant products are there?
Diminishing musharaka
Ijara
65
What revolution led to many people looking to buy second homes to let out?
The Sarah Beeney Revolution.
66
What has the government introduced to the buy to let the market to make it less attractive?
Higher stamp duty and capital gains tax.
67
Are consumers buy to let mortgages regulated by the FCA?
Yes
68
Are businesses buy to let mortgages regulated by the FCA?
No
69
What is equity release?
A way to take out equity against property as most wealth is tied up in the investment that needs to be lived in.
70
What 4 types of equity release are there?
Home reversion
Lifetime mortgage
Shared appreciation mortgage
Green mortgage
71
What is home reversion, and how does it work? 4
The oldest form of equity release.
All or part sold to a provider for a reduced value.
Customer lives rent-free, for life.
Now has diminishing sales as other products offer the same benefits but more efficient.
72
What is a lifetime mortgage, and how does it work? 5
Runs for life.
Not repayable until the customer dies or moves into care.
Interest paid or rolled up on a compound basis and an initial release amount.
The provider may make available a drawdown facility from which funds can be taken.
No money drawn = no interest taken, so pre-approved facility only.
73
What is a shared appreciation mortgage?
A legacy plan.
The provider lent an amount of money in return for a certain percentage of future increases in the property value.
Became poor value to the customer due to increases in house prices so was scrapped.
74
What is a green mortgage?
Mortgage that rewards buyers energy efficient homes.
75
What is sale and rent back?
Similar to home reversion.
For people who have not paid back their mortgage.
For borrowers who fall into financial trouble.
Provider buys the house for reduced value. Rents to the customer.
No lifetime tenancy, so the client should look closely at the terms.
76
What is a more precise way of explaining pensions?
Retirement planning
77
What are pensions about?
Delayed gratification to live a more comfortable life in retirement.
78
Why are pensions difficult for some customers to get their heads around?
The world is geared towards having what you want now.
79
What job might an advisor have when discussing pensions?
To get the customer to paint a picture of their wants.
80
What 5 things should an advisor consider when discussing pensions and retirement?
Age
Income
Family situation
Lump sum needs
Current arrangements
81
What should be considered about a clients age?
Age now
Retirement age
How set in stone is the retirement age?
What would they do if they couldn't retire as planned?
82
What should be considered about a clients income?
Current level and expenditure
Future income needs in retirement
83
What should be considered about a clients family situation?
Do they have dependents?
Will those dependents still be dependent?
84
What should be considered under lump sum needs?
Will the client need any lump sum?
Providing these will reduce the amount available to provide income.
85
What 3 things should be considered under clients current arrangements?
What gots do they have?
What have they put in place towards retirement?
Do they have access to a good quality employer's pension over and above the basic 'workplace pension'?
86
What are the 5 different sources of pensions?
State
Employer
Auto-enrolment workplace pension
Personal pensions
Group personal/stakeholder pensions
87
When was the state pension changed, and to what?
April 2016, a single tier pension
88
How does the state pension work? 4
35 years of national insurance to receive full pension.
Reduced pension 10 years.
All who reached state pension before 2016 stay on old system.
Anyone who didn't but was on the old scheme gets a single tier with an additional protected payment.
89
When was the state pension equalised for men and women?
And what is the current age?
November 2018
66
90
How was the old state pension payed?
Basic state pension plus
top-up SERPS/S2P
91
What NIC do employees and employers make and self-employed make?
Employee/ employers - class 1
Self-employed classes 2 and 4
92
How are employer pensions divided?
Defined benifit/Final salary
Defined contribution/Money purchase schemes
93
How does a defined benefit/final salary pension work?
Risk on the employer.
The employee pays contributions,
Employer promises a certain level of pension and must pay in whatever additional is required to meet that.
94
How does a defined contribution pension work?
Contributions from employee and employer.
The returns are what it is at a pensionable age.
Risk is on employee if market performs badly.
95
How does auto enrolment work?
All employers must offer a workplace pension and enroll 'eligible jobholders'.
The employer pays 3% of 'band earnings.
