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RO4 Pensions And Retirement > Drawing Benfits > Flashcards

Drawing Benfits Flashcards

1
Q

What is the legal age you can draw from a pension?

A

55 due to go up to 57

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2
Q

How can benefits be paid under a DB scheme?

A

By a scheme

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3
Q

When can benefits under occupational DC be paid by a scheme?

A

Only when first given the right to buy annuity from a provider of thier choice.

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4
Q

How can income from a scheme be paid?

A

Either directly from the assets of the scheme or ay the scheme purchasing an annuity from an insurance company.

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5
Q

When a scheme buys annuity, what choices can they make?

A

Choose the insurance company providing annuity
Choose the trustees to assign it to

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6
Q

Was is the difference scheme pension and other types of annuity?

A

The member has very little choice on the way income is secured.

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7
Q

What does secured income mean?

A

Guaranteed for life.

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8
Q

If a scheme pension is paid to less than 12 people, what might happen?

A

MPAA may be triggered.

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9
Q

What is the window for taking a PCLS from a scheme pension?

A

6 months before income starts or 12 months after.

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10
Q

How is scheme pensions income taxed?

A

PAYE

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11
Q

Is phased drawing of benefits allowed with a scheme?

A

Yes but it is up to the scheme to offer it.

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12
Q

What rule does the HMRC set out for scheme pensions who pays out income from a pension scheme

A

Either the administrator or insurance company chosen by the administrator and must be at least annually and for life.

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13
Q

How long can a scheme pension guarantee period be?

A

No more than 10 years, but can include capital lump sum protection on death.

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14
Q

Under what circumstances can a scheme pension decrease payments?

A

Paid on grounds of ill health and stops or reduces
A reduction applied to all scheme members
Briding pension stopped or reduced at SPA
Scheme wind up
Consequesnse of sharing order
Forfeiture of entitlement (ie fraud)
Court order
Public service reduced due to abatement. (Re-employed in same job after pension being paid)

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15
Q

What death benefits can be paid on a scheme pension?

A

Dependants scheme pension
Guarntee period
Defined benefits lump-sum Death benefit
Pension protection lump sum
Annuity protection lump sum

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16
Q

Who can be paid a dependants scheme pension

A

A dependant, not a nominee

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17
Q

What choices does a dependant have for the form of income on a dependant scheme pension

A

DB- no choice
DC- there own choice on dependants annuity.

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18
Q

What rules are there for a dependant scheme pension?

A

Does not have to run for dependants’ lives.
Does not have to be at least annually
Can decrease in payment
Can only be commutated for cash in respect of triviality with guarantee period or lumpcsum protection.

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19
Q

If the memeber dies after 75 for a dependant scheme pension, what does HMRC do?

A

Sets a maximum income by reference to the members entitlement.

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20
Q

How does the guarantee period work for pension schemes death benefits.

A

Max 10 years if member dies full pension is paid in this period.

The guarantee period can be paid to anyone, and HMRC allows it to stop if the recipient turns 18, gets married, or stops full-time education. (Not usually taken advantage of in reality)

Ongoing income under a guarantee period can be commuted under triviality.

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21
Q

Describe defined benefits lump-sum death benefit.

A

DB scheme
Usually death in service but can be retirement in lieu of a guarantee period.
Multiple of salary
Scheme rules and trustees dictate who benefits.
IHT free if this discretion is used
Only receives tax benefits if expressed as a lump sum in scheme rules.

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22
Q

Describe pension protection lump sum

A

Only from scheme pension originated from DB scheme

Lump sum payment on death equal to the difference between value of income and income received.

Full amount payable up to LSDBA for before 75 marginal rate after.

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23
Q

Annuity protection lump sum Death benefit

A

Only option available to DC if income is secured
Value of funds used to purchase the annuity protection - gross income already paid out.
Tested against LSDBA before 75
Marginal rate after

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24
Q

What is open market option?

