Tax Wrappers

Question 1

When assessing whether someone is liable to the lifetime allowance charge, how are pension benefits calculated?

Answer 1

Income is multiplied by 20 to give a pension value

Question 2

What have many DB pension schemes changed to?

Answer 2

Career Average Earnings (CARE) schemes

Question 3

What are the three factors that a DB pension will consider when determining the benefits?

Answer 3

Pensionable Service
Pensionable Salary
Accrual Rate

Question 4

Stakeholder pensions are subject to what standards?

Answer 4

CAT standards (charges, access and terms)

Question 5

Anyone up to what age can contribute to a personal pension, SIPP or Stakeholder Pension?

Answer 5

75

Question 6

What is “lifestyling” within a pension fund?

Answer 6

Where the fund moves away from equities and more into bonds and cash as retirement approaches. In many schemes, lifestyling is adopted as a default option.

Question 7

What are the 3 key features of “lifestyling”?

Answer 7

Switching begins between five and ten years before retirement.
Locks in gains on investments and reinvests in bonds and cash.
The assumption is that the retiree will take the full pension commencement lump sum with a target mix of investments at retirement is 75% in gilts and 25% in cash.

Question 8

3 drawbacks of lifestyling…

Answer 8

Not suitable for those who have a phased retirement into drawdown
Does not take into account whether an individual wants to retire earlier or later (as the switches happen automatically)
The switching does not allow for market conditions (could sell equities at depressed prices for example)

Question 9

3 assumptions of lifestyling…

Answer 9

Retire on a pre-determined date
Client will take full PCLS
Purchase an annuity with their remaining funds

Question 10

How do target date funds differ from lifestyle funds?

Answer 10

Target date funds are more flexible, and more active management to allow for market timing etc…

Question 11

What is a small pension pot commutation?

Answer 11

Where clients take a lump sum of a pension scheme of less than £10,000. Clients must be 55 YO or in ill health

Question 12

What is the maximum amount a client can receive to take advantage of the trivial commutation rules?

Answer 12

£30,000

Question 13

Annuity rates are dependant on which two things?

Answer 13

Life expectancy
Gilt yields

Question 14

How does the tax treatment of pension death benefits differ from pre 75 and post 75

Answer 14

If the clients death occurs before 75, benefits are passed to survivors tax free. After 75 they are taxed at the survivors marginal rate

Question 15

Innovative finance ISA’s are based on which financial activity?

Answer 15

Peer to peer lending

Question 16

What is gross roll up with offshore bonds?

Answer 16

Where because there is no tax deduction like onshore bonds, the benefits will grow at a faster rate than the onshore bond benefits

Question 17

With respect to tax relief on pension contributions, which type of pension policy uses the net pay method?

Answer 17

An occupational pension scheme

Question 18

6 types of DC pension schemes…

Answer 18

Occupational
Group (similar to occupational, but each person has own individual contract)
Personal
Stakeholder (just a low cost personal pension)
SIPP
SSAS (employer schemes for company directors)