The employee pays 5%
The HMRC pays 1%
96
What is the current band earnings for employees' pensions?
What age and amount does auto-enrole kick in?
£6240 to £50270
22 and £10000
97
What can employers who don't have or don't want to set up a pension do?
Use one of 3 multi-employer schemes
Nest
Now:pensions
People's pension
These are all defined contribution schemes.
98
How do personal pensions work? 3
Contributions paid with tax relief at basic rate.
Higher or additional rate relief is claimed from the HMRC.
At retirement age, the fund can be used to purchase annuity or be taken directly from the pot.
99
What is a Stake Holder Pension scheme?
Personal pension
Regulated charges
Regulated access
Regulated terms.
100
What does the regulatory require from an advisor recommending a personal pension?
That they demostrate that it is at least appropriate as a stakeholder pension for the client.
101
What are group personal/stakeholder pensions?
A collection of personal/stakeholder pensions grouped together to look and feel like employers' pension without the administrative hassel.
102
What happened in 2006 to pensions? 3
Annual allowance of £60000 introduced to limit contributions made without a tax charge.
Limit to the overall tax efficient pot. (The lifetime allowance)
Life time allowance removed in 2023 and may be scrapped in April 2024.
103
What must an employer do for a defined benefit scheme?
Pay the member an income for life.
104
For a defined contribution scheme, what benefits can an individual choose?
Buy an annuity to provide income for life.
Draw income from where it is invested
Draw lump sums as required
105
Up to how much tax-free cash can be paid from both defined benefit and contribution schemes.
25%
106
Who oversees financial services regulation in the EU and has the power to draft law, oversee local regualtors, and ensure they are acting in line with EU law?
The European Supervisory Authorities (ESA)
107
What is the distinction between savings and investments?
Savings are regular smaller sums of money put away for a longer-term goal.
Investments involve a lump sum of money.
108
What is a crucial factor when considering savings and investments?
The term over which money is put away.
109
What happens with a longer-term investment?
There is more potential to take risks.
There is more time to recover from drops.
110
What is short, medium and long term.
Short 1 to 5 years
Medium 5 to 15 years
Long anything above.
111
What does liquidity describe?
How hard it is to sell an investment.
112
What deposit based savings products are available in the UK, and what are they useful for? 4, 3
Cash ISAs
Fixed term deposits
High interest accounts
National savings and investments
Useful for cash in the short-medium term:
Emergency funds
Short-term needs
Diversifying portfolios.
113
How much can one person pay into a cash ISA?
£20000
114
How does a fixed-term deposit work
Generally, the longer term over which you lock your money up, the higher the return.
115
What are the high interests accounts?
Promotional accounts from providers offering higher interest.
116
What are national savings and investments?
Cash products offered by the government as a means of raising capital.
Lower rates but backed by the government.
Some are tax-free:
Premium bonds
ISA,
Certificates (Premium Isa Certificate)
117
How much cash is a standard emergency fund?
3-6 months of essential expenditure.
118
What is cash useful for?
Liquidity
119
What is direct investing? And what does it offer?
Directly investing into 'real' assets'
Potential for superior returns over and above those from cash.
120
What may a client be looking for regarding investments?
Income production
Capital gain
A combination of both
121
What is an equity?
Part ownership of the capital of a company.
122
What can equity do?
Entitle the owner to a share of the companies profits - dividend
Capital growth through an increase in share price.
123
What is the risk with equity?
Companies don't make profit or share prices fall, leading to no dividends or growth.
124
Before 2016, what did dividends have?
A 10% tax credit.
125
What is a simple way for an advisor or individual to look at the likelihood of making a good income from a share?
The dividend yield
126
What might stock investors arrange with financial institutions?
Adopt a discretionary arrangement with financial institutions to buy and sell shares on investors' behalf.
Much of this trading happens on the secondary market.
127
What are fixed interest securities?
Bonds
Loans made by an investor to either a government (gilt) company or local authority.
128
What is the fixed rate of interest paid by the borrowing body on a bond called and what is it based on?
Coupon
The 'nominal' price of the bond.
129
Once issued, what can happen with a bond?
