Joshua & Aminas Questions Flashcards
Outline to Joshua and Amina the key issues that may result in them failing to meet their plan to improve their current retirement savings provision.
• For questions such as this we can use the threats and weaknesses highlighted above to help us answer this question:
• Deterioration in health/unable to work due to ill health/no income protection.
• Death of either of them/Joshua has no non-mortgage personal life cover.
• Underperformance of UK market/significant exposure to UK market.
• Joshua is paying the minimum required pension contribution only/Amina is also paying a relatively low amount.
• State Pensions unlikely to be payable until 68/potential for future SPA increases.
• Joshua’s personal contributions are not tax efficient.
• Switch to self-employment would reduce scope for tax efficiency/NICs saving.
• Economic/market downturn.
• Potential further changes to legislation/political risk
• Three dependent children/mortgage/existing financial commitments.
• Mortgage interest rates spiking in 3 years.
• Periods of high inflation/rising cost of living.
• Significant cash holdings/inflation risk
• Unexpected costs/school fees or university fees they may not have accounted for.
State the additional information that a financial adviser would require to allow them to advise Joshua and Amina on their financial situation.
• Current expenditure/childcare costs/surplus income/are they claiming tax-free childcare/willingness, ability to economise.
• What age they expect the children to be dependent for/desire to financially assist them.
• Any further children planned.
Intended retirement date/expected income and capital needs in retirement.
• Views on inflation.
• Any inheritances/capital sums expected?
• Priority of objectives.
• State pension entitlement/BR19s.
• Any scope for further matched contributions for Amina.
• Details of their pension schemes/normal retirement date and target date on fund/asset allocation/charges/fund choice.
• Willingness to make further pension contributions/tie up funds long-term.
• Pension death benefit nominations.
• How are current pensions contributions for Joshua structured - employee/employer split?
• Required/desired emergency fund.
• Are they making regular savings into ISAs?/have they used their allowance?
• Interest rate/access terms on the cash holdings.
• CFL.
• Asset allocation/performance/charges on the funds.
• Platform/how are funds held?
• Views on ESG investing?/has Amina considered ethical banking?
• Any surplus funds within the company?
• Views on Joshua’s decision with regards to the company.
• Does he have plans to expand his business in the future?
• Why is he drawing only £65,000 from the £90,000 turnover/what is the annual profit?
• Why has he structured his earnings in this way?/has he ever received advice on this issue?
• Views on taking on someone to help with administration?
• Is the mortgage protection policy payable on first or second death?
• Term/monthly repayment on the mortgage.
• Amina’s sick pay entitlement/any other employer benefits.
• Premium on mortgage protection policy.
State the additional information that Joshua and Amina’s financial adviser would require to advise on their objective to improve their existing protection arrangements.
• Affordability of contributions/regular expenditure.
• Smoker status/family health/medical history.
• Any other debts/plans to move to bigger property/capital expenditure needs.
• Does Amina intend to remain with her employer? /Amina’s sick pay entitlement.
• Any inheritances expected.
• Value of Joshua’s business/surplus cash holdings.
• Priority of protection needs.
• Assistance available from family/childcare costs/are they claiming tax-free childcare?
• Term of mortgage/plans to move.
• Views on inflation/increasing cover.
• For income protection would they prefer own/any occupation definition.
• Requirement for waiver of premium.
• Intended retirement age.
• Pension death benefits available/nominations.
• Premium for current decreasing term assurance.
• State benefit entitlement/NICs history.
• Expected dependency of children.
• Any further children planned.
State the additional information that Joshua and Amina’s financial adviser would need to obtain in relation to their pension arrangements to enable them to advise on their objective to improve their retirement savings provision.
• Details of the provider/financial strength.
• Trust/master trust/contract based.
• Level of matched contributions available for Amina.
• Vesting options.
• Death benefit options before/during retirement/nominations.
• Target date on Joshua’s plan.
• State pension entitlement/BR19.
• Charges/held on platform.
• Performance.
• Fund choices available.
• Can salary sacrifice be used for Amina’s bonus?
• Asset allocation/geographical/sector weighting for Joshua’s fund.
• Projected entitlement.
• Contribution history.
• Nomination forms completed?
Outline the main factors that might affect Joshua and Amina’s capacity for loss.
• Timescale/intended retirement age.
• Age.
• Their level of salary.
• Large emergency fund.
• Limited other assets.
• Large mortgage/no other apparent debts or liabilities.
• Three young financially dependent children.
• They are in good health/lack of protection products.
• Objectives.
• Employer sick pay/State benefits.
Identify the key issues that a financial adviser should discuss with Joshua and Amina at their next annual review.
• Has Joshua made a decision on his business structure?
• Changes in circumstances/any further children.
• Mortgage repayment/refinancing plans.
• ATR/CFL.
• Asset allocation/performance/benchmark/do holdings still align with ethical values.
• Charges.
• Protection provision.
• Cheoris in tosation tax rates/products av:
• Changes in legislation/tax rates/products available/economic conditions/interest rates.
Describe the process an adviser could use to ensure there are sufficient funds under an existing pension plan to provide the required level of target benefits.
• Establish the income required, allowing for inflation.
