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QFA Pensions > Personal Contracts > Flashcards

Personal Contracts Flashcards

1
Q

What financial institution(s) provide Retirement Annuity Contracts?

A

Life Assurance companies only

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2
Q

What financial institution provides PRSAs?

A

Life assurance companies and investment firms

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3
Q

What are RACs also known by?

A

Personal pensions plans

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4
Q

Name the two types of PRSAs available?

A

Standard and Non-standard PRSAs

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5
Q

Name two types of investment firms that provide PRSAs?

A

Stockbrokers and investment firms under MIFID regulation

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6
Q

RACs and PRSAs are contract arrangements. Who is the contract between? What is provided?

A

It is a legal contract between the financial institution (provider) and the individual where the provider agrees to retirement provision from the contributions of the individual.

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7
Q

Who approves RACs and PRSA’s? How are these contracts approved?

A

The Revenue commissioners approve RACs. PRSAs are approved by both the Revenue commissioners and Pension Authority.
RC and PA approve a master contract submitted by the provider that satisfies the various requirements set out in the legislation

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8
Q

Name the two type of contributions that can be made to RACs and PRSAs?

A

Regular and singular contributions

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9
Q

Name three different ways regular contributions can be made?

A

Fixed monetary amount at a set period
Varied regular contributions (in/decrease with earnings)
Single/one off contributions can be added from time to time

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10
Q

Who can take out an RAC? What income applies?

A

An individual who has relevant earnings liable to income tax.
This income is earned from self employed trade/profession or from a non-pensionable employment

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11
Q

What is non- pensionable employment?

A

Non-pensionable employment is an employment where the individual’s employer has not included the individual in an employer pension scheme for retirement benefits

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12
Q

Name 5 examples of individuals that can contribute to RAC’s?

A

A self employed professional ( solicitor, dentist, accountant, doctor)
Partners in partnerships
Farmers
Self employed individuals engaged in a trade (not through a company i.e. plumbers, decorators, builders)
Employees in a non-pensionable employment
Individuals engaged in contract type work on a self-employed basis (not an employee)

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13
Q

In what circumstance can an individual with more that one source of earnings contribute to an RAC?

A

Where at least one of the sources of income is ‘relevant earnings’

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14
Q

In what circumstance is a spouse/civil partner eligible to contribute in a RAC if their spouse/civil partner is in pensionable employment and they are assessed to income tax under joint assessment?

A

Where the spouse/civil partner has their own relevant earnings. They can contribute to an RAC in respect to their own income

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15
Q

In what circumstance can an individual who does not currently have relevant earnings contribute to an RAC?

A

If the individual contributed to an RAC in the past they can continue to contribute. Note the individual can only claim tax relief on contributions from relevant earnings.

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16
Q

Who can take out a PRSA? Do they require relevant earnings?

A

Anyone can take out a PRSA. They do not require relevant earnings

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17
Q

Name 3 types of income that tax relief can be received against for PRSA contributions?

A

Income earned from a self employed trade/profession
Income from a non-pensionable employment
Income from a pensionable employment where the contributions to be paid to the PRSA are AVCs to top up their employments pension scheme benefits

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18
Q

What must employers do if they do not include some or all of their employees in an occupational pension scheme for retirement benefits 6 months after joining? How can the individual receive income tax relief on their contributions?

A

Employers must allow those employees to contribute to at least one Standard PRSA chosen by them and allow employees to contribute to the PRSA by deduction from earnings before PAYE is applied.
As the earnings will be deducted before PAYE is applied they will receive income tax relief via the net pay system

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19
Q

An individual who contributes to a PRSA/RAC can deduct those contributions against what? For what purpose?

A

They can deduct the contributions against their relevant earnings for income tax purposes.

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20
Q

Is there a limit to how much an individual can deduct their RAC/PRSA contributions against their relevant earnings?

A

Yes there is a limit each year that is related to their age and net relevant earnings in that tax year

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21
Q

Complete the blanks Age % Income relief limit (as a % of NRE)
less than 30 ________
30-39 ________
40-49 _________
50-54 _________
55-59 _________
60+ _________

A

(less than 30) 15%, (30-39) 20%, (40-49) 25%,(50-54)30%, (55-59) 35%,(60+)40%

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22
Q

What are three exceptions to the age/NRE tax relief limits?