It can be traded for more or less than the nominal price.
130
When would a bond look less attractive? And what would happen when this happens?
When market interest rates are above the coupon interest.
Price of the bond will fall
Representative rate of interest will be higher.
Bond will be more attractive.
131
What is the level of risk associated to bonds from?
The strength of the issuer
It is assessed by credit rating agencies
132
What happens when a bond is held to maturity? And what is special for Gilts.
The face value of the loan is paid to the bond owner.
This is tax-free for gilts
133
What might some special bonds do?
Pay an index-linked return rather than a fixed coupon. For Gilts, this is linked to RPI.
Building societies issue special fixed interest securities called PIBS (permanent interest BearingShares)
134
What is different about PIBS? 4
No end date
Rank behind other creditors
Non-cumulative, so an income payment missed does not have to be made up later.
Coupon is higher to make up for downsides.
135
What happens to PIBS if a building society demutualises?
They become know as Perpetual Subordinated Bonds (PSB)
136
What types of property can be bought? 2
Residential and commercial.
137
Is direct investment considered a short-term measure?
No, due to the volatility involved with invesesting in real-assets.
138
What would short-term direct investment be?
Speculative.
139
What problem is there with direct investment?
Requires sufficient money to properly diversify.
140
What are indirect investments and wrappers? And what do the benefit from?
Collective investments that pool funds to afford unaffordable investments.
Fund management expertise and from economies of scale in dealing costs.
141
How can pooling of investments be achieved? 7 OILIJPD
OEICs/Unit trusts
Investment trusts
Life and pension funds
ISAs
Junior ISAs/Child trust funds
Platforms
Derivatives
142
What are OEICS/Unit trusts
Collective investment funds that invest in a wide range of assets.
143
What is the difference between passive and active funds?
Passive track an index without a fund manager
Active - Have a fund manager who attempts to outperform markets
144
What is an investment trust?
Similar to unit trusts and OEICs but can borrow money for investment purposes. This gearing makes them higher risk.
145
What is the max ISA input? What is the minimum age?
£20000 per year invested in cash equities or both.
16 is the minimum age.
146
What are junior ISA/Child trust funds? 3
Investments for children
Same tax breaks as a standard ISA but lower investment limits.
A child trust fund was the fore runner to the junior ISA and involved a payment from the government to start the investment.
147
What is a platform?
An online portal that allows an individual to view, arrange, and manage investment holdings across a range of tax wrappers.
148
What is a derivative?
Not an asset in itself but a contract that allows an individual to fix a sale or purchase price of an asset for a future date.
Commonly used derivatives include futures and options
149
What is sustainable finance?
The process of taking into account environmental, social, and governance factors.
150
What range of initiatives have investment providers set up to help select funds based on ESG? 4
Positive screening - looking for firms that take social concerns seriously.
Negative screening - filtering out firms deemed 'harmful'
ESG integration - explicit inclusion of ESG concerns in investment analysis.
Thematic investing - selecting a firm or fund based on a special social or environmental theme.
151
What should advisors work with clients to find out regarding their moral position?
To understand the strength of their beliefs regarding ESG and how these may be traded off against cost and potential volatility.
152
How does the additional nil rate work for direct descendants?
Additional £175000 nil rate for a direct descendant, where part of the estate is made up of property.
Withdrawn at the rate of £1 for each £2 over 2m.
153
What companies are allowed tax-free allowance gifts?
Charities
Political parties
or for the natural benefit.
154
What is a potentially exempt transfer (PET)?
An outright gift from one person to another or to an absolute trust.
If the donor survives seven years, the gift becomes exempt.
If they die, the gift fails and is not exempt and takes the first call on their nil rate band.
There is no need to declare the gift to the HMRC when it is made.
155
What are chargeable lifetime transfers?
A gift to a trust other than an absolute absolute trust, or any other gift where the value of one person estate falls, but there is no corresponding increase in value of someone else's estate.
156
What is insuring liability?
A way of pre-funding IHT rather than mitigating it.
Best done with whole life insurance.
157
What is broader tax planning?
Looking at the use of all available personal tax allowances.
