secured incomes Flashcards
small pots
- ones values under £10,000.00
- unconcerned occupational ones - unlimited
- they are not treated as BCEs and aren’t tested against the LTA
- can be paid from crystallises and uncrystallised
- three from ones that aren’t occupational
- if you have one pot under £30,000 you can take a small pots
- need to be 55
Trivial commutation
- they are for in payment money purchase in house scheme - scheme pension payable by the scheme administrator to which the member had become entitled under a defined contribution arrangement
- can be for uncrystallised or in payment
- to be considered trivial they need to not be more than £30,000.00 on nomination date & not have had a commutation before, lump sum is paid when the member had an available LTA.
- lump sum exrinsgusbes the members entitlement to defined benefits and in payment money purchase in house scheme pensions.
- the nominated date is the date chosen by the merge on which all their pension benefits are valued.
- the benefits values are all pension rights both defined benefit and defined contributions that have previously been crystallised and are assesable against the lifetime allowance (including any pensions in payment on 5 April 2006); plus and benefits that are currently uncrystallised.
- any small pots made before the nominated date are not included in the total because they are not BCEs .
- if a member fails to commute their benefits within the three months they can choose another date and so it again.
- if the value of all the members benefits does not exceed £30,000.00 the member can receive any benefits that satisfy the requirements just describes as a trivial commutation lump sum payment.
- Must be paid within a year and no later then after 3 months of the nominated date.
- not before the date
- the first day of commutation will be the nominated date if they do not select one.
- can not be earlier than three months before age 55
- can only have period one - if they have more than one that they want to they have to do it in the same time.
- ## it’s period not scheme - they can have several within the year
trivial commutation lump sum death
- commuting a survivors
- a member died within the garunteee of period of a pension they are revising and the recipient wishes to commute the remaining payments
- must be £30,000 if it can’t be paid as something else it will not be taxed
- for garuntees anyone can inherit the garunteee and commute it
values
crystallised
After 2006 - value is the BCE and taking into account the PCLS (use the amount paid originally)
Before 2006 - money no pcls
uncrystallised
- valuation of annual pension ad at nonaligned date times 20
- dc is the val
- remember if you have a preserved benefit you can commute it you can not commute the uncrystallised defined contribution but can swap it to an UFPLs
scheme
- can be paid by an annuity company or the company
- benefits of the scheme rather than annuity - they can always go to the insurers, if the members die sooner than it’s cheaper for the company - mortality gains. + no immediate outflow they only have to pay the cost monthly not in one go to the insurance company
- disadvantages of the scheme paying directly - it entails additional administration and the longer city and investment risk and members may live longer
- if the scheme is through a company it will be in the name of the schem trustees or the member .
- Memebrs - directly from company
- trustees - paid to trustees who then pay it but the investment company could become the agent
- Scheme pension is the only way
- when transferring they must transfer in advance of payment
- MPAA is only triggered if there is a defined contribution shcme when received a scheme pension paid directly from the scheme with 11 people ( including dependants) - if is then classed as flexibility. If they but an annuity through an investment company these do not apply.
- HMRC demand it’s paid at least annually, im canals of being reduced, paid administrator or insurance company.
-HMRC - allows a scheme pension to offer a gatuntee and a capital protection
why can they reduce
- pension sharing
- annual allowance
- i’ll health
- reach the state pension
- forfeiture
- court requires
- the shcme being wound
- it’s being wound up ie PPF
- All payments are being reduced because robyn etc say
payment if a lump sum - scheme pension
- payment must be 12 months of when they are entitled and only 6 before.
Income
db must be determined by the scheme rules
dc pension bought by the scheme administrator - the more portions chosen the lower the starting level. they need to offer a lifetime annuity if they do it .
if the member takes a scheme pension it’s BCE 2 instead of BCE 4
ie if they offer someone a scheme pension of 20,250 of a plan val at £600,000 it goes on this
£20250 x 20 = 40500 + BCE 6 150000
4550000 + BCE 6 is 60000
it’s less BCE tested to use the scheme one
to phase in recipet
DC - member takes a potion of the monteary values and swaps an income. The rest is still treated as flexible
DB - member gets to continue accrual
Scheme death benefits
Defined benefit - no choices for the beneficiary
- defined contribution - have to be offered annuity as well as dependants pension - if it’s DC they could be more .
unlike a tbe member the surviving one could stop if they re marry, and the dependants are rounded down to 18
- don’t have to pay it annually
- can be defied at any time ina cckrdance with the scheme or terms of the annuity contract
- the dependants pension could be later on after death after garuntees.
However they can not provide garuntees for the dependant or PCLS or any pension protection
- when the member does before 75 there is no limit on how much can be paid
- aterwards It has to be contained A usually LTA
Garuntees - have to be only garunteed for 10
- anyone can inherit the garuntee
- the scheme is allowed to stop it if they get married turn 17 or stops being in full time education but often they will pay it anyway.
- you can swap the garunteee under triviality rules.
