Stuff I didnt know from mock exams Flashcards
What type of schemes is the pension regulator responsible for?
The Pensions Regulator (TPR) is responsible for any scheme provided by an employer for an employee.
This includes both personal & occupational schemes but not state pensions.
Individuals living in the UK now have longer life-expectancy. The Debt Management Office (DMO) have responded to this socio-economic change by issuing more… WHAT
long-term gilts
Longevity, for both men and women, is increasing, due to a variety of factors.
This has led to the DMO issuing greater volumes of long-term (15 year+) gilts.
EXPLANATION for understanding.
As people live longer, particularly those in retirement, there is a greater demand for stable, long-term investment options that provide secure returns over extended periods. This includes pension funds and insurance companies that need to match their long-term liabilities (e.g., pension payouts). Issuing more long-dated gilts helps the UK government cater to this demand by offering investors a way to invest in government debt that aligns with the long-term financial needs of retirees.
What is the overseas transfer allowance and what happens if someone exceeds it?
NOT DONE
A transfer to a QROPS will be tested against the overseas transfer allowance (QTA). Any excess over the OTA is subject to 25% overseas transfer charge.
Paula, an additional rate taxpayer, has the full LSA with no transitional protection.
What is ‘transitional protection’?
NOT DONE
On divorce, if a pension credit is awarded on a pension fund registered for Primary Protection, the individual’s primary protection factor will be either reduced or this protection completely forfeited. (LEARN THIS) LEARN OTHER CHARACTERISTICS
Who is MOST likely to be responsible for changing eligibility criteria for an occupational scheme?
A sponsoring employer is responsible for any changes in eligibility requirements for employees joining an occupational scheme.
Why do rises in both annuity and discounting rates lead to a fall in a CETV for the DB OPS member?
Because a smaller lump sum will be needed to ‘purchase’ revalued income and a higher rate of discounting can be applied each year back to today’s date. Both these factors will result in a reduced CETV
QUESTION THIS RELATES TO:
Amy has been a member of a DB scheme since 2000. She requested a CETV nine months ago, which was £100,000. Her most recent CETV, requested and received last week, has now fallen to £80,000. The most likely reason for this is that…
How is a short-service refund taxed?
The first £20,000 is taxed at 20%
Any excess is taxed at 50%
If someone is thinking of re-locating permanently outside of the UK but they have already purchased an annuity, how is that income taxed?
The income from the annuity will be taxed in the UK even though they are resident elsewhere. It will be paid NET through PAYE.
However, If the new country of residence does not have a UK double taxation agreement, it may ALSO be taxable in the country of residence, running the risk of bearing double taxation.
2.9.1: Fund protection
There have been seven forms of transitional fund protection: WHAT ARE THEY and What two are the only ones still available and when is the deadline that these must be applied to by?
SEE IMAGE ON CAMERA ROLL TO SEE DUFFERENT LIMITS OF EACH
What is the lifetime allowance charge?
What is the most likely reason someone would be involved in the Financial Assistance Scheme?
If an individuals employer has become insolvent AND their DB OPS was underfunded.
NOTE: An employer being declared insolvent on its own would not be enough for a claim through FAS. An employer could be declared insolvent yet the occupational scheme they sponsored could be fully-funded, meaning no FAS claim. Therefore the employer must be insolvent and their scheme underfunded
Alice is due to receive a 50% spouse’s pension. Her husband, Roger, has died aged 52, whilst an active member of a DB occupational scheme. For what reason might Alice’s payment be less than 50%?
1.She has another pension in payment
2.She has not reached age 55
3.She is a higher rate taxpayer
4.She is in receipt of Guaranteed Pension Credit
Bev and Peggy were in a civil partnership. Peggy has died, aged 45, whilst a member of a DB scheme which pays a 50% dependant pension. If Peggy was a higher rate, and Bev a basic rate taxpayer, what tax rate will Bev pay on this income?
- 20%
2.40%
3.45%
4.55%
QUESTION 1:
Alice’s spouse’s pension will be a scheme pension as it is from a DB scheme.