Generally, financial advisors are not allowed to give tax advice and scope of what they can do will be limited.
158
What is the aim of the financial advisor in regards to debt management and budget planning?
Ensure the client has enough income to live on at critical times of their lives.
159
What three elements can budget and expenditure be broken down to? 3
Essential expenditure- items that must be spent upon.
Regular outgoings- items that must be spent upon but are possible to cut-back on.
Discretionary expenditure - luxuries we can live without but without might affect quality of life.
160
Why may customers release equity or mortgage a house?
To handle debts.
161
What does evidence show regarding customers that have fallen into hardship?
Likely to fall into it again.
Giving money/ consolidating loans will only be effective if they get the underlying behaviours under control.
162
Where a customer is likely to repeat mistakes, what might an advisor do?
Reffer them to Citzens advice bureau or the national debt line.
163
What might debt help centres do?
Arrange debt management plans with creditors.
164
In order for an advisor to arrange a debt management plan, what do they need to be?
Regulated under the Consumer Credit Act
165
What more extreme solutions are there for individuals who continually fail to meet liabilities?
Individual voluntary arrangements organised with the creditors
Bankruptcy
166
What should an advisor consider when going ahead with debt planning?
Can the debt be rebroked to an alternative provider at a lower interest but without a term-extension.
Is it possible to extend the term of the loan and lower the payments, and does the customer understand the implications of this.
167
What are perhaps the two most complex parts of the financial services arena?
Pension transfers
State benefits
168
If a person is on benefits, can they afford an advisor?
Yes
169
Who usually pays state benefits?
The department for work and pensions.
170
What is the key thing for clients to know about state benefits?
It is stretched and limited.
It is intended as a safety net and is unlikely to provide them with the level income they want or need.
To get the best from their finance, they will need to provide for themselves through good financial planning.
171
What headings can state pensions be grouped under?
Means tested (income based)- based on a person's broader resources target at those who have the least.
Contribution tested - payments based on whether sufficient National Insurance Contributions have been made.
Needs tested - based on individual level of need.
172
What will individuals in receipt of universal credit receive 2023/24?
£292.11 single under 25
£368.74 singer over 25
£458.51 couple both under 25
£578.82 couple one over 25
173
Who can claim additional elements of universal credit and how does it work?
Those with children, help with child care, carers, housing costs, sick and unable to work.
Claimed online and paid directly to bank like a salary.
Claiments will have to sign a commitment agreement, agreeing to certain actions in return for benefits.
174
What benefits were replaced by universal credit?
Income support
Income based job seekers allowance
Income related employment and support allowance
Housing benifit
Child tax credit
Working tax credit
175
What is important to remner about universal credit?
It is means tested but not taxed
176
What was introduced alongside universal credit? And what is excluded?
A cap on the overall level of benefits for those between 16 and state pensionable age.
Personal independence payments
Disability living allowance
Bereavement payments
177
What does the current beifit cap stand at since April 2023
Greater london
£486.98 pw (£25323 pa) for couples or single individuals living with children.
£326.29pw (£16967 pa) single no children
Other than Greater london
£423.46pw (£22,020pa) couples or single with children
£283.71pw (£14,753pa) single no children
Exemptions
People who have worked at least 16 for at least 50 of the last 52 weeks will be exempt for the first 39 weeks of making a claim.
Thosexcliming guardians allowance, carers allowance or carers element of universal credit.
178
Where can more information on the benifit cap be found?
www.gov.uk/benefit-cap
179
What are the two groups of sickness benifit?
Those paid where you cannot work due to sickness or disability.
Those paid to disabled people to help with personal care and mobility.
180
What do sick employed people initially receive? For how long and how much?
Pay from their employer or
Statutory sick pay (SSP)
28 weeks
109.40pw
181
What can sick people not eligible for SSP (self-employed or over 28 weeks) receive?
Employment and support allowance.
A form of weekly benefit paid to those unable to work due to long-term sickness
182
What are the two forms of ESA?
Contribution based ESA- non means tested, taxable, dependent on NIC.