-
defined benefit lump sum
- the rules have to state it as a lump sum. ie lump sum of £100,00 or salary’s times 3. if they give the option it’s not going to benefit from the tax treatment of being tax free if they are not 75
protected lumps
- if they have a DB scheme you can have a pension protection as they have not been paid.
- schemes can ensure ie get an insurance company to pay half.
- member does at 72 only taking out 90,000.00.
(-£10,000.00) 20 = 20,000.00
-200,000.00 - 90000 = £110,00.00
- half is paid by the insurance the rest from the company. No tax under 75 and not checked on the LTA
debfined benefit lump sum death benefit and a pension protection lump sum
pens soon protection lump sum death benefit
- can only be crystallised funds
- maximum payment permitted is the crystallised amount do the scheme pension for life time allowance purposes less the amount already paid
- it is not a BcE so it is not tested against Life time allowance for the individual - maximum tboufh
- taxted on the age
defined benefit lump sum death benefit
- can be uncrstallised
- no limit
- it’s a BCE if the member does before age 75 is not they already have crystallised so no BCE
- tax depends on the age
annuity protection lump sum
- this is where you can purchase an annuity for the scheme pension and the amount you baiufhr it for can be protected.
- you would need to take the total amount of payments from the figure.
- 100% annuity protection would be you bought an annuity for £200,000.00 but we’re paid £140,000.00 the maximum you could get is £60,000.00
- if you died before age 75 it would be taxed at marginal rate. ie someone who doesn’t earn would get £60,000.00 and would not loose their personal allowance.
- but if they had £20,000.00 left of their basic rate band it would be
-£20,000.00 x 20% = £4,000.00 as well as 40% (£60,000.00 - £20,000.00 ) = £16,000.00
a total of £60,000.00 must be deducted brining the figure to £60,000.00 - £20,000.00 = £40,000.00
lifetime annuity
- flexible - set up on or after 6 April 2015 this allows the annuity fall
- conventional - does not allow fall
HMRC require that the annuity is purchased by an insurance company. the annuity must be payable for the members life or gatuntee. There is nothing stopping the income paid form a lifetime annuity reducing by more than an amount prescribed by tax govt
- They can vary income via rising any fixed amount each year or decrease by a method set out in the contract or any of the 7 below :
1) change via indexation - changes with the the market value of freely marketable assets, RPI.
2) with profits fluctuate kn the bonuses
3) indexation with with profit ( combination of 1 and 2 is acceptable)
5) flexible withdrawals - amount paybel is linked to 1 2 and 3. Must have a review every 5 years to establish the maximum and minimum among if income drawn each year. it is 120% of the rate that an annuity could be purchased.
4 - mix of method 1 2 3 the member will pick based on assumptions of growth up to 5%. if with profits goes down it’s less
indexation and with profits are conventional.
Mixture with with profits and indexation is considered flexible
death benefit and tax free
- usually they take the tax free cash first
- can still by with crystallised
- survivors annuity allows them to choose a dependant or nominee
- it will be a set amount
- post 2015 allows nominee.
- HMRC requires a survivors annuity to be insurance company
- when it’s a child it must be the earlier of their death or not a dependant or marriage
- if it’s not it will be the earlier of survirs death or re-marriage
- for adults although HMRC allows payments to stop they don’t have to they can allow
- survivors annuity can not have death benefits
- garuntee periods can be anyone they used to be a max but not now. Scheme pensions have a max though.
- garuntee ie for ten years and they only had 6 years they would get the fill 4. it’s tax free under the age 75.
transferring annuities
- they can transfer but they do not sheba to oblige.
- to do it they must agree the value
- they can change the terms when they transfer it
- they can have protections
Rates of Annuities
- bond yields - when and insurance company takes the fund they invest in bonds to provide interst when they need to pay out. The bond yield is the ambit if money and interst the insurer recieved compared to the bonds purchase price.
- When the demand for gilts ford up this reduced the supply which pushes up the price
- when the demand for gilts is low this increases the supply which lowers the price.
- Age - the insurance company uses mortality tables to establish how long an annuity will need be wanting the annuity. They can use its own pool or use the Anderson Mortality Tavblrs which take into account the decor of each specific medical condition on the life expectancy of the individual as well as the ageing process.
- the rates must be gender neutral and they use their own annuity pool and blend it. if there’s more men in the pool it will be cheaper.
- they are allowed to use geneder for specific medical conditions such as prostate and cervical as well as when the annuity is purchased for the mend but the scheme- when the defined benefit scheme purchases an income. SSASs also uses insurers to provide and income form scheme funds using contributions.
- health an lifestyle - impaired life annuities offer higher rates to people by assuming they will die earlier. if they have five years life expectancy they give them the rate of a member of an older age who they predict to die within 5 years - these are fully underwritten
- enhanced annuities are for pekoe with conditions or lifestyles and is assessed using points and is not underwritten.
- options selected afffect the level of income of starting income the insurance company offers ie garuntee period is most cost affective along with annuity protection and survivors pension most costly is inclusion of RPI or fixed percentage rises