Payment will be reduced by income tax, as this type of income is classed as earned and taxable on Alice (the dependant) at her highest marginal rate.
QUESTION 2:
A dependant pension is classed as earned income and taxed on the recipient at their applicable marginal income tax rate.
Bev is a basic rate taxpayer; therefore, this pension will suffer tax at 20%.
Someone has an integrated pension paid from a DB OPS
What is this?
An integrated pension paid from a DB OPS is temporarily higher to take account of an individual’s Single Tier State Pension entitlement.
This is the same as a bridging pension.
QUESTION THIS RELATES TO:
Peter is receiving an integrated pension from his DB occupational pension. This means that he is temporarily being paid a higher scheme pension to take account of his… Single Tier State Pension entitlement
Tell me the difference between critical yield A and B
NOT DONE
Difference =
Question this relates to:
Jake has been in capped drawdown for over two years. His financial adviser had informed him that his critical yield A was 8.5% at outset. This meant that…
ANSWER: The 8.5% critical yield shows the net annual growth required from the drawdown invested funds to match the income that could be purchased via the lifetime annuity option.
Someone has opted out of their pension scheme after 7 days and paid no contributions.
What happens to their fixed protection 2016?
How does this differ to the other form of transitional protection
One of the recent issues facing DB occupational schemes is funding deficits leading to problems in the event of mergers.
Why has this occurred?
Since IAS 19, DB schemes sponsoring employers will need to show scheme surpluses or liabilities on their balance sheet.
So, if a scheme has a large funding deficit this will be more of an issue in relation to mergers. Think of British Home Stores or The Arcadia Group as a couple of examples of this.
Auto-enrolment has been introduced by the government to achieve one main aim, which is to…
A) encourage low paid workers to save towards their retirement
Or
B) address the lack of adequate employer pension provision
Answer = encourage low paid workers to save towards their retirement
(READ 4.4: Public-sector schemes)
What is the transfer club?
QUESTION THIS RELATES TO:
Janet has worked in the public sector all her life in several different jobs. She has transferred pension benefits using the Transfer Club. At retirement on 21st November in the current tax year, her pension scheme will use her…
- final salary from her current job with the start date of her first job
2.final salary from her current job with the start date of her final job
3.career average final salary throughout her public sector career - career average final salary from the last job of her public sector career
Answer = A
Public sector schemes use the Transfer Club for any internal transfers. As Janet was within 10 years of retirement on 1st April 2012, at retirement her final salary will be used with the start date of her first job for service years. Janet will therefore lose nothing due to using the Transfer Club. The transfer club uses beneficial terms.
A client of yours has just retired. Their PCLS entitlement is greater than 25% of their fund value despite no formal TFC protection registration. How can this be?
This client must be benefitting from SCHEME SPECIFIC tax-free cash protection. This was where a member had an entitlement greater than 25%. It did not involve formal HMRC TFC registration but was automatic as at April 2006.
Jane has just deferred her Single Tier State Pension for twelve months. She will receive a higher pension income when this starts to be paid. This income will increase by WHAT?
5.78%
Jane’s Single Tier State Pension will increase by 5.78% once it starts to be paid as she has deferred for a complete year, under single tier rules.
Under current rules, deferral must be for at least nine weeks. For each nine-week period deferred, Peter’s Single Tier State Pension will rise by 1% which comes to 5.78%
NOTE: 10.4% is the old annual increase under pre 2016 rules. Now it is 5.78%.
A cash lump sum in lieu option is no longer available.
Tell me the difference between a trust based and a contract based pension plan
Question this relates to:
A client of yours is contributing to a number of RPSs which include:
Scheme Value:
SSAS = £325,000
Stakeholder pension plan (SHP) = £20,000 annual scheme pension
Personal pension plan (PPP) = £100,000
Which of these schemes are contract-based?
1.the SSAS and the SHP plan
2.the SHP plan and the PPP
3.the SSAS and the PPP
4. Solely the SSAS
Answer = the SHP plan and the PPP
A SSAS is an occupational scheme, so is likely to be trust-based.