Income based- means tested, tax-free, available for those with insufficient NIC or contribution NIC has come to an end. Being replaced with universal credit.
183
What happens in the assessment phase of ESA
13-week assessment phase to assess merits of their claim.
During this phase, they receive
£67.20 under 25
£84.80 over 25
184
What 2 groups can someone claiming ESA be assigned to?
Work related activity group
Helps support them back to work.
£118.50
Support group
Unlikely to ever return to work
£129.50
185
What may be different with the support group?
They will receive higher levels of benefit.
Extra premiums for those with the most severe disabilities.
186
Where can information on ESA be found
www.gov.uk/employment-support-allowance
187
What is PIP and DLA? And how do they work?
Personal Independence Payments
Disability Living Allowance (forerunner to PIP)
Tax free
Non NIC tested benefits paid to those aged 16-64 who need help with personal care or mobility as a result of a disability.
DLA is gradually being moved to PIP.
Paid in two components.
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What are the two ways PIP is paid?
Daily Living Component- to help with personal care and needs.
Two rates: £101.75 and £68.10pw depending on the level of care needed.
Mobility component
Paid to those requiring help with mobility.
Paid in two rates: £71 and £26.90pw depending on the level of need.
Many exchange this for a 'Mobility' vehicle through a dealership.
189
How does attendance allowance work?
Same rate as PIP in two rates depending on need.
Need based on terms of duration. Lower level for day or night.
Higher level for all the time.
Non-taxable.
Not NIC tested.
190
What should be remembered for PIP,DLA and AA.
Not means, NIC tested and not impacted by income protection.
191
What is carers allowance? And how does it work?
Allowance paid to someone caring for another individual whilst on low income.
Individuals being cared for must be on or qualify for PIP/AA/DLA.
Carer must receive less than £139pw after tax.
Carer can not be in full-time education or receive full state pension. (Although top up available if under £139)
192
How does the new bereavement state pension work?
Brevement support payment (BSP) is a more targeted system than the one it replaces.
Came in after a major overhaul in April 2017
Designed to give more money in the short-term but not pay out for the longer term.
Set up like this as it is believed the bereaved need more money whilst they adapt to their new situation
193
What has BSP replaced?
Bereavement Allowance (previously widow's pension).
Bereavement payment.
Widowed parents alowance.
194
How is berevment support payment paid?
An initial lump sum of up to £3500 plus an ongoing income for 18 months paid to the surviving spouse or civil partner.
Paid if the surving spouse is under state pension age.
The rates in 23/24 are £2500 lump sum and £100 per month where not receiving child benefit.
£3500 lump sum and £350 per month where you are claiming/entitled to child benefit or pregnant at partners death.
Tax-free and does not count toward the benefit-cap
195
What is widowed parents' allowance?
Old benifit for deaths before 6th April 2017.
Weekly benefit of £139.10 (23/24) paid if the deceased had paid sufficient NIC contributions (or died due to thier work) and the claimant has thier children (or is pregnant). Although this is not means, tested, it ceases if the claimant enters into new relationship such that they cohabit, marry, or enter civil partnership. Benifit is taxable.
196
What will happen with housing benefit in the future?
It will move to universal credit.
197
What is housing benefit?
A means tested benefit designed to help tenants meet the cost of their rent and certain costs with housing.
198
How does housing benefit work?
The rules differ slightly depending on whether the landlord is a housing association/ local authority or private landlord but are broadly the same.
Can be passported through entitlement to certain other benefits like income based ESA or jobseekers allowance.
Those under 35 without children are restricted to the cost of a room in a shared house.
Everyone in private rented will have their maximum benefit set by reference to local house prices.
Benefits for housing association and local authority are paid to the landlord.
Benefits for private are paid to the tenant.
Since April 2017, those aged 18-21s no longer automatically receive unless classed as vulnerable or worked for at least 6 months.
199
How does support for mortgage interest work?
Supports people with interest but not capital.
It has completely changed since 6 April 2018
SMI is now a loan with interest paid on the sale of the house, transfer, or death.
Partial payments of £100 can be made at any time, and there is a guarantee that no more than the value of the property will ever be owed. (No negative equity guarantee.)