A

1) Sportspeople have a higher income tax relief limit of 30% for any RAC/PRSA contributions made under 50 from earnings wholly or mainly from sports occupation
2) An individual can claim income tax relief on PRSA contributions of up to €1,525 pa even if it’s higher than the limits
3) The maximum NRE that can be taken into account for the purposes of tax relief limits on RAC/PRSA contributions is €115,000

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23
Q

What are net relevant earnings (NRE)?

A

Net relevant earnings are an individual’s earnings reduced by any charges on income ( tax deductible covenant payments, maintenance payments) and any business losses or capital allowances related to the individual’s relevant earnings.

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24
Q

Are personal contributions to RACs/PRSAs deductible for PRSI and USC purposes?

A

No

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25
Q

How are employer contributions paid into a PRSA treated for income tax purposes?
What are they liable for?
What system are they not put through?

A

They are treated as benefit in kind. They are liable for income tax but are not put through the PAYE system

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26
Q

What can an employee claim on an employer contribution into a PRSA?

A

An employee can claim income tax relief on employer contributions as if they were personal contributions subject to the normal limits

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27
Q

What can an employee in a pensionable employment paying AVCs into a PRSA claim?

A

They can claim income tax relief on these contributions as if they were employee contributions to the employer’s pension scheme within the normal limits and earnings limits.

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28
Q

If an individual’s contributions into their RAC/PRSA totals to more than the tax relief limit what can they do with the part of the contribution that does not apply for tax relief?

A

The part that does not apply for tax relief can be carried forward to the following tax year and can be deducted against the relevant earnings for income tax for that year within the limits

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29
Q

What income can RAC/PRSA contributions carried forward for tax relief purposes be offset against?

A

They can only be offset against relevant earnings in those future years and not other future incomes such as investment or pension income

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30
Q

In what circumstance can an individual backdate contributions paid into an RAC/PRSA? What year can they be backdated to?

A

RAC/PRSA contributions paid by an individual in a year before 31 Oct( before mid Nov is paying AND filing tax online with the online ROS system) can at the option of the individual be backdated to the immediately preceding income tax year for income tax relief

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31
Q

In what circumstance can RAC/PRSA contributions not be backdated?

A

RAC/PRSA contributions paid by an individual after 31st Oct( after mid-Nov if paying AND filing tax online with ROS system). They can only count for income tax relief purposes in the year which they are paid but can be carried forward.

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32
Q

There are charges imposed on PRSA/RAC contracts. Name three of these type of charges?

A

Entry charge
Ongoing Charge
Exit Charge

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33
Q

Explain what is an entry charge? Name three different types of entry charges?

A

An entry charge is a charge levied at the point of entry on contributions paid into the contract.
Contribution charge, non-allocation rate, fixed monetary charge

34
Q

How is a contribution charge taken?

A

A contribution charge is taken from a contribution paid into a contract before the balance is invested

35
Q

Where the entry charge is represented as an allocation charge, explain how the charge is taken?

A

Where the allocation rate is less than 100%, the difference is taken as the charge

36
Q

What is a offer/bid spread?

A

A contribution charge can be presented as an offer/bid spread. The offer bid price is the price the units are brought and they bid price (the real price) is the price the units are enchased. The difference between the two prices is referred as the offer/bid spread.

37
Q

What is a non-allocation charge?

A

A non allocation charge is an initial period of the contract where the regular contribution is not invested but fully held by the provider as a charge.

38
Q

What is a fixed monetary charge?

A

A fixed monetary charge is an entry charge whereas a fixed amount is deducted from a contribution before the balance is invested

39
Q

Name 3 types of ongoing charges?

A

Annual Fund Charge
Policy Fee
Fund switch charge

40
Q

What is an annual fund charge?

A

An annual fund charge is a charge or deduction taken from the value of an investment fund before the unit price of that fund is set

41
Q

In what circumstance would a reduction in AFC occur?

A

When the value of the contract exceeds a certain monetary amount or a certain period of time as passed since the contract was established

42
Q

In what circumstance would an AFC rebate be given to a contract? How is this given?

