Retirement Needs

Question 1

Features of a db scheme pension (10£

Answer 1

-Guaranteed income for life
-No investment risky
-Easy to understand/no charges
-Discretionary increases possible in future from trustees (combat inflation)
-Limited benefits to estate on death
-inflexible income payments
-Pension increase exchange available (higher initial income in return for only part being inflation proofed)
-Taxed as income
-Ls and income benefit
-Bridging pension may be offered (supplement if retire before SPA)

Question 2

What is a pension increase exchange?

Answer 2

Can receive a higher initial income from their DB scheme in return for only some being inflation proofed

Question 3

What is a bridging pension

Answer 3

Supplement provided by the DB pension scheme provider to bridge gap if retire before SPA

Question 4

Features of a lifetime annuity

Answer 4

-Guaranteed income for life (no longevity risk)-peace of mind
-Can chose income levels
-Can chose when to purchase
-No investments so suits risk averse
-Easy to understand
-Lower cost ongoing
-Inflation proofing must be built in
-inflexible benefits
-Limited benefits to estate on death

Question 5

Features of FAD

Answer 5

-Income can run out
-money can continue to grow
-exposed to investment risk
-funds are crystallised ( as put into FAD) but are still invested
-More complex
-Higher charges
-Flexible
-Estate benefits on Death by full fund value
-Minimum 55 to access
-Riskier as if take high income can run out

Question 6

How can immediately reduce IHT liabilities (8)

Answer 6

-Nominate spouse as beneficiary of pension scheme-use spousal bypass to pass direct to children
-Gifts out of regular income
-Charitable gifts via gift aid
-Further pension contributions (pensions pass IHT free)
-£3000 gift allowance
-Small gift allowance £250 pp
-invest capital into Discounted gift trust
-Main residence NRB

Question 7

What is a discounted gift trust?

Answer 7

-Invest capital into
-Immediately reduces estate
-For if you don’t want your beneficiaries accessing your money whilst alive but want to reduce estate
-Typically into an investment bond
-Regular payments for remainder of lifetime (usually 5%)
-Growth outside of estate from day 1
-Gift falls out of estate after 7 years

Question 8

Pros(4) cons (5) of lifestyle fund

Answer 8

-Default fund for stakeholder pensions
-Opportunity for growth in early years are weighting across four asset classes will be more on the riskier side such as equities
-Asset mix automatically shifts 5-10 years towards retirement-more into deposit/bonds etc
-Value will fluctuate less in years approaching retirement

Disad
-Riskier funds at start mean not suitable for risk averse clients
-Funds could underperform leaving a shortfall in finances in retirement
-the switch takes no account of market conditions
-could miss out in valuable growth oppporfunities
-inflexible if want to retire early/late/phase