Anyone on the old SMI was given the choice to switch or stop payments.
Interest is only paid on up to £200000 of the interest and on the government's rate of 2.25% 23/24.
Waiting period of 39 weeks generally applies.
Those collecting pension credit can apply for £100000 of the interest, but generally, won't have to wait the 39 weeks.
200
How does child benifit work?
Not means tested.
Tax free.
Paid to the primary child carer
The child must be below 16 or in education up to 19.
Extra tax charge place on individual who earns more than £60000
If between £50000-£60000 the tax charged pro rata.
201
How do childcare payments work?
From April 2024 working parents in england will be able to claim 30 hours of free childcare per week for 38 weeks of the year from when they are 9 months to when they start school.
202
How do working and child tax credits work?
Paid by the HMRC currently but will be under universal credit and the responsibility of the DWP.
Paid to support those in low paid work and those with children.
Paid to:
Above 16 with a child and working 16 hours per week.
Above 25 with no child and working 30 hours per week
Above 16, no children but have a disability
Amount paid varies depending on earnings and certain other conditions.
203
What are the specifics of child tax credit?
Children must be under 16 or 16-19 in education and living with them.
Basic amout called the Family element only avialble to children born before 6 April 2017.
Child element payable per child additional payments avialble for disabled children.
Means tested.
Reduced by 41p in each £1 once income threshold is reached.
Child element only available to first 2 children since 6 April 2017 except in certain exemptions.
204
How does statutory maternity pay work?
Must have worked for an employer for 6 months.
A lower amount is available if they don't qualify.
205
Describe jobseakers' allowance
Previously unemployment benefit.
Must be over 18, out of work, and seeking employment.
Similar to ESA, it can be thought of as a parallel benefit.
To versions:
Income related- means tested
Contribution based- not means tested
Contribution based JSA can only be paid for 52 week then it stops or is reasessed to start income related.
Both are taxable.
206
Describe redundancy payments.
Payment made after redundancy.
Only taxable after £30000
207
Describe savings credit
Paid to those who reached the state pension age prior to 6th April 2016 and who had made provisions for themselves.
Originally intended as a small reward.
Entitlement began at an income level just above the Basic State Pension and was gradually withdrawn as income and capital increased.
23/24, the max level for this is £15.94pw if single and £17.84 if a couple.
The maths for this is extremely complex.
208
What is guarantee credit?
A benefit given to those who don't make single tier state pension so they are still given some subsitence. Currently stands at £201.05 if single and £306.85 if a couple.
Means tested.
209
What is cold weather payment?
Paid to those on benefits to help towards winter heating
210
What is winter fuel payment
Similar to winter fuel payment but designed to help those born before 26th September 1955
211
What is the healthy start scheme
Regular benefits for low income families to assist with the purchase of basic food and vitamins.
212
Give 2 examples of hard facts
How much money is in your pension?
What life cover do you currently have in place?
213
What is both a hard and soft fact?
Capacity for loss is both hard and soft.
214
Wis risk a soft or hard fact?
Risk is a soft fact
215
If recommending one product, what must that product be?
Demonstrably appropriate to the customers' needs if tied to one product.
216
Independent advisors must what?
Consider all available products and providers.
217
What would be good considerations for people in their vulnerable years?
Protection
Emergency fund
218
What would be good to consider for a person in their relaxes years?
Income protection may be more important than life insurance.
More attention will go to saving for retirement.
219
What can decreasing term be?
Linear
Tied in with a loan or mortgage.
220
What is decreasing tem insurance marketed towards?
Mortgage protection policies but only suits repayment mortgages that decrease as payments are made.
221
Is the primium on family benefit less, more or equal to level term insurance?
Tends to be less than level term as cover is falling.
222
How often can renewable term be renewed?
Usually 5 to 10 years.
223
What often happens with gift inter vivo?
Often wrongly sold with smaller gifts as taper relief is only available on gifts larger than the nil rate band.
224
What is the oldest and most expensive whole life assurance.
Non-profit
225
What may happen with non-profit whole-life assurance?
