flexible incomes Flashcards
1
Q
Drawdown and called
A
- they are unsecure as they are not garunteed
- fixed drawdown are subject to maximum income levels
- they are subject to what 150% of an equivelant annuity (basis amount x 150%) so 150% of the basis amount.
- annuity rates are based on GAD tables for a level i payment single life payable monthly and no garunteed.
- to calculate the maximum get the members age the reeemption yield on uk gilt for 15 years get it to be amilulw of 0.25% and then you will see it expressed as an amount. Get this rate apply this rate tk the fund net of PCLS and x 150
- if a member goes over the maximum it’s automatically converts
- when a new capped drawdown was set up prior to 6 April 2015 new reference date was the date on which the funds were designated
- the three year review period remind in place until the earlier of the member: having a request to end the reference period early accepted by the scheme administrator , goes flexible , buys an income, reaches 75 and dies.
- when the member is 75 it’s annual
- the administrator can carry out the re calculation of the basis amount in any days within a 60’day window ending on the new reference date. This date is the nominated date. to perform the calculation tbe administrator needs the persons age in whole years, the nominated daye, yield on 15 year gilts on the 15 th of the month prior to the nominated date and value of the drawdown pension fund on tbe nominated date
2
Q
flexi access drawdown
A
- they used to have flexible drawdown if you met a minimum income threshold
- when people reach retirement they can have felxi
- can nester if you use over 150% of the maximum income or designate extra funds to it
- the member can take 1/3 of money to free. this is the same as the 25% tax free rule. £280000x25% is £70,000.00 tax free and £210,000.00 in drawdown. But 1/3 of £210,000.00 is £70,000.00
- designating funds into felxi does not trigger the MPAA but when they start taking flexible income this will.
- designating uncryatallised funds into flexi below 75 is a BCE. Automatically designating these funds due to age is not.
- when a member previously had a fixed drawdown and they designate the funds to felxi the MPAA is not triggered until they take flexible income.
- when they take over the maximum it becomes felxi the day before.
- moving funds from capped to felxi or going over the 150 limit is not a BCE . they are not uncrysallised
3
Q
short term annuity
A
- must be purchased from a drawdown fund
- be a payable by an insurance company
- not exceed five years
- HMRC does not limit the cirncustanxes it can be reduced
- level payments are used usually
- only death benefit can be included with a short term annuity is a garuntee period of no liner than 5 years
- they can not offer death benefits to a dependant / beneficiary of this.
- there is no limit on flexi - access funds used to buy a maximum annuity. there is a limit for short term ones bought through capped drawdown. The limit is 150 % of the basis amount less any income being taken directly from the capped drawdown arrangement.
- if the short term annuity can be decreased they can reduce the making below the maximum. They will do this to avoid the MPAA. If not it will be flexi and they will be subject to the MPAA.
4
Q
felxi access drawdown
A
- 25% or 1/3 of the drawdown £280,000.00 x 25% is £70,000.00 and 1/3 of £210,000.00 is the same
- pcls does not trigger PCLS
- ## age 75 and over going into a drawdown not one
5
Q
death
A
- when they die they can nominate the funds to a survivors flexi access drawdown, lump sum and purchase a survivors annuity
- dependants that got a pension after 2015 can not inherit a capped.
HMRC uses the term indrawn to describe the funds that remain within a drawdown fund when the previous holder dies. Under HMRC rules indrawn funds can be paid to a dependant or nominee of the member of a successor nominated by a doenesanr or nominee of the member or by another survivor. - the survivor decides how to take it.
- flexi there is no legal limit how many times it can pass down
- remember after 75 it is taxable even for spouse.
- if the person who inherits is under 75 the rules re apply.
- spouses survival annuity can not be passed on.
6
Q
risk
A
-annuity risk - advantage is that annuity rates will increase with age. the underlying rate can fall.
- the underlying one can fall ie when you get older i’f eveyone is living longer what was offered for a 70 year old now may not be offered for you.
depletion of fund - all withdrawn
mortality drag - the moss of mortality gain that applies to a policy holder who gets an annuity.
Mortality gain only ahhpened for annuities as when the insurance company purchased the pension all the funds are invested to get her by the insurance company. when some people die they have to pay out less and this money is invested. the insurance company will then use the mortality gain to slightly enhance the are they offer. this is cross subsidy.
as there is no cross subsidy the mortality drag if the extra return required from the pension fund to offset the loss of the crosss subsidy that will consist with a annuity.