A

Shopping around for an annuity

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25
Q

What effects the rates of annuity?

A

Different options chosen
Yield from bonds and gilts
Mortality

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26
Q

What are the 2 main variants of individually underwritten anuities

A

Enhanced annuity - takes into account lifestyle factors
Impaired life annuity - better rates than above and fully underwritten

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27
Q

Who could annuity be good for?

A

Limited wealth
Low capacity for loss
Cautious risk attitude

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28
Q

What are the rules for annuity bought before April 2015

A

Paid annually
Only carries in limited circumstances
(Index, investment link, or specified increase.)
Pay no lump sum other than death
Guarantee no longer than 10 years
Bought from a provider by the member

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29
Q

What are the rules for annuity bought after April 2015

A

Does not need to be chosen by the member. (Member still needs the choice)
Payout for life of members as a minimum with unlimited guarantee period (provider rules dictate)
Flexible annuity is now allowed. (Decrese built in) (Triggers MPAA)

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30
Q

What death benefits are available with lifetime annuity?

A

Survivors annuity
Garantee period
Annuity protection

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31
Q

Describe survivors anuity

A

Can be nominated to anyone
Paid for life, remarriage, or when child stops being a dependant.
No guarantee, period
No survivors option

32
Q

Describe guarntee period on an anuity

A

Limited by the insurer and not by legislation.
Guarntee period before 75 is tax-free. (Not lump sum)

33
Q

What can moving annuity from one provider to another be used for?

A

Changing shape of the annuity.

34
Q

Sumarise anuities

A
35
Q

Summarise scheme pensions compared to annuities

A
36
Q

What are the forms of drawdown?

A

Flexi-access
Capped (legacy)

37
Q

What is the maximum income on capped drawdown set by?

A

150% of the equivalent annuity that can be bought on the open market for single life, level basis, paid monthly in arrears without guarntee.

38
Q

Who publishes the rates for capped drawdown?

A

The government actuary department (GAD)

They are known as GAD rates

39
Q

How often is the maximum amount reviewed for capped drawdown

A

Every 3 years.
Annually above 75

Review date is set by the reference date- when funds were moved into capped drawdown

40
Q

What is the nominated date?

A

A date within 60 days before the anniversary of the reference day.

Allows grouping of reassements

41
Q

What are the steps involved in calculating capped drawdown?

A
42
Q

What is the PCLS amount for capped drawdown?

A

1/3 of allocated income

Basically 25%

43
Q

What is flexible drawdown?

A

Forerunner to flexi-access drawdown

Was available if the person had a certain level of guaranteed pension.
(£20,000 later £12,000)
No accrual allowed.

Now moved to flexi-access and can contribute to to MPAA

44
Q

What death benefits are available to drawdown

A

Continue in drawdown
Take lump sum (LSDBA)
Buy annuity
Nominate charity (no LSDBA)

45
Q

What are the rules for changing providers in drawdown?

A

Must be the entire drawdown and a new arrangement. (No consilidating)

Capped drawdown remains capped, and limits remain until the next review date. Unless requested to become flexi-access. (MPAA would then apply for memeber only)

46
Q

What are the risks of drawdown?

A

Running out of money
Investment performance
Future movement annuity rates (if considering later purchase)
Mortality drag - not a pooled fund (no mortality gain)

47
Q

What is the critical yield used for?

A

Determining the merits of a client going into drawdown rather than purchasing annuity.

48
Q

What are the two types of critical yield?

A

Critical yield A - rate of return required within invested element of an income drawdown to replicate annuity

Critical yield B- rate of return required to sustain specified level of income for life.

49
Q

What should be considered for providing critical yield rates?

A

Based on assumptions
B doesn’t make sense unless given with A
Yield A gives rates at 65, 70 and 75 (mortality drag gets worse with age.)
Generic critical yield A not very useful.
Critical yield should be above interest rate on annuity.

50
Q

What is short term annuity?

