Pensions Flashcards
Taking lifetime annuity using a pension
25% PCLS
Remaing fund buys annuity
Income taxed under PAYE
Capital outside estate
Capital guarantee IHT free
Low risk
Taking flexi-access drawdown from pension
Take 25% PCLS
Enter into drawdown
Withdraw further funds as and when
Income taxed under PAYE
Potential for tax-free gains on underlying fund
Fund outside estate
Death tax treatment depends on age
Added risk
Taking UFPLS from pension
Take as and when required
25% of each LS tax-free
75% taxed under PAYE
Potential for tax-free gains on underlying fund
Fund outside estate
On death tax treatment based on age
Adds risk
Taking a short-term annuity using a pension
Provides guaranteed income
Retains flexible income options in pension
Benefits if annuity rate rises
Potential for capital growth on residual funds
Less administration
Can include value protection
Indexation
No investment risk
Adds risk
Factors to determine reasonable flexi-access withdrawl rate
Budget and Income
-Income needed in retirement
-Capital needs in retirement
Assets and additional
-Income from other sources
Needs
-Death benefits free from IHT
Timing
-Life expectancy
Tax and efficiency
-future tax postion
Expenditure
- charges
Risk and investments
-Inflation
-Sequencing risk
-investment strategy
-growth assuption
Regulation and state provision
-economic conditions
Sequencing risk and reverse pund cost averaging
Draw down funds are exposed to sequencing risk
Reffers to the risk an early loss has on the client to take withdrawls over the long term
Running down fund is pound cost averaging in reverse
Low price equals more sold
High price equals less sold
Taking regular withdrawals of capital exaggerates impact fluctuations
Benefits workplace pension
TIF
Tax efficient
-Tax relief on payments
-Tax efficient growth
-25% tax-free PCLS at retirement
-IHT free before 75
Investment
-Potential growth
-Compoud interest
-Leads to greater income in retirement
-Benefits from disciplin and pound cost averaging
Flexibility
-Death benefit can be nominated
-Flexible options in retirement
-Fund choices to match ATR
Specifics
-Contribution matching may be available
-Salary sacrifice may be available
-Lower charges
-Deducted from salary
Considerations for using choosing to use flexi-access drawdown
Tax efficient
-Create tax efficient income
-Tax plan
-Use PCLS
-Remains in tax wrapper
-No IHT before 75
-Taxed marginal rate after 75
Investment
-Investment matching ATR
-Allows potential further growth
-No guaranteed growth
-Funds can deplete
-Investment risk
-Mortality drag
Flexabilty
-Ability to change with requirements
-Income not guaranteed
-Can purchase annuity at anytime
Specifics
-Requires ongoing advice and administration
-Ongoing charges
-Triggers MPAA (£10,000)
Considerations for choosing to take an UFPLS
Tax
-improved tax efficiency as only take funds when required
-can be passed on IHT free
-possible emergency tax
Investment
-growth potential
-investment risk
-mortality drag
Flexability
-flexible income
-change according to personal circumstances
-flexible death benefits
Specifics
-would trigger MPAA (£10,000)
Reasons for pension review
CLICR
Changes in personal/financial circumstances/objectives/ATR
Legislation/economy/tax
Investment performance
Costs/charges/cheaper products
Rebalance/change funds
Non-earner threshold
Contributions stop at 75
