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R04 > R04 Study > Flashcards

R04 Study Flashcards

1
Q

Tax Relief for personal pension

A

Relief at source- conts paid net of BR tax, additional relief through SA.

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2
Q

Tax relief for Occupational schemes

A

Net pay system - gross cont deducted from gross pay. Member taxed on resultant amount.

No reduction in NI liability.

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3
Q

Threshold and Adjusted income for tapered annual allowance purposes

A

Threshold income = £200k. Determines whether adjusted income needs to be calculated.

Adjusted income = £240k. Determined the amount of reduction in annual allowance. Reduction is £1 for every £2 above £240k.

Min allowance = £4k which would apply is adjusted income higher than £312k.

Note - adjusted income includes other forms of income such as pensions in payment, not just earned income.

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4
Q

SIPP loans

A

50% of net assets (value of assets less existing loans)

Cannot be used for loans to an employer

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5
Q

SSAS loans

A
  • can lend 50% of net assets,
  • must be secured as a 1st charge on assets,
  • must charge an interest rate at least 1% higher than average base rate of main clearing banks
  • must not exceed 5 yr term but can roll over further 5 yrs
  • all members must be in agreement
  • must be repaid in equal instalments at least annually
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6
Q

Self-investment - investment in sponsoring employer

A

SIPP = 100%

SSAS = no more than 5%, max 20% where more than one sponsoring employer

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7
Q

Recycled lump sum rules

A
  • lump sum taken in previous 12 months plus current lump sum >£7,500
  • cumulative amount of additional conts >30% of cash sum taken in 2 tax years before or after receipt of cash sum
  • additional conts >30% of normal pattern of conts.
  • recycling was pre-planned
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8
Q

Divorce - pension offsetting

A

Assets of similar value are given in place of a share of the pension.

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9
Q

Divorce - pension earmarking

A

Court order compels scheme to pay a % of pension to ex-spouse. Can only be paid when original member takes their pension. Pension taxable at members marginal rate. May not provide death benefits if member dies. May cease on remarriage of ex-spouse.

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10
Q

Divorce - pension sharing

A

Court order compels scheme to transfer part of fund to ex-spouse. Does not count towards annual allowance of receiving party.

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11
Q

VCT/EIS/SEIS Tax Relief

A

VCT = 30%, 5 yrs
EIS = 30%, 3 yrs
SEIS = 50%, 3 yrs

Tax relief clawed back if sold within years above.

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12
Q

Serious Ill health lump sum

A

Paid if life expectancy <12 months. Tax free before age 75. After 75 tax is based on marginal rate.

Can be taken even if past minimum pension age but Applies to uncrystallised funds only which must be taken in full.

Each arrangement dealt with separately. Don’t have to take all arrangements.

BCE, anything over LTA taxed at 55%.

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13
Q

Annuity beneficiary payment tax treatment

A

Age of member not recipient that is significant.

Tax free if member was under 75 at death (& notified within 2 years). Taxable if over 75.

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14
Q

Calculate crystallisation required to provide a set amount of income

A

Example

Net income required is £20k. Higher rate tax payer.

Lifetime annuity. Annuity rate given eg £65 per £1000.

  • 1000 crystallised = 250 Tfc + 750 for annuity purchase.
  • 65 per £1000 = 0.065
  • 0.065 x 750 purchase price = 48.75 gross income reduced by 40% tax = 29.25 income per 1000 crystallised
  • total income is £29.25 + £250 tfc = 279.25
  • target income (20k) divided by 279.25 x 1000 = 71,620

FAD / UFPLS
* 1000 crystallised = 250 tfc + 750 taxable.
* tax of 750 x 40% applies = 700 net income
* 20k divided by 700 x 1000 = 28571

Capped drawdown

GAD rate eg £65 per £1000.
* 1000 crystallised = 250 Tfc + 750 to produce income.
* 65/1000 x 750 = 48.75
* GAD max = 150% x 48.75 = 73.12
* reduced by 40% tax to 43.87
* income = 43.87 + 250 tfc = 293.87
* 20000 / 293.87 x 1000 = 68,057

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15
Q

Beneficiary/nominee annuity guarantees

A

There can be no guarantee and no joint life on a dependants/nominees lifetime annuity.

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16
Q

Dependants / beneficiary FAD contributions

A

It is not possible to contribute to or transfer uncrystallised funds into the FAD.

They can nominate a successor to receive remaining fund on their death.

