Secured Pension Options Flashcards
What changes were implemented on 6 April 2015 regarding withdrawals from defined contribution pensions?
Since 6 April 2015, individuals can take as much or as little as they wish from their defined contribution pensions once they have reached the normal minimum pension age (currently age 55) or earlier if they meet the ill-health provisions or have a protected pension age.
What are the conditions under which commutation on the grounds of triviality can occur?
This can occur provided the value of all their benefits does not exceed £30,000 and the payment extinguishes the member’s rights under the scheme.
Can a dependant or survivor commute benefits they receive upon the member’s death?
Yes, it is possible for a dependant or survivor to commute benefits they receive upon the member’s death, including a guarantee, subject to a maximum value of £30,000.
What provisions exist for the payment of ‘small pots’ in addition to the benefits payable via trivial commutation?
It may be possible to pay ‘small pots’ of £10,000 or less in addition to the benefits payable via trivial commutation.
Can a scheme pension be an option under both defined benefit and defined contribution schemes?
A scheme pension is the only option under a defined benefit scheme and can be provided by a defined contribution scheme only if the member was first given the option of a lifetime annuity.
How often must a scheme pension be paid and can it include a guarantee?
A scheme pension must be paid at least annually and may include a guarantee of up to ten years, which will be paid as a continuing income.
How is a scheme pension taxed?
A scheme pension is taxed as the recipient’s pension income via PAYE.
What is a lifetime annuity and how is it available in respect of defined contribution schemes?
The option of a lifetime annuity is available in respect of all defined contribution schemes. It is a contract bought from an insurance company in return for the payment of a lump sum. The annuitant has complete choice about the options they choose to include.
Is there a limit to the length of the guarantee period a lifetime annuity may include?
There is no limit to the length of the guarantee period a lifetime annuity may include.
How can the value of a conventional lifetime annuity and a flexible annuity change, and what is the implication of taking an income from a flexible annuity?
A conventional lifetime annuity can only decrease in value within limits prescribed by HMRC. A flexible annuity can decrease by a greater amount, but taking an income from a flexible annuity is a trigger event for the MPAA (Money Purchase Annual Allowance).
How is a lifetime annuity taxed?
A lifetime annuity is taxed as the member’s pension income via PAYE.
What determines the income in a with-profit annuity and a unit-linked annuity?
For a with-profit annuity, the annuitant selects an anticipated bonus rate upon which their income will be based. For a unit-linked annuity, the initial income is converted into a number of notional units, and the annuitant selects the anticipated growth rate at outset.
How can the level of income from an annuity be affected by the underlying assets?
The level of income can fluctuate in line with the performance of the underlying assets.
What is an impaired life or enhanced annuity, and to whom does it offer a better rate?
An impaired life or enhanced annuity offers a better annuity rate to those who have a lower than average life expectancy due to lifestyle or health issues.
Q1: In what circumstances can defined benefit pension benefits or an ‘in payment money purchase in-house scheme pension’ be converted to a lump sum?
A1: On the grounds of triviality, under certain circumstances.
Q2: What are the conditions that a member must meet to request the commutation of their pension benefits on the basis of triviality?
A2: The total value of all their benefits should not exceed £30,000, and the payment should extinguish the member’s rights under the scheme.
Q3: Can benefits received by a dependant or survivor upon the member’s death be commuted?
A3: Yes, they can commute benefits, including a guarantee, up to a maximum value of £30,000.
Q4: What is the threshold for the ‘small pots’ provision and how does it relate to trivial commutation?
A4: ‘Small pots’ refers to pension amounts of £10,000 or less. They can be paid in addition to the benefits available through trivial commutation.
Q5: From which date could individuals freely access amounts from their defined contribution pensions once reaching the normal minimum pension age?
A5: From 6 April 2015.
Q6: What is the current normal minimum pension age at which individuals can take from their defined contribution pensions?
A6: Age 55.
Q7: Apart from reaching the normal minimum pension age, when else can individuals access their defined contribution pensions earlier?
A7: If they qualify under ill-health provisions or have a protected pension age.
Q1: What is a scheme pension?
A1: A scheme pension is a pension paid directly from a registered pension scheme or payable by an insurance company selected by the scheme administrator.
Q2: In what scenario is a scheme pension the only option?
A2: A scheme pension is the only option under a defined benefit scheme.
Q3: When can a defined contribution scheme provide a scheme pension?
A3: It can only be provided if the member was first given the option of a lifetime annuity.