Pensions

Question 1

Types of pension scheme

Answer 1

Occupational scheme - run by an employer for a group of employees
Personal scheme - Run by a pension provider and open to any individual to join

Question 2

Defined contribution

Answer 2

Pension benefits linked to value of investments made with the pension contributions

Question 3

Eligible jobholders for automatic enrolment on a qualifying pension scheme

Answer 3

Work in the UK
Are not already in a suitable workplace pension scheme
Between the age of 22 and the state pension age
Earn > £10k per year (optional if individual earns between £6,240 and £10k)

Question 4

Minimum level of pension contributions under automatic enrolment

Answer 4

8% of qualifying earnings, of which the employer’s contribution must be at least 3%
Employee and employer can choose to pay more than the minimum contribution

Question 5

Qualifying earnings

Answer 5

Between £6,396 and £50,270

Question 6

Occupational scheme

Answer 6

Employee contribution is deducted from employment income before income tax is calculated

Question 7

Personal scheme

Answer 7

Individual’s income tax bands extended by the grossed-up (5/4) contribution

Question 8

Treatment of contributions

Answer 8

Employer contributions are exempt benefits for the employee and are deductible from the trading profits of the employer
The maximum amount of annual tax-relievable contributions by an individual is the higher of £3,600 / the relevant earnings of the individual

Question 9

Annual allowance

Answer 9

The overall limit on gross tax-relievable contributions into an individual’s pension fund per tax year
£60,000
Unused annual allowance can be carried forward for three tax years
Reduced if the individual is a high earner

Question 10

Annual allowance charge

Answer 10

Taxes the excess contribution as additional income in the individual’s income tax computation

Question 11

Options when drawing a pension upon retiring

Answer 11

Minimum age 55
Take out a cash lump sum
Provide pension income (annuity / drawdown)
Leave the funds in the pension scheme and withdraw cash amounts when they need them

Question 12

Taxation of pension benefits

Answer 12

Tax free amount = The lower of 25% of the fund value and £268,275 (1/4 of lifetime allowance)
The rest of the balance is taxed as non-savings income at the individual’s marginal rates of tax when received