A

Some contracts may rebate or refund some of the afc if the contract is maintained for a set period of time and this is done through the addition of bonus units to the contract at some stage in the future

43
Q

Explain a policy fee in relation to ongoing charges? What contract would this effect?

A

A policy fee is a fixed monetary charge that a life company applies to some RAC contracts. A fee may be taken before a contribution is invested or taken from the overall value of the contract

44
Q

What is a fund switching charge?

A

A charge that may apply when an individual switches units out of one fund into another

45
Q

When may an early exit charge apply?

A

An early exit charge may apply to RAC contracts that are encashed earlier that expected. The pay out is reduced with the reduction being the charge. This is also referred to an early encashment charge

46
Q

Can a PRSA provider apply exit fees or early encashment fees?

A

PRSA providers by law cannot impose early exit fees on termination and encashment of a PRSA

47
Q

Name the three types of commission that a life company or PRSA provider can pay to an intermediary in relation to the advice given to the client taking out the contract? Explain each type?

A

Initial - is a % of the contribution payable in the first year of the contract
Renewal - is a % of the ongoing regular contribution payable annually after the first year
Trail - is a % of the ongoing value of the RAC/PRSA payable each year

48
Q

How do life companies/PRSA provides recover commission paid out on RACs and PRSAs?

A

They impose a knock for knock reduction from the contributions or contract value

49
Q

List all of the charge restrictions on a PRSA?

A

PRSAs cannot make a fixed cash charge of any value i.e. must be a %
PRSAs cannot have exit fees or early encashment fees
PRSA’s cannot have deduction, suspension or recommencement of contribution charges imposed on it
PRSA’s cannot have an entry charge to a transfer value received by the PRSA from another pension arrangement

50
Q

Name the maximum charges on a Standard PRSA and a non-standard PRSA?

A

The maximum contribution charge on a standard PRSA is 5% and the maximum annual fund charge pa is 1%.
There are no maximum charges for non-standard PRSAs

51
Q

Explain what is a reduction in yield (RIY)?

A

A reduction in yield is a measure of the impact of charges to a pension contract expressed as an equivalent annual reduction in investment return

52
Q

What is the formula to calculate the RIY for single once off contributions?

A

[contribution charge/term]+ annual fund charge %pa= RIY

53
Q

In what circumstances can an individual draw down on their PRSA/RAC benefits before the age of 60?

A

If there are in permanent incapacity
Retirement from any age from individuals where it’s normal to retire before 60
PRSAs if they opt for voluntary early retirement from the age of 50

54
Q

If an individual dies before drawing down on their PRSA/RAC benefits, where is the amount paid to?

A

It’s paid to the holder’s estate.

55
Q

When an individual comes to take their retirement benefits from a RAC/PRSA what are the three steps of drawing on the benefits?

A

Taking the 25% lump sum
Investing 63,500k in AMRF or purchasing an annuity (if required)
With balance taking out a taxable lump sum, investing in ARF or purchasing an annuity

56
Q

What is the limit to the amount of TFC an individual can withdraw from their pension?

A

Individuals can take the first 25% of the fund as a tax-free lump sum which is subject to a limit of €200,000 on all tax-free lump sums taken by that individual from their pension arrangements since 7th December 2005

57
Q

Lump sums over 200k but under 500k are subject to what tax?

A

Standard rate tax

58
Q

In what circumstance does an individual have to invest €63,500 into an AMRF or purchase an annuity?

A

When after taking their 25% lump sum they do not satisfy the requirement of receiving a pension of at least €12,700 pa

59
Q

Can an individual withdraw annual taxable withdrawals from their AMRF?
At what age does an AMRF turn into an ARF?

A

An individual can opt to take 4% of their AMRF as an annual taxable withdrawal if they choose.
At age 75 AMRF turns to ARF

60
Q

What is referred to as the revenue concession?

A

The revenue concession is where an individual takes their 25% lump sum, is not in receipt of any other pension and the balance is under 30k. They do not need to invest the remainder in an AMRF they can take it as a taxable lump sum paid through PAYE

61
Q

What is the minimum % an ARF holder must withdraw from their ARF pa?
What is the minimum % an ARF holder must withdraw from their ARF post 70?

