Pensions Flashcards
What is the maximum amount an individual can contribute to a pension?
100% of their gross earnings or £3,600 gross
Tapered annual allowance only applies to income over what level of a) threshold income and b) adjusted income?
Threshold income must be over £200,000
Adjusted income must be over £260,000
For a client with adjusted income of over £260,000, how will their annual allowance reduce?
Client’s AA will reduce by £1 for every £2 of adjusted income above £260,000
What is the minimum deferred period for taking state pensions?
9 weeks
How much does the state pension increase when someone is deferring their benefits?
Increases by 1% for every 9 weeks (works out about 5.78% for every full year of deferment)
How many previous tax years are taken into consideration when applying the carry forward rules with regard to pension contributions?
Previous 3 tax years
What is a lifestyle fund?
Retirement fund where the investment mix moves away from equities 5/10 years before retirement into gilts/cash, does not take market timing into account. Any switching is automatic.
What is a target date fund?
A retirement fund used by NEST, where the fund invests in lower risk assets the closer a member gets to the funds pre selected retirement date. Asset allocation is actively managed and market timings are taking into account.
What are the 4 types of NIC’s?
Class 1: Paid by employers and employees
Class 2: Fixed weekly amounts paid by self employed people
Class 3: Contributions are voluntary NIC’s paid by people wanting to fill gaps in their record
Class 4: Contributions are paid by self employed people on a portion of their profits
How many years can you “look back” to fill in gaps in their NIC record?
You can only look back 6 years to fill in an NIC gap to pay class 3 NIC’s
What is the minimum pension contribution to a workplace pension scheme?
8%, with a minimum of 3% from the employer
Benefits to Alex if his pension contributions increase
Builds up pension savings
No CGT on growth
Income tax-efficient death benefits
IHT efficient
Nominations in place for kids
Describe briefly the taxation treatment of the three options Alex has with regard to receiving Tanya’s workplace pension sum of £115,000
No need to wait for probate for any option and does not trigger his MPAA:
Alex could take it as a lump sum payment, which would be free of income tax as Tanya died under 75 and is under the LTA limit. Though there could be an IHT liability if it was to sit in his bank account.
Alex could also take it as a FAD, again any withdrawals would be income tax free. Would also be IHT free. Also, as it is an inherited plan any withdrawals would not be a trigger for MPAA
Final option would be to take it as an annuity, also tax free on all payments but no room for investment growth and is inflexible
Describe how you would establish Alex’s maximum tax relievable pension contributions for 23/24 (4 steps)
- Establish current annual allowance of £60,000
- Calculate pension input amount, which is Alex and his employers contributions, which equal £9,000
- Deduct this £9,000 from this annual allowance, to give £51,000 as new annual allowance
- Calculate any carry forward allowance from the previous three years, but setting against £40,000
