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AF7 > Deck 1 > Flashcards

Deck 1 Flashcards

1
Q

Cash flow cobs 19 annex 4a

X 8

A
  • model in real terms using cpi set by cobs
  • if net tax band and limits are reasonable
  • all tax charges in proposed and ceding
  • include stress testing scenarios
  • use returns reflective of assets
  • pattern of benefits
  • life expectancy
  • more cautious assumptions
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2
Q

APTA cobs 19 annex 4a

Info x 8

A
  • tax position
  • state benefits
  • pattern of benefits taken
  • plan past reasonable life expectancy
  • will it meet the clients income need
  • death benefits
  • trade offs of objectives
  • all charges unless will pay anyway
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3
Q

APTA cobs 19 annex 4a

Assumptions x 4

A
  • rates of return reflect investment potential of the assets that would be invested
  • annuity assumption cons 19 ann 4c 1R 2
  • assumptions of income likely to be pain cobs annex 4c 1r 4
  • use more cautious assumptions when appropriate
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4
Q

APTA

TVC

A

Appropriate pension transfer analysis
- rules/ assumptions / cobs

Transfer value comparator
- compare what is required to meet same income with an annuity

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5
Q

Section 48

A
  • pensions schemes act 2015

- confirms advice has been taken on over £30k

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6
Q

When should trustees notify TPR

A

Over £1.5mill or 5 % of scheme assets if less

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7
Q

Formula for max PCLS on DB scheme

A

PCLS =

20 X pre-commutation pension x C /

20 + 3C

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8
Q

Pension increase exchange PIE

3 x benefits and drawbacks

A

Benefits

  • higher initial income
  • potential higher pcls if calc by max hmrc
  • may be in poor health or less average life

Drawbacks

  • if live longer may lose out
  • annual allowance charge 20;1 from lifetime allowance
  • may affect means tested benefits
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9
Q

Employers convenant

A

Employers legal obligation and financial ability to support their defined benefits scheme now and in the future

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10
Q

CETV changes

A

Up CETV down
UP INFLAT DOWN
DOWN ANNUITY UP
DOWN DISCOUNT UP

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11
Q

Death benefits on lifetime annuity and db

A
  • survivors annuity - nominee / successor
    Tax free under 75 and taxed over 75. Neither against LA
  • guarantee period
  • lump-sum death benefit
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12
Q

LTA protections

A
  • primary - can’t lose
  • individual- can’t lose
  • enhanced - can lose
  • fixed - can lose

Check if offered enhanced transfer
Check eligibility to fixed or individual 2016
Fixed only fir deferred in 2016
Individual if benefits were valued over 1mil 2016

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13
Q

When can can trustees off les than the initial cash equivalent transfer ICE

A
  • scheme is underfunded after insufficiency report
  • to allow wind up expenses
  • to retain parity
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14
Q

Two methods of calculating CETV

A
  • best estimate method - based on expected cost

- alternative method- when is going to be heigher than minimum

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15
Q

2 methods of calculating CETV

A
  • best estimate - cost of paying members benefits

- alternative- if CETV is above minimum

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16
Q

Risks of transfers x 8

A
  • transfer risk / loss of guarantee
  • investment risk is with him
  • longevity risk
  • annuity rate risk
  • inflation risk
  • sequencing risk
  • shortfall risk
  • economic / political risk
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17
Q

Standards for incentive excersies x 8

A
  • cash should not be contingent on member accepting
  • for transfers, advice should be provided
  • Modification exercises- advice provided
  • comm fair, clear , unbiased, straightforward
  • records should be retain for audit
  • no undue pressure / sufficient time
  • over 80s treated as vulnerable and only in a opt in basis
  • all involved shoukd act in good faith
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18
Q

What restriction on benefits if ppf takes over prior to retirement

A
  • 90% of value of accrued benefits
  • subject to cap of 90% of £41,461.07
  • if before NRA cap will reduce
  • may benefit from long service cap of 3% increase for every year over 20
  • max dbl standard cap
  • spousal capped at 50%
  • qualifying children 25% (max 50%)
  • escalation will be capped
  • not normally be allowed to transfer out
  • pcls 25%
  • ppf cap may change as ruled unlawful fir age discrimination
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19
Q