If a member dies with no nomination in place only dependents can gain all the death benefit options. A non-dependent can only receive a cash lump sum.

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17
Q

Charitable donation from FAD

A

Example: J & A were married at the time of Js death. A designated the uncrystallised fund as a FAD. J had no children but A had one child under 23.

On As death a charitable lump sum can be made because J had no dependents, even though A does.

If J had a dependent then a charitable lump sum would not have been available.

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18
Q

Exceeding LTA charges

A

55% for lump sum, 25% for income

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19
Q

How to calculate the money amount being crystallised from a DB pension for LTA purposes

A

Multiply the pension, before PCLS, by 20

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20
Q

In what circumstances could LTA be a reduced amount?

A

1) member is receiving a pension that started before 6 April 2006

Pre A-Day pension reduce LTA. The reduction is made at the first crystallisation event after A Day. The calculation = pension in payment x 25.

2) the member had a protected pension age on 6 April 2006.

LTA reduction = 2.5% for each complete year between taking benefits and age 55.
This also impacts max PCLS as this is always the lower of 25% amount being crystallised and 25% of members available LTA.

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21
Q

BCE Events

A

1) taking benefits (PCLS, UFPLS, FAD, lifetime annuity)
2) serious ill health lump sum payment
3) reaching 75 with uncrystallised funds or FAD
4) on death of member either by paying Death in service benefit and nominated person taking cash, designating uncrystallised benefits taken as cash, designating as FAD or buying dependent/nominee annuity

No further BCE after age 75.

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22
Q

Primary protection

A

Latest date to apply 5 April 2009

Value of fund >£1.5m at A-day. Can still contribute. Can only be reduced due to pension sharing order.

Lifetime allowance enhancement factor (LAEF) was granted = Value of fund minus @ Aday 1.5m / 1.5m

Underpin of 1.8m

Personal LTA = (1.8m x LAEF)+1.8m

Cash protection = protected cash sum x 20%

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23
Q

Enhanced Protection

A

Latest date to apply 5 April 2009

Member will never be subject to a LTA charge but it enhanced protection is lost if there is any pension input.

Cash protection = % of cash to fund at Aday.

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24
Q

Fixed protection

A

FP12 = LTA of 1.8m. Latest date to apply 5 April 2013.

FP14 = LTA of 1.5m. Latest date to apply 5 April 2014.

FP16 = LTA of 1.25m. Still open to applications but can’t have been any input after 6 April 2016. No min fund value.

In all cases lost if any pension input.

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25
Q

Individual Protection

A

IP14 - latest date to apply 5 April 2017. LTA = total of pension rights at 5 April 2014, capped at 1.5m.

IP16 - still open to applications at BCE. LTA = total of pension rights at 5 April 2016, capped at 1.25m.

Can have further pension inputs with both.

26
Q

Auto enrolment
Eligible jobholders

A

Must be auto enrolled

Age 22 - SPA

Work in UK

Earn £10k+

27
Q

Auto enrolment
Non-Eligible jobholders

A

Don’t need to be auto enrolled but have a right to opt in. If they do employer must pay min. Contributions.

Aged 16-21 or between SPA - 74
Earn £10k+

OR

Aged 16-74
Earn £6240 - £10k

28
Q

Auto enrolment
Entitled worker

A

Has a right to join but employer does not have to make a contribution.

Aged 16-74
Earns less than £6240

29
Q

Contracted out schemes

A

If a scheme contacted out of SERPS both employer and employee paid lower NICs. Scheme had to offer a GMP.

GMP abolished 97/98 tax year.

Contracting out abolished 2015/16.

30
Q

DB scheme pension input amount

A

Benefit at start of year increased by CPI x 16

Eg. Pension @ end year was 21/60 x 36k = 12600 x 16 = 201600.

Pension @ start year was 20/60 x 30k = 10k. Increased by 2% CPI = 10200 x 16 = 163200

PIA = 201600 - 163200 = £38,400.

31
Q

State sector DB scheme PIA

A

Pension x 16 + PCLS

32
Q

Scheme pension guarantee period

A

Max. 10 years

May incorporate pension protection (pension x 20 minus gross payments already paid)

33
Q

Commutation calculation for PCLS from a scheme pension

A

Pension before commutation x commutation factor

Divided by

1 + (0.15 x commutation factor)

The pension is then reduced by the PCLS figure calculated/commutation factor.