Both a PPP and a SHP plan will be contract-based.
Sarndip is claiming Jobseekers Allowance (JSA). Does this mean he is paying NICs for his state pension or not?
As Sarndip is eligible for Jobseekers Allowance (JSA) he will receive Class 1 national insurance credits automatically
Pat is an additional rate taxpayer, who is currently making maximum pension contributions. He plans to retire in five years’ time to live in South Africa. He has an additional £100,000 he would like to invest towards his retirement. For which of the following reasons might an offshore bond be suitable?
1.It provides access for investments into a narrow range of collective schemes
2. Pat can invest up to 5% of his investment directly into equities
3.He could sell this offshore bond in one tax year whilst overseas, free of UK tax
4.He can utilise 15% current fund value tax-free withdrawals at any time
Answer = He could sell this offshore bond in one tax year whilst overseas, free of UK tax
EXPLANATION:
An offshore bond can invest in a wide range of investments including collectives, not a narrow range.
There is no cap on maximum equity exposure; this depends on the individual’s attitude to risk / capacity for loss.
The bond could be disposed of whilst Pat is resident overseas and therefore not be subject to UK tax, hence answer.
The tax withdrawal facility is 5% not 15% and is tax-deferred rather than tax-free. It is based on the original investment rather than the current fund value.
Does a scheme administrator need to be appointed for a SSAS?
A scheme administrator must be appointed for a SSAS as this is a requirement for any registered pension scheme. The scheme administrator does not have to be FCA approved for a SSAS however
John has died, aged 77, whilst taking flexi-access income withdrawals. He leaves a crystallised pension fund value of £1,475,000 to a trust. In relation to death benefits…
This is a multi-response question. Select one or more correct answers from the choices.
1.they are IHT-free if distributed within two years of John’s death
2.the entire lump sum payment will suffer a 45% tax charge
3.the lump sum can be left to any beneficiary or nominee
4. John’s wife must be one of the beneficiaries on his death
LEARN RULES FOR WHEN SOMEONE DIES POST 75
B & C
There is no two-year distribution rule if death is aged 75 onwards.
Crystallised lump sum death benefits will be subject to a tax charge of 45% on the entire amount if left to trustees or personal representatives.
They can be left to any beneficiary or nominee, if scheme rules permit this.
Jeff and Lisa are considering their plans for retirement. Jeff is thinking of using a registered pension scheme (RPS), Lisa a Lifetime ISA. Which of the following statements are TRUE?
This is a multi-response question. Select one or more correct answers from the choices.
1.The internal tax treatment of both is the same
2.A Lifetime ISA allows contributions up to £4,000 annually
3.An ISA will be available earlier than a pension scheme
4. ISA contributions are likely to be greater than an RPS
A & B
Lifetime ISAs can be accessed at age 60, RPSs at age 55 (57 from 2028) so NOT C
There is no restriction on how ISA proceeds can be used.
The internal tax treatment of both ISAs and an RPS are the same (tax free)
Lifetime ISA contributions are limited to £4,000 annually, RPS to 100% of gross earnings.
John contracted out of State Pensions for ten years, back in the 1980s. When he reaches state pension age, which of the following statements are TRUE?
This is a multi-response question. Select one or more correct answers from the choices.
1.His Single Tier State Pension levels will be unaffected
2.His foundation amount is likely to be lower than the maximum single tier
3.He is less likely to qualify for a protected payment
4.He will have foundation greater than the maximum single tier
B & C
Contracting out meant lower NICs payments and a lower State Pension entitlement.
As a result, John is likely to have a lower foundation amount. With a lower foundation he is unlikely to qualify for a protected payment.
Peter has died, aged 52, leaving an un-crystallised DC pension fund of £1,350,000. His DC pension provider currently does not offer any ‘pension freedom’ options. He is survived by a wife, Sue, and two daughters, Alice 24, and Sarah 18. With regard to death benefits…
This is a multi-response question. Select one or more correct answers from the choices.