May be possible that a surender value builds up but there is no guarantee and will unlikely be significant.
226
What is while-life assurance generally used for?
Generally used for expenses such as funeral and inheritance tax planning. (Writing into trust)
227
What may happen with with-profit whole life assurance?
It may build up a small surrendered bonus in early years but can be much higher in later years.
228
What happens if a unit linked assurance meets it estimated return?
The cover and premium remain the same.
229
What is likely to happen with unit-linked cover set to the maximum?
It's likely not going to meet the estimated growth rate, so it should be reviewed, and either the premium raised or the cover lowered.
230
Why do endowments have a negative reputation?
Due to having insufficient funds when payout is due.
231
How is income protection payouts usually decided by?
Maximum is usually limited to a percentage of pre-incapacity earnings.
232
What are the usual deferred periods on income protection?
4, 8, 13, 26, 52 weeks
Shorter deferred periods are more expensive.
233
What else is income protection also known as?
Permanent health insurance as insurers can not cancel due to lots of claims.
234
What is income protection designed to be?
A long-term policy.
235
What insurances are often set up together?
Income protection and critical injury
236
What often happens if critical injury insurance is reviewable?
It starts off cheap but ends up expensive.
237
What is the problem with PPI?
PPI has a bad name due to being miss sold to people who didn't need it.
MPI could be very beneficial however.
238
What is accident and sickness insurance usually used for?
To cover the deferred period on an income protection policy.
239
What is sickness and unemployment insurance usually used for?
Used to cover the deffered period on an Income Protection Policy.
240
How does immidiate needs work for long-term care insurance?
An exchange of a lump sum for an income for life.
Cost of the plan based on individual underwriting of the client. The sicker the client, the less the cost.
241
What is a good protection for capital and interest repayment mortgages?
Decreasing term assurance.
242
How does variable interest work?
Rate is carried by the lender, usually in connection with TBE base rate, but not always.
243
How does fixed interest work?
Set for a fixed period. A fee is generally paid upfront and often has penalties for paying period.
244
How does capped interest work?
Rate is variable but won't go above a pre-fixed level.
245
How does collar interest work?
Variable but won't fall bellow a pre-fixed level.
246
How does cap and collar interest work?
Won't rise or fall below two set levels.
247
How does tracker interest work?
Variable and tracks the TBE base, usually a percentage above.
248
How does discount interest work?
Variable but offers a discount on the standard rate for a set term.
249
How does offset interest work?
Linked to a deposit account. Money held in the deposit account is offset against the outstanding balance. Interest is paid on the Bet
250
How does deferred interest work?
Borrower pays less interest in the early years and more
251
How does foreign currency interest work?
Added to a loan where the currency is not sterling
252
How does a Diminishing Masharaka work?
A firm buys the house and then sells it back to the client in slices on a regular basis.
253
How does a Ijara work?
Over time, payments are put to one side by the provider and are then used to purchase the property. Property belongs to the provider until the end of the arrangement.
254
What happens because of Sharia compliant products?
They escape stamp duty and land tax.
255
What is the annual gift allowance?
£3000
256
What is the small gift allowance?
£250 to as many people as you like as long as they don't revive £3000 annual allowance.
257
How many allowances on gifts are allowed from surplus post tax income?
Unlimited provided they don't reduce the standard of living and are part of a regular pattern
258
What are the gifts in respect of marriage?
£5000 from a parent
£2500 from a grand parent, great grandparent, remoter ancestor, or from a party to the marriage.
£1000 from anyone else.
259
What is the nil rate band for IHT?
£325000
260
How does IHT work for spouses?
No tax on the transfer of assets between spouses.
If died at the same time, it is considered imediate.
Double nil rate can be made against the estate on second death.
261
Describe how chargeable lifetime transfers work?
Act broadly as a PET if the cumulative value in a seven year window doesn't exceed the nil-rate band.
Where more than the nil rate band is gifted, taxed at 20% at the time of making the gift.
If the donor dies within the 7 years, tax is calculated in the normal way.
If the donor survives, no further tax is due, but no refund of earlier tax will be made.
