Defined Contribution Schemes Flashcards
What are the types of DC pensions?
Personal pensions
Stakeholder pensions
Group personal and steakholder pension
Self-invested personal pension
Retirment annuity contracts
Ocupational money purchase scheme
Executive pension plan (EPP)
Small self-administed pension scheme (SSAS)
Section 32
Targeted money purchase scheme
Explain personal pension scheme
Contributions from individuals, employers, and others are invested with tax relief.
25% can be taken tax-free at 55
Can have death benefits before 55
Describe stakeholder pension
Similar to personal pension but with certain legal standards
Charges capped at 1.5% AMC, no other charges in 10 years, 1% after for schemes set up before 6 aprik 2005
Minimum premium no more than £20 net in single payment.
Lifestyle approach offered (move funds into safer investment)
Registered with TPR
Regulated by FCA utilise decision tree
Describe group personal and stakeholder pensions
Personal pensions grouped together to look and feel like employer pensions
Employer does not have to contribute
Describe self-invested personal pension (member directed)
Same as personal pension with wider investment options. Ie commercial property.
Memeber controls investment
Can borrow 50% of net value
May not lend money to employers
Describe retirement annuity contracts (RAC) (s226 contracts)
Forerunner to personal pensions
Offen have a guaranteed anuity rate (GAR) built in. (Often higher than market rate)
Often, bad death benefits. Ie premiums only no interest or no benefit all.
What is a solution to bad death benefits?
Term assurance till retirment
Describe occupational money purchase scheme
Employers pension scheme set up on money purchase basis.
Different from group personal or stakeholder pensions as is legitimate employer pension not just set up to look like one.
Describe Executive pension plan
Legacy one person occupational pension set up to provide benefits for top employees above standard benefits. From time when it wasn’t possible to have plbith employee and personal pension
Describe small self administered pension scheme
Ocupational pension for up to 11 people (fewer than 12 in legislation)
Often set up by small family businesses.
Can hold commercial property
Can make loans to sponsoring employer
Fund can be adjusted between memebers (not earmarked)
All memebers must be trustees
May borrow money for investment.
Describe section 32
Legacy arrangement used prior to A-day
Transfer out of occupational to money purchase under their own control (pick funds and provider)
Whilst maintaining benefits and (if the scheme accepted it) allowing GMP
Describe targeted money purchase schemes
A hybrid scheme designed to pay benefits equivalent to DB.
Contributions facilitate this, but there is no guarantee. (When there is, it becomes DB)
Encouraged by the government.
Who chooses who can join a group arrangement?
The employer.
Ie could set this to a certain position or set a rule on how much contribution is put in.
What is an in-specie contribution?
Paying a contribution with assets. Ie using shares.
What are the rules for inspicie contributions?
Must be specified upfront in money terms
Sperate agreement made to settle obligation by transfer of assets
If assets fall in value between the agreement and transfer, price is made up by the member
If they rise, either paid back as cash, bought for extra value, or excess treated as contribution