1.Sue may take the entire pension fund as a lump sum tax-free
2.Alice is unable to receive a dependant pension
3.Sarah is eligible for a dependant pension for five years
4.Sue, Alice, or Sarah could receive a lump sum from Peter’s DC scheme
Peter’s funds exceed the lump sum and death benefit allowance so cannot all be paid tax-free. He has died pre age 75, so this will be a RBCE and any excess taken as a lump sum will be taxable at the marginal rate of his beneficiaries.
Alice is aged over 23 so cannot receive a dependant pension, whereas Sarah, at 18, could receive one for the next five years.
All three could receive a lump sum from Peter’s DC pension scheme.
Sally is married to Joe, and utilising capped income drawdown. She is considering buying a short-term annuity for some more secure income. Before making this decision, she should consider…
This is a multi-response question. Select one or more correct answers from the choices.
- how competitive current annuity rates are
- the form of benefits she wishes to leave Joe if she dies
3.the effects of mortality drag on her short-term annuity - the Critical Yield A from age 70 onwards
5.the Critical Yield B from age 70 onwards
Annuity rates will affect the level of income Sally can have through short-term annuities.
Sally needs to consider the form of benefits she wishes to provide for Joe on her death. The only option with a short-term annuity is a five-year guaranteed period.
Jasdeep, aged 56, is changing employers after one year, in July this year, and is unsure of the best action to take in relation to her occupational DC scheme. She should be aware that…
This is a multi-response question. Select one or more correct answers from the choices.
1.a short-term refund of her personal contributions would not be available to her
2. the preserved benefits she is entitled to would be revalued up to scheme NRD
3.taking a CETV and transferring to her new employer’s scheme may be an option
4.the asset allocation of any preserved benefits would be switched to low risk
5. she could crystallise her benefits immediately if scheme rules permit this
A short-service refund is only possible if service is less than 30 days in a DC OPS. Jasdeep has one year’s service, so this option is not available to her.
Transferring her CETV into a new employer’s scheme may be possible.
Immediate crystallisation, as Jasdeep is over 55, may be permitted if this is allowed in the scheme rules.
When pension simplification came in, Jack registered his 1,550,000 pension fund for primary protection. Which of the following is Jack allowed to do, without losing this transitional protection
Make further personal contributions into a RPS
Taking all benefits tax free when he reaches retirement
Receiving Limitless contribution tax relief on all pension contributions
Avoiding unauthorised payment taxes and double taxation
Answer = A
Primary protection would give Jack his own lifetime allowance (now his own LSDBA) which would have been higher than the standard allowance
He can continue to make contributions but IS NOT sheltered from tax charges if he:
Crystallises more than his limit
Exceeds the AA in contributions
Receives any unauthorised payments
What happens if someone is under 75 and dies and their pension is not distributed within 2 years?
The entire amount will be charged at the recipients marginal tax rate
Salary, bonuses & P11D benefits count as relevant relevant earnings for pension contribution purposes
Interest and Dividends do not
If someone makes contributions into NEST and it is returned to them, what is the most likely reason for this?
They are no longer classed as a relevant UK individual
If a pensioner member retires at the scheme NRD and later on that scheme is taken over by the pension protection fund, what affect will this have on their benefits going forward?
If you retire at scheme NRD you are 100% protected by the PPF for all benefits in payments. The benefits must be escalated in line with the PPF minimums
What is a big benefit of public sector schemes over private schemes
Public sector pension schemes such as the NHS are able to use the transfer club meaning members can transfer their pension to another public sector scheme with no loss in benefits
This is very likely not to happen in private schemes
(This is in chapter 4)
When a scheme is wound up TPR expects it to be complete in a reasonable time frame
This is something the trustees must be aware of
Sometimes people can crystallise their DB scheme pension on the grounds of ill health retirement. For it to be allowed without being classed as an authorised, what is the requirement
The member cannot carry out their own occupation and they have ceased work
