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RO1 > RO1 - S.2 - how the retail consumer is served by the financial services industry > Flashcards

RO1 - S.2 - how the retail consumer is served by the financial services industry Flashcards

1
Q

Give an example of both a primary and secondary debt

A

Primary – Mortgage, utilities, council tax
Secondary – Credit cards, overdrafts, personal loans

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2
Q

What is the difference between secured and non secured borrowing?

A

secured (where an asset is offered as collateral) & unsecured (no asset is offered)

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3
Q

What is a capped mortgage deal?

A

Variable deal but a maximum cap applied for the interest charges, can’t charge above the cap

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4
Q

What are the two ways an equity release can be performed?

A

1) Lifetime Mortgage
2) Home reversion plan

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5
Q

What is the difference between a lifetime mortgage & a home reversion plan?

A

Lifetime mortgage – Home still owned by the borrower but a new debt is taken out secured by your home for the amount you want to release. Interest on the loan will either roll up or is paid annually, it’s often repaid on death.

Home reversion plan - sell part or all of home to a mortgage company, you then get right of occupancy until death and a nominal rent is charged throughout. Under a plan like this potentially not all of the house can form part of the estate or be passed down

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6
Q

What are the two types of sharia compliant mortgages and what is the difference between them?

A

1) Ijara mortgages -– repayments are stored up by the lender and used to repay mortgage at the end

2) Diminishing musharaka – rental agreements where each time make a repayment you buy a share of the property increasing borrowers share and reducing rent

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7
Q

What types of Buy To Lets are regulated by the FCA?

A

Consumer BTLs

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8
Q

What is the difference between structured and unstructured unsecured borrowing arrangements?

A

1) Structured – Usually fixed interest for a fixed term w no flexibility, examples are hire purchases for cars etc and personal loans
2) Unstructured - variable terms & can make ad hoc reductions w more flexibility examples are some mortgages and commercial loans

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9
Q

What are 3 different factors which can influence whether a protection product is suitable?

A

Age
Health
Dependants
Income
Liabilities
Existing cover
State support

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10
Q

What are the two different types of life assurance products?

A

1) Term assurance
2) Whole of Life Policies

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11
Q

What is a term assurance type of life assurance product?

A

Contract for a certain term and pays out if certain event happens. Pay as you go plan with no investment element

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12
Q

What is a level term assurance policy?

A

Life assurance policy for a set cover and time period

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13
Q

what is the difference between decreasing term assurance and increasing term assurance?

A

Decreasing term assurance – reducing amount of cover over a set term – used for capital & interest repayment mortgages where amount owed reduces over time

Increasing term assurance – increasing amount of cover over set term

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14
Q

What is a renewable term assurance policy?

A

level term assurance plan – set amount of cover over length of policy but can be extended on same terms after expiry

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15
Q

What is a convertible term assurance policy?

A

– level term assurance plan – set amount of cover but can convert it to later life upon expiry of first term, usually means more expensive policies

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16
Q

What is a whole of life type of life assurance product?

A

Longer term for whole of your life, will be paid a lump sum in event of death whilst maintaining enough money in the pot/ paying the premiums. Investment plan and designed to run in perpetuity

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17
Q

What are the two types of whole of life policies?

A

Whole of life with profits – Set sum assured which is guaranteed to be paid out if you keep premiums up, also get bonuses depending on investment performance

Unit linked whole of life plans – Also provides with a sum assured and pays out when death occurs – put money into investment product and idea is that investment goes beyond sum assured then that’s paid out, if not then still get sum assured

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18
Q

What is a convertible term assurance plan?

A

level term assurance plan – set amount of cover but can convert it to later life upon expiry of first term, usually means more expensive policies

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19
Q

What are the two main types of incapacity protection?

A

Accident and Sickness plans
Income Protection Plans

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20
Q

What is critical illness cover?

A

a term assurance plan & pays a lump sum if diagnosed with a critical illness – usually only paid out if you survive it for a certain time period

21
Q

When will Long term care products usually begin to pay out?

A

when you can’t complete various activities of daily living (ADLs) e.g can’t wash yourself

22
Q

What are the two different types of Long term care plans?

A

1) Pre-funded– Planned savings to be used when older, save into a life assurance plan and money is paid out tax free
2) Immediate need – Bought when the care is needed, often involves immediate need annuities and the income is paid directly to the care home

23
Q

When can someone qualify for maternity allowance?

A

for those who don’t qualify for Maternity pay, mostly for self employed/ short service staff (under 6 months) and is contributions based non-taxable benefit

24
Q

What is the Child tax Credit benefit?

A

means tested non-taxable benefits based on lower earning families

25
Q

What is Support for Mortgage interest?

A

It’s a loan to keep up mortgage interest payments

26
Q

When would someone qualify for Support for Mortgage interest?

A

qualify if have a mortgage up to 200k and have been off work for 39 weeks + - can apply for a loan to pay back to lender, then gradually pay off the loan

27
Q

When would someone qualify for the single tier state pension?

A

for those who retired after 6th April 2016 & replaced basic state pension

28
Q

For how long can someone receive full statutory sick pay?

A

28 weeks (6 months)

29
Q

What is the employment and support allowance?

A

Longer term sickness benefit, paid to those with illness/ disability – various schemes to get people back to work and self-employed/ employed qualify

30
Q

What is the current state retirement age?

A

66

31
Q

When can someone start to access their personal pension plan?

A

55

32
Q

What is the maximum tax free annual contribution someone can make in to their pension?

A

£40k

33
Q

What is the lifetime allowance for pensions?

A

£1,073,100m

34
Q

What does it mean when a pension has been crystallised?

A

When benefits begin being drawn from the pension

35
Q

What are the two options people generally have when crystallising their pensions benefits?

A

1) Annuity - Secure the benefits for life and receive a scheduled payment through an annuity
2) Flexible Access Drawdown - Draw down from the pot, 25% is tax free and the rest is taxable as income

36
Q

What are the three different types of pension schemes?

A

State
Personal
Occupational

37
Q

when would someone qualify for the basic state pension?

A

For those who retired pre 6th April 2016

38
Q

Which type of state pension was introduced after 6th april 2016?

A

Single tier state pensions

39
Q

What are personal pensions and are they regulated by the FCA?

A

Individual pensions contracts which can be obtained through insurance companies, yes they are regulated

40
Q

Who regulates occupational pension schemes?

A

The Pensions Regulator

41
Q

What is the difference between a defined benefit & defined contribution scheme?

A

DB - Final salary scheme based on salary & years of service - risk lies with employer
DC - Money purchased schemes, entitlement based on funding and investment performance - risk lies with employee/ member

42
Q

Who would qualify for an autoenrolment pension scheme?

A

Automatic enrolment for those aged 22+ and earnings of £10k+

43
Q

What is an investment trust?

A

company set up and traded on stock market, close ended investment funds

44
Q

What is the name of the fixed amount of interest provided on bonds?

A

Coupon

45
Q

What is the nil rate band everyone has for inheritance tax purposes?

A

£325k

46
Q

what is the amount of tax levied for IHT above the nil rate band?

A

40%

47
Q

What are the 3 types of transfers which can reduce IHT liability?

A

1) Exempt Transfers – Not considered for IHT
2) Potentially Exempt Transfers – Exempt if survived by 7 years
3) Chargeable Lifetime Transfers – Can be exempt after 7 years, depends on other gifts

48
Q
A

RO1 (10 decks)

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