A

4%

5%

62
Q

What is a vested PRSA?

A

A vested PRSA is a PRSA from which the holder has withdrawn their lump sum and decided to keep the remaining balance in the PRSA

63
Q

What is the ring-fenced part of an vested PRSA?

What is the non-ring fenced part of an vested PRSA?

A

The ring fenced part of a PRSA is the 63.5 k balance the holder has decided to remain in the PRSA rather than invest in an AMRF. No withdrawals can be taken from the ring fenced amount
The non-ring fenced part of a vested PRSA is the balance the holder has decided to remain in the PRSA rather than invest in an ARF. They must withdraw the min 4% like an ARF

64
Q

At what age do withdrawals from a PRSA cease?

A

From age 75 the holder must move to an ARF

65
Q

What information do RAC providers have to provide to an individual before any application is signed?

A

Disclosure of notice( also known as key features document or customer information notice)

66
Q

What information is outlined in the RAC disclosure of notice?

A

The DON in addition to providing info about the RAC should show the potential projected charges that may be made to the contract, the projected sales payment that may be made to intermediaries or financial institutions arranging the RAC and projected retirement benefits.

67
Q

At what point is the disclosure of notice given generic?

A

It is generic at the point of sale.
Where a DOC has been given at the point of sale the RAC holder will receive a personal or plan specific table of projected benefits, charges and sales payment based on their actual details and contribution levels

68
Q

What does the annual RAC update outline?

A

The life assurance company will give the holder an annual update on their contract showing the opening RAC value, all additions including additional amount invested, all withdrawals, total amount invested, total n.o of units held, all interest, all charges and deductions affecting the RAC and closing RAC value

69
Q

What information do PRSA providers have to provide to the holder before the PRSA application is signed?

A

A preliminary disclosure certificate

70
Q

The PDC given is dependant on the type of PRSA. What will a PDC show in relation to the holders retirement benefits?
What must a non-standard PRSA PDC show?

A

The PDC will show a projection of the retirement benefits the PRSA may provide in return for certain contribution levels.

The PDC for non-standard PRSAs must disclose the sales payment payable from the PRSA to any intermediaries or financial institution selling the PRSA to the individual

71
Q

What must a PRSA provider give within 7 days of the PRSA starting? Name other circumstances when this would be given?

A

A statement of reasonable projection (SORP)

At anytime when requested by the PRSA holder (with 7 days notice), within 7 days of any increase in the amount or n.o of charges and annually in an annual statement

72
Q

Please explain the ‘cooling off’ period for PRSA/RAC?

What is the main difference between this period for both contracts?

A

The cooling off period is a 30 day period whereby a PRSA/RAC contract holder can cancel their contract and receive a refund
For an RAC, the life company is entitled to reduce the refund at cancellation in line by any fall in unit price for the investment.
For a PRSA, a full refund must be issued regardless of fall in unit price

73
Q

What is also known as section 785?

A

A pension term assurance policy

74
Q

Who can take out a pension assurance term policy?

A

An individual who is eligible to contribute to a RAC

75
Q

Outline 5 restrictions in relation to taking out a pensions term assurance policy?

A

Can only insure the individual, can only provide life cover for the individual, cannot be assigned as security for a loan and can provide life cover up to a max term of the individual’s 75 birthday

76
Q

Pension term assurance premiums are deductible against what?

A

relevant earnings for income tax within the normal limits

77
Q

Name two types of pension term assurance policies?

A

There are two types of pension term assurance policies; stand alone( not associated with the RAC) and Associated (attached to the RAC).

78
Q

What is a stand alone pension term assurance policy?

A

A stand alone pension term assurance can be taken out on it’s own without taking an RAC

79
Q

What is an associated pension term assurance policy?

A

An associated pension term assurance policy is taken in conjunction with an RAC, so if one stops so must the other.

80
Q

Fill in the blanks:

Where the pension term assurance is associated it can be either ______ or _______ of the value of the RAC at death

A

Where the pension term assurance is associated it can be either inclusive or exclusive of the value of the RAC at death

QFA Pensions (4 decks)

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