Pensions Flashcards
Different Types?
Public, private, State
Defined benefit, defined contribution, hybrid
History
2006 – Introduction of LTA
2015 – Pension Freedoms
2024 – Abolition LTA
State Pension top up
Deadline of 5th April 2025 to fill gaps between 2006 and 2018.
Reasons for contributing
Tax Relief - Contributions to pensions are tax-deductible, reducing taxable income and providing immediate tax benefits.
Long-Term Growth - Pension funds grow tax-free, benefiting from compound growth over time.
Employer Contributions - Many workplace pensions include employer contributions, effectively increasing retirement savings.
Retirement Security - Building a pension helps ensure financial security in retirement, supplementing the State Pension.
Tax-Free Lump Sum - You can take up to 25% of your pension pot as a tax-free lump sum at retirement.
Incentives - Saving for retirement early maximises potential savings and ensures a more comfortable retirement lifestyle.
Estate planning – While the recent Budget has diluted this benefit, pensions can still be a tax-efficient way of passing wealth to family
AA
The standard annual allowance is £60,000 tax-relievable pension contributions per tax-year.
Any contributions above that limit will not receive any tax-relief. Therefore, to receive tax-relief, you need sufficient relevant earnings and available annual allowance.
It is possible to carry forward unused annual allowance from the previous 3 tax-years.
Both personal and employer pension contributions count towards the annual allowance.
Tapered AA
For every £2 of total ADJUSTED adjusted income above £260,000, the annual allowance will be reduced by £1, down to a minimum of £10,000.
The difference is pretty simple; adjusted income includes all pension contributions (including any employer contributions), while threshold income excludes pension contributions.
Adjusted income is the total taxable income from all sources including employer pension contributions.
Tapering is not applicable if your threshold income is below £200,000
MPAA
The MPAA is currently £10,000. This will apply from the date on which income is taken flexibly from the pension.
Taking tax-free cash from your pension will not trigger the MPAA.
Carry Forward
Access unused allowances from previous three tax years, but only when used up allowance for current tax year.
Potential maximum is £200,000 – current year PLUS carry forward
Carry forward must be allocated against earliest tax year first, then middle and then most recent.
SSAS
A Small Self-Administered Pension Scheme (SSAS) is a type of occupational pension plan in the UK, designed for small businesses or company directors. It allows greater control and flexibility over pension investments compared to traditional pension schemes.
Up to 11 member trustees – larger investment fund
QROPS
A QROPS (Qualifying Recognized Overseas Pension Scheme) is a pension scheme based outside the UK that meets specific requirements set by HM Revenue & Customs (HMRC). It allows individuals with UK pensions to transfer their retirement funds to a foreign pension plan, often for tax efficiency or to access benefits in another country.
Section 32 or buyout policy
A Section 32 or buyout policy (aka a deferred annuity plan) accepts the transfer of funds from an occupational pension scheme.
It is a policy or contract bought from an insurance company using funds from a registered pension scheme. The policy provides for an annuity at some point in the future – a deferred annuity contract.
Personal contributions are capped by
Earned Income (excl pension income)
Employer contributions are deductible for…
Deductible as an allowable expense for corp tax
When can we access pensions from?
55 increasing to 57 in 2028, due to increase to 58
Drawdown ending of account numbers
SIPP account end 5
Drawdown account end 6
Can you hold commercial property in a SIPP
yes costs £1,200
Transfer out fees
None
What day of the month can clients receive pension income
1st of each month
State Pension, value and rules
£11,502.40
state pensions increase each April by the highest of average wage growth (earnings), inflation, or 2.5%
Auto enrolement rules
22 yrs old and earn at least 10k
Pension Options
Flexi-access drawdown: Allows withdrawals at any time with investment flexibility but carries market risk.
Annuity: Provides guaranteed income for life but lacks flexibility.
Considerations: Client’s risk appetite, life expectancy, need for flexibility, inflation protection.
Capped Drawdown
derived from 15 yr gilt yield
income set for 3 year period
income limit capped
LTA / LSDBA
LSDBA replace lifetime allowance from 6th April 2024
Tax free if pre 75 and within LSDBA and paid out within 2 years
post 75 all taxable at marginal rate
All client must go though what before going into drawdown
the Retirement Risk Warning process
Pension Transfer Specialist Advice
1.5% min fee of £3,750