• Calculate the fund required based on assumed/agreed annuity rate.
• Allow for pension commencement lump sum requirement.
• Calculate existing benefits using assumed or agreed growth rate.
• Include ongoing funding.
• Calculate the shortfall and the increased contributions required.
• Ongoing reviews needed.
Explain to Joshua and Amina why it is important for them to regularly review their retirement provision.
• Check growth/performance/benchmark.
• Review retirement needs/check they are on target.
• Review charges/new or alternative products.
• Tax position/unused allowances/tax efficiency.
• Market conditions/inflation/economic conditions.
• Income/capital available from other sources/inheritances received.
• Potential to increase contributions.
• Review retirement date/check target date remains appropriate.
• Review ATR/CFL.
• Changes to health/family situation.
• Changes to legislation/pension legislation
Outline the weaknesses in Joshua and Amina’s current protection provision.
• Joshua has no life cover besides mortgage protection.
• Amina has only employer’s death in service benefit/this would cease if she left employment/inadequate.
• No family income benefit/cover for costs in the event of death.
• Three young children dependent on them.
• No PHI/no CIC/mortgage cover does not include CIC.
• No redundancy cover for Amina.
• No PMI.
• Joshua is a builder/he is reliant on physical health.
• Joshua has no employer sick pay.
• Limited State benefits available/State benefits are inadequate.
Identify the factors that a financial adviser should consider when establishing a suitable suite of financial protection products to meet Joshua and Amina’s requirements.
• Limited cover at present/life cover for mortgage only/no PHI, CIC, PMI.
• Mortgage term/plans to move.
• Any more children planned?
• Trust status for life cover.
• Smoker status/family history/dangerous hobbies/pastimes.
• Affordability/cost of premiums/surplus income.
• Priorities/term/retirement age/sum assured.
Joshua is business owner/no employer cover.
• Nominations on pension/death in service cover.
• Plans to change employment/security of employment.
• Premium and term on existing term policy
Outline to Joshua and Amina the key differences between critical illness cover (CIC) and income protection (IP).
• CIC pays a lump sum/IP pays regular income.
• CIC can be held for life/IP ceases on retirement.
• CIC pays on diagnosis of specified condition/not linked to job
• Survival period of up to 30 days.
• IP is limited by income/CIC can be unlimited.
• IP can include deferred period to meet need/reduce premiums.
• IP based on ability to work.
• CIC usually cancelled on claim.
• IP can have multiple claims/insurer cannot cancel.
Waiver of premium optional on CIC/automatic on IP.
• Children’s cover available on CIC/houseperson’s on IP.
Identify the key factors that Joshua and Amina’s financial adviser should consider when reviewing the suitability of their existing mortgage protection policy.
• Term of mortgage.
• Plans to move.
• Premium amount.
• First or second death.
• Guaranteed or reviewable premium.
• Cost of alternative policies.
• Insurability/state of health/underwriting.
• Cover amount/does it still match the mortgage amount?
• Any critical illness cover?
• In trust?
Explain to Joshua and Amina why it is important to review their current protection arrangements.
• Limited life cover.
• No health/IP/CIC/PMI.
• Joshua is a business owner/no sick pay/no company benefits.
• Also needs quick return to work as runs his own business as a builder.
• It doesn’t appear that Amina has employer benefits/life cover only.
• Death-in-service ceases if she leaves the employer.
• Consider unemployment cover.
• Three dependent children.
• No pension death benefit nominations evident.
• Affordability/CFL/limited emergency resources.
• Cannot access pensions as too young.
• Limited State benefits payable.
Outline the key issues that Joshua and Amina’s financial adviser should take into account when helping them to prioritise their protection needs.
• Affordability/expenditure.
• Liabilities/outstanding mortgage.
• Joshua has no sick pay/limited sick pay.
• No family protection in place.
• Period of children’s dependency/plans to have more children.
• Term of mortgage/plans to move.
• Amina’s job security/intention to change jobs.
• Support from family/financial or practical.
• Inheritances/windfalls expected.
• Pension death benefits.
• Willing to use current assets/savings/emergency funds.
• Family health history/health issues in family/smoker status/any hazardous pursuits.
Explain to Joshua and Amina the factors that they should consider when deciding whether to close his limited company and operate on a self-employed basis.
• Limited company structure is more flexible and can be more tax efficient.
• Limited company allows payment via dividends and/or salary.
• Self-employed income taxed as profits.
• Company pays Corporation Tax on profits which is lower rate than Income Tax.
• Able to control earnings.
• No NICs on dividends.
• Dividend tax rates lower than on earned income.
• Ability to make employer pension contributions/employer contributions free of NICs as a limited company.
• Can also make pension contributions for Amina.
• Potential to split income with Amina.
• Potential to claim CGT business asset disposal relief on closure.
• Limited admin when self-employed/sole trader.
• Can hire accountants/professional company secretary to help with administration.
• Company can borrow separately/limited liability.
• A company is a separate legal entity and debts are its own/can’t be enforced against individuals
• As a sole trader Joshua would have unlimited liability for debts.
• Need to publish accounts as a limited company.
• More costs involved with operating as a limited company.