-fees - drawdown required ongoing reviews. fees can be levied for the capped ones.
- investment is risky
7
Q
COBS OMO When
A
- must offer open markets statement at age 50 and two months ( every five years with it being issued four to ten weeks before their birthda
- must offer an open market statement if the client requests a retirement quote four months before their retirement
- if the from does not receive such a request before between four and six months before retirement.
- the client requests access to their fund for the first time (not i’ll health)
- when the client says they are considering not taking their income or wanting to take a further sum of money out of their pension savings they should be given open market options.
- must be before they sell a decimal action fund if not already given.
- must send them within 2 months of the i’ll health being rejected - it wasn’t necessary before as per card
- open market options statement must include garunteees and be on one a page as well as risk warnings
- suggest money wise and if advisers are offered
- retirement risk warning - this must be individual ie age out contributions means tested and review the investment objective. The firms need to decide the risks present if they are not sure if it’s a risk they should mention it. They must also say that it may not be the best option between 4-10 weeks of the client turning 55 and 7 months before they intend to retire. 6 weeks before the client wants to retire they need to say the open market options. they must never include promotions about a decacumaltion pot unless it’s a small pot unless they provide multiple key features illustrations for each product option if offers.
8
Q
further rules
A
- when they are talking about a personal pension stakeholder pension and Free standing additional voluntary contributions mudt say they should get advice.
- annuity’s must have quotes that show the monteraly value net any advise fees and confirm commission and confirm the sum in pound sterling.
9
Q
further rules
A
- when they are talking about a personal pension stakeholder pension and Free standing additional voluntary contributions mudt say they should get advice.
- annuity’s must have quotes that show the monteraly value net any advise fees and confirm commission and confirm the sum in pound sterling.
- for anything like garunteee the provider must say a montage value of how the client would be better
- must include when they have protected tax free cash doesn’t have to be money.
- bill
10
Q
risk warnings
A
- they must offer the risks warning.
- the consumer must be able to understand the implacarions
- where they have not protection and £999.99 the firms do not need to go through questions but must issue appropatiate risk warnings.
- retirement risk warnings do not replace pensions wise.
what are they
Health garuntees any dependants inflation moo suitability if income tax implications fees impacts on benefits debt and investment scams
- must record the risk warnings in step 3 and whether the client took advice or guidance
11
Q
explain guidance
A
1) offer to book in the client ask them did they take advice or a meeting. if they agree they can continue if not they need to remind them of the importance and say they need to opt out must follow.
Risk Factors - ask relevant questions to confirm how the client eats to access their money if there are any of the other risks they must highlight it.
Fin - firms must give the risk warning in response to the answers. The warnings must be conunicated.
12
Q
Suitability reports
A
- for all they need to include the disadvantages of each proposal and poly out that capital can be eroded, investment returns may be less than shown in illustrations annuity or scheme pension rates may be at a worse level in the future the levels of income priced may not be sustainable and there may be tax implications.
- the authorised business must include tax information that is specific i’e rates
13
Q
Illustrations
A
- must provide a key features illustration at the post of sale of a new drawdown plan.
- Before 2015 they would have been used to provide an income.
- standard illustrations are required unless the client asks for a withdrawal no need to show £0 money
14
Q
critical yield
A
this was historically needed for when clients had to get an annuity.
best practice type a - clothe growth rate needed on the drawdown investment to provide and maintain an income equal to that obtainable under an equivelant one.
- type b is the goeth needed to price and maintain a selected level of income,
- type b should come with type a
- type a should have the annuity purchase
- the regulators prefer type a to be specific
- fir client specific at least two of the following must be shown:
Total client yield, the underlying annuity investment return; and the additional yield, ie. the differene vet we’re the yield and the underlying investment
15
Q
vulnerable customers
A
The FCA guidance requires firm to take account of vulnerable customers in the following ways
- understand their customers needs - what they have and how they are affected
- communications - considers their needs
- customer service - systems can not be obstructive with needs
- prdocucts must have been designed with that in mind.
- monitoring and evaluation Fiems must have processes in pace to evaluate where the needs of vulnerable customers are not being met and to monitor the results