How is CETV calculated x 6

A
  • calculate preserved pension at the date of leaving
  • revalue to normal retirement age by scheme rules. Stat min occurs GMP (contracted out) and CPI otherwise
  • calculate capital cost of buying revalued pension with assumed annuity
  • take into account dependents benefit
  • add this to revalued pcls
  • discount the capital cost with assumed rate of invest growth from actuary
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20
Q

PCLS formula

A

20 x pre comm pension x C /

20 + 3C

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21
Q

What should an adviser retain

A
  • terms and disclosure docs
  • fact find
  • statement of entitlement to transfer v
  • ceding scheme info
  • TVC
  • risk questionnaire
  • illustration evidence of new scheme
  • evidence of PTS sign off
  • suitability report
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22
Q

Statutory right of transfer

X 6

A
  • deferred member
  • more than 12 months before nra
  • entitled to transfer value once per year
  • must complete paperwork in timescales
  • may not get for another 12 months
  • or may charge for further transfer value
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23
Q

What is triage advice

A
  • education service
  • non- advised
  • designed to discuss features, benefits and drawbacks of dc compared to db
  • help them decide if they want advice
  • save on fess
24
Q

What is abridged service

A
  • preliminary form of advice
  • designed to see if transfer could be suitable based on objectives and risk profile
  • no TVC or APTA or consideration of new scheme
  • cannot result in transfer recommendation
  • if unclear customer can go full advice
  • cheaper than full advice
  • in response to contigent charging rules
25
Q

Transfer club

A
  • move from one public sector employer to another
  • treats both periods as one continuous
  • maintains link of period on first service and earnings in second
  • creates a higher entitlement
  • 1st provides cetv to 2nd
  • 2nd converts into benefits
  • actual years may be different to allow differences in scheme structure
  • such as pcls, death benefits, inflation proofing
26
Q

GAD rate

A

Eg £57 per £1000

( 57/1000 ) x pension

So max would be 150% of this

27
Q

PPF - pension protection fund

A

Revaluation

  • pre 6/4/09 CPI with cap 5%
  • after which is capped 2.5%
  • pension would reduce to 90%
  • long service cap over 20 years 3% max double
  • spouses will be 50% of reduced
  • qualifying children 25% x 2
  • will increase with CPI max 2.5%
27
Q

Divorce

A

Offsetting, sharing, earmarking

Sharing order would go against LTA of other party

28
Q

Section 32

A
  • buy out of occupational scheme
  • differed annuity contract
  • cannot receive further contributions
  • buddy transfer
  • pre 5/6/06 potential prot tax free cash
  • must pay gmp 60/65
  • if fund doesn’t cover revalued to this age transfer may be restricted
  • value will go to estate if death prior to retirement
  • can only provide 50% spousal and not children
  • GMP lost on transfer
  • post 88 escalate pre 88 level
  • no Pcls from gmp but can be taken into account
29
Q

Trans protection

A
  • fixed 2016
    No min, 1.25 cover, pcls 25% of 1.25, no ongoing, lose on transfer
  • ind 2016
    Min 1 mill 5/6/16, cover is rights on 5/6/16 max 1.25. Pcls 25% of value, ongoing allowed, can transfer
30
Q

Cobs annex 4c

Assu.ptions for tvc rates

A
  • RPI 3%
  • av earnings index and rate for section 148 to be 3.5%
  • CPI 2%
  • annuity expense allowance 4%
  • product charges can be assumed as 0.75%
31
Q

Conditions for PPF x 5

A
  • must not be a DC scheme
  • mustbe not commenced wind up before 5/4/05
  • insolvency event must have happened
  • no chance it can be rescued
  • insufficient assets to at least pay PPF levels
32
Q

Actions to resolve deficit x 7

A
  • close for new entrants
  • close for future accrual
  • put the NRA back for future accrual
  • reduce accrual rate
  • switch to CARE basis
  • reduce escalation/ revaluation not below stat
  • reduce transfer values
33
Q

Actions to resolve deficit x 7

A
  • close for new entrants
  • close for future accrual
  • put the NRA back for future accrual
  • reduce accrual rate
  • switch to CARE basis
  • reduce escalation/ revaluation not below stat
  • reduce transfer values
34
Q