A

Unsecured pension option where annuity is bought for a limited time.

No longer than 5 years
No death benefits besides a guarantee period of 5 years.

51
Q

What issue could arise from shot term annuity and capped drawdown?

A

If the income goes over the maximum amount. Especially due to 5 year annuity and 3 year capped rate review

52
Q

How is an UFPLS taxed

A

Tax-free on 25% (tested against LSA for under 75 years) balance taxed at marginal rate.

53
Q

When can an UFPLS be taken

A

Only from DC
And not before 55 unless protected retirement age or ill health

54
Q

What does UFPLS trigger?

A

MPAA

55
Q

What cases can an UFPLS not be taken?

A

DB schemes
Restricted to for primary/enhanced protection when lumpsum protection is over £375,000
Member has scheme specific-tax tax-free cash protection and entitles them to more than 25% of the value.

56
Q

What are the issues with UFPLS

A

Taking money from an IHT free environment to IHT environment

Also has month one issues

57
Q

What rules must a pension provider adhear to when a person takes from a DC provider

A

Promote the value of guidance
Determine whether guidance/advice has been received, explain guidance book appointment.
Identify risk factors
Provide relevant risk warning

58
Q

Sumarise flexible options

A
59
Q

In what ways can phased retirement be achieved?

A

Phased annuity
Phsed drawdown
A series of UFPLS
Phased capped drawdown

60
Q

Describe phased annuity purchase

A

Utilises part annuity and part PCLS to purchase the annuity meaning more bought in the early years.

61
Q

Describe phased drawdown

A

Takes an income from phased drawdown pot rather than annuity.

62
Q

What is the upside of phased retirment

A

Better control of pension and tax efficiency.

No superior desth benefits as it was in the past.

63
Q

How many small pots of under £10000 can be taken?

A

Unlimited if occupational pensions and unconnected
3 if non-occupational

64
Q

When small pots are drawn what happens?

A

There is no test against LSA and can be paid from crystallised and encryption funds

65
Q

What does trivial commutation allow?

A

Those with less than £30000 in all pension schemes to fully encashment for a lump sum. Only available to DB.

66
Q

Trivial commutation can only be taken if

A

Over 55, protected pension age, ill.
Benefits under £30,000 on nominated date.
All money must be taken

67
Q

What is the window for trivial commutation?

A

3 months before and 12 months after nominated date

68
Q

What are the two circumstances for trivial commutation after death?

A

Commutation of a survivors pension - by dependant or nominee, no Successor.
Trivial commutation of payments under guarntee period

69
Q

Sumarise small pots and trivial commutation

A
70
Q

When should an open market option statement be given?w

A

When a consumer requests a statement of retirement benefits
Or
In the window between 4 and 6 months before retirement date under the pension, if no request is made.

A final reminder is sent 6 weeks before retirement.

71
Q

What is covered in the final reminder before retirement?

A

Reminder that open market option is avialable
Recomendtion to seek advice
A note regarding the work of pensionwise
A valuation of benefits available for the open market option

72
Q

At what amount can standard risk warnings be used rather than asking a series of questions as to why the person would take benefits in a certain way?

A

Bellow £10,000

73
Q

What are the 3 steps proposed by the FCA for consumer duty

A

Consumer principle - be its principle 12 and ensure good outcomes for customers
Cross cutting rules - focused on financial objectives of the customer and acti good faith
Four outcomes incorporated into the firms- communications, products and services, customer service, price and value.

74
Q

What must firms have?

A

A consumer duty Master at board level.

75
Q

In order to enact consumer understanding, what do firms assess

A

Consumer key information needs
Identify when they need information and get it to them

76
Q

What should be documented for vulnerable clients

A

Vulnerability and steps taken to address
Trusted family/friends that should be at meetings
Medical history and severity
Detail of impairment
Advice not proceeded with and why

RO4 Pensions And Retirement (16 decks)

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