34
Q

DB scheme pension escalation

A

Benefits accrued from April 1997 - 6 April 2005 = CPI to a max 5%

Benefits accrued after 6 April 2005 = CPI to a max 2.5%

Benefits accrued before April 1997 and contracted in = nil

Benefits accrued before April 1997 and contracted out = GMP. No increase on pre 1988 benefits as state provides CPI protection for post 1998 benefits scheme pays first 3%, state pays balance if CPI exceeds this.

35
Q

The Pension’s Regulator (TPR)

A

Protects workplace pensions

Controls the pension protection scheme

If they conclude a company is insufficiently resourced they can issue a financial support direction.

36
Q

DB early leavers

A

<2yrs membership = refund of contributions less 20% tax on first £20k, 50% on excess.

> 2yrs = deferred pension revalued between date of leaving at date of taking benefits.

37
Q

Annual allowance tax charge

A

Subject to marginal rate of tax.

38
Q

Value of pre A-Day pensions for LTA

A

At first BCE after A-Day multiply the level of income by 25.

39
Q

Scheme wind up timescales

A

TPR expects the key activities involved in winding up a scheme to be complete within 18 months (2 years in exceptional circumstances).

40
Q

Short service refund taxation

A

First £20k refunded taxed at 20%
Anything over £20k taxed at 50%

41
Q

Bereavement payments

A

Higher amount for those eligible for child benefit. Max of £3,500 lump sum plus £350 per month for 18 months (£6,300)

42
Q

Deferred state pension increases

A

1% for each full 9 weeks deferred. No lump sum payment permitted.

43
Q

Calculating capped drawdown fund value for LTA purposes

A

(Income now x 25) x 80%

44
Q

Impact of mortality drag

A

Drawdown funds suffer from mortality drag, the longer this is left the worse it becomes.

45
Q

Link between annuity and gilt rates

A

A fall in gilt rates will have a negative impact on income for future annuitants.

46
Q

Current State pension

A

Retiring after April 2016 - single tier state pension

If contracted in you may have entitlements to a protected amount

47
Q

Calculating the benefit from a DB scheme

A

(Years service / accrual rate) x final salary

48
Q

MPAA and DB schemes

A

The MPAA does not apply to DB contributions. The standard AA will apply.

49
Q

QROPs withdrawal limits

A

Where an individual takes benefits from a QROPs during their period of non-residence the pension is only taxed in the UK upon the member’s return if the relevant withdrawals taken during that time are >£100,000

50
Q

TPR time limits

A

When a scheme is not meeting it’s SFO the trustees must by law develop a recovery plan within 12 weeks and submit this to TPR within 15 months.

51
Q

Maximum plan charges

A

Stakeholder: 1.5% for first 10 years, 1% thereafter.

Occupational: default fund charge can’t exceed 0.75%.

52
Q

Segmented pension income

A

To calculate how many segments must be used to calculate required net income:

Value of plan / no. Segments

For each segments you receive 25% TFC

Plus the balance x annuity rate x 60% or 80% (depends on tax bracket - 60% retained for higher and 80% retained for basic).

TFC + net income = net received per segment.

Amount required divided by net received = no. Segments to be encashed

53
Q

State Graduated Pension Scheme

A

Operated between 1961 - 1975 for employees who paid NICs.

54
Q

SERPS

A

Operated between 1978 - 2002 and was replaced by S2P.

55
Q

NEST

A

Charges are 0.3%pa plus 1.8% on contributions.

Possible to transfer in with no charge.

Sharia compliant

Recommended fund is a retirement date fund

56
Q

Pension term assurance

A

From April 2006 pta could be set up with full tax relief on contributions. Following a review in Dec 2006 employee contributions can no longer receive tax relief but employer contributions still do.

57
Q

Independent Governance Committee role

A

Main role is to ensure members of workplace schemes are receiving value for money.

Other duties are publishing an annual report and raising concerns at board level.

Must have a min of 5 members.

58
Q

De-registration of a pension scheme by HMRC

A

Income tax charge of 40% of the total value of the funds held immediately before de-registration is levied on the scheme

59
Q

What are the 3 operational objectives of the FCA?

A

Consumer protection

Competition

Integrity of the uk financial system

60
Q

What are the 8 regulatory principles of the FCA?

A
  • Efficiency & economy
  • Proportionality
  • Sustainable growth
  • Consumer responsibility
  • senior management responsibility
  • transparency
  • openness and disclosure
  • recognising the differences in businesses carried on by different regulated persons

R04 (1 decks)

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