Fixed protection permitted transfers x 3

A
  • all pension rights under arrangement fir person must be transferred
  • must go to recognised dc or overseas
  • must be actuarially equivalent
35
Q

LTA excess x 2

A

Lump sum 55%
Income 25%

% of lta used is 2 decimals rounded down

36
Q

Primary protection

A
  • rights must be more than 1.5 on 5/4/06
  • % excess is x by 1.8mill
  • add this to 1.8mill
37
Q

Role of trustee x 7

A
  • ensure processes in place to implement transfers timely
  • maintain accurate records
  • not request advice
  • check they’ve had appropriate advice
  • support members with fca register
  • notify TPR 1.5% 5%
  • monitor impact
38
Q

Trustees in deficit fund

A
  • take advice from actuary
  • consult with employer
  • agree recovery plan
  • agree payment schedule or strategy
  • inform TPR
  • monitor position
39
Q

Transfer risk and factors

A
  • represents views of risks associated with transfer and giving up safeguarded
  • separate from invest risk
  • includes risk and benefits of current and new schemes
  • consider attitude to certain income
  • access funds in unplanned way, how this would affect sustainability
  • attitude and experience in investing
  • attitude to restrictions of current
40
Q

Scheme administrator x 5

A
  • register with hmrc
  • operate tax relief under relief at source
  • report events to HMRC
  • provide info on LTA, benefits and transfers
  • make returns to HMRC
41
Q

Investment linked annuities

A

With profit

  • invested in life office with profit
  • smooth returns
  • returns are bonuses
  • Initially level determined by expected bonuses
  • varies depending on bonus declared following year

Unit linked

  • Initial income in monetary terms converted to units
  • value of units depends payment
  • annuitant selects anticipated growth rate
  • units encased to provide income
42
Q

Fca risk factors x 10

A
  • health
  • loss of guarantee
  • do they have partner / dependents
  • inflation
  • have they shopped around
  • sustainability of income
  • tax
  • charges
  • debt
  • impact on state benefits
43
Q

Scheme pension - hmrc requirements

X 9

A
  • paid for life
  • at least annually
  • incapable of being reduced year on year
  • paid by scheme admin or insurance Co
  • can pay for dependent
  • guarantee of no more than 10 years
  • can be trans to another insurance Co
  • can incorporate lump sum death
  • PAYE
44
Q

Info to advice on investment strategy

X 6

A
  • time frame
  • CFL
  • ATR
  • Experience
  • Ethical
  • pay for reviews
45
Q

Cobs 19 annex 4c tvc assumptions

A
  • CPI 2%
  • RPI 3%
  • av earnings 3.5%
  • annuity expense 4%
  • prior product charges 0.75%
46
Q

Section 143 valuation

A

To check if benefits exceed PPF coverage or not

47
Q

Lifetime annuity- HMRC requirements

A
  • from insurance company
  • paid for life and no limit on guarantee
  • nothing to stop income reducing
48
Q

Max guarantees db and annuity

A

Db 10 years

Annuity unlimited but contract will have conditions

49
Q

SMART objective

A 
Specific
Measurable 
Achievable
Relevant
Time bound
50
Q

Universal credit

A
  • Income treated as income £1 loses 63p
  • capital exceeds 16k benefits are lost
  • more than 6k ever 250 counts as £1 weekly income
51
Q

Abridged advice x6

A
  • transfer is unlikely suitable
  • clients intentions
  • attitude to transfer risk
  • retirement income needs
  • understanding of investment risk
  • alternative ways
52
Q

Class 3 and triple lock

A

Cost 795.60
Qualify 260.30 pa

Triple lock 2.5%, CPI, av earning

53
Q

SR

A

Suitable advice must be in writing and show advantaged and disadvantages. Must include material information and details of analysis of financial implications

54
Q

One page summary x 6

A
  • summary of recommendations
  • abridged or full
  • details of ongoing advice
  • risks associated- sign
  • charges
  • Initially advice fee in cash terms and number of months would take to pay
55
Q

Factors of transferring from GAR

A
  • what is the GAR rate
  • what age can it be taken from
  • structure of annuity
  • transfer charges or penalties
  • pre crystallisation death benefits

AF7 (1 decks)

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