Top-Up Flashcards
Employers are required to auto-enroll employees when over what age and earnings?
Employee age 22 & Earning £10k+
If a person is entitled to old and new state pension how will they receive this?
Receive higher entitlement of old pension & entitlement to new pension
Rate of tax if pension is left in trust?
45%
If you exceed annual allowance what rate of tax will you pay?
Marginal rate
Do bonuses count towards DB pension income?
Most schemes do not include bonuses in definition of pensionable salary
What main assumption is made for a transfer value comparator when transferring from a DB to SIPP?
Discount rate for costs is 0.75% and GILT yield investment returns
Who draws up statement of investment principles in an occupational scheme?
Trustees
Added years voluntary contribution scheme would be most beneficial to who?
An employee who expects their income to increase in the future
If you are of ill health how do you receive DB income early?
Scheme trustees must agree acting in accordance with scheme rules
What counts and doesn’t count as income to set limit on pension contributions that a person can make?
Counts:
- salary
- bonuses
Doesn’t count:
- bank savings
- dividends
What is the limit of a pension small pot?
£10k
What is a graduated pension?
When made NI contributions prior to 1976
Tapered annual allowance (TAA)
- rate lose AA
- min. value AA can tapered to
Clawback of tax relief from higher earners
Lose £60k AA at a rate of £1 for every £2 earned. When income earned is more than £200k
Min. AA tapered to £10k
Annual allowance and min. value for MPAA to be considered?
AA - £60k
MPAA - Min. value of £10k
What if a person with no income pays over £3,600 allowance?
Taxable above allowance at marginal rate
Annual allowance
100% of gross annual salary upto £60,000
OR
£3,600
What is tax rate for contributions made above AA?
Taxable at marginal rate
How many years can you carry forward your annual allowance and what amount? What order would the annual allowance be used?
3 previous tax years in total carrying £40k for each yr (current and 3 previous)
Current - Then 3yrs ago - Then 2yrs ago - Then 1yr ago
For how long will MPAA apply if triggered?
Forever when making contributions to a pension scheme
Steps for MPAA
- Has trigger event occurred?
- Is DC pension input £10k+
- Apply MPAA limitations
Main limitation of SSAS?
No more than 5% of fund can be invested into sponsoring employer shares, unless more than 1 sponsoring employer as then limited to 20%
LTA
Limit on amount of benefits that can be left at retirement or on death pre-retirement tax free
£1,073,100
When can someone get pension income beyond their LTA tax free?
- Pension credit awarded through divorce but must be awarded pre-A day or already receiving post-A day
When can you crystalise benefits pension before age 55 whilst being in good health? (2)
- if contractual right
- Special occupation
What is the effect of retirement before age 55?
Lose 2.5% of SLA for each completed year prior to age 55. E.g. if she 35 then 19 completed yrs.
Age limit for tax free lump sum?
No limit
Types of drawdown pension:
- capped
- flexi access drawdown
Capped - income is limited to 150% GAD
FAD - unlimited withdrawals
Max. value for triviality options such as:
- trivial pension
- small pots triviality
- dependent pension
- OPS being wound-up
What scheme are these applicable for?
Tax rules?
T - £30,000
SP - 3x £10,000 pots so £30,000 in total
DP - £30,000
OPS - £18,000
DB scheme
Usual tax rules except DP which unless member dies pre-retirement no element is tax free
Benefit crystallisation event (BCE) leads to what?
Test against LTA or higher LTA
When are there no BCE’s?
Over age 75
If die pre-age 75 then tax free upto LTA
If die after age 75 then taxable at marginal rate after tax free lump sum
Charity lump sum death benefit
Leave lump sum to a charity and no matter the age of member, lump sum will be tax free
Max. age of a dependent upon members death
Child under age 23 at date of members death. Can go over 23 if in full-time education, until finishes or disabled
Nominee
Successor
Nominee - nominated by member to receive pension benefit on death. If no one nominated scheme admin. will choose if have no dependents.
Successor - nominated by dependent, nominee or previous successor to receive income on death of current recipient. If no one selected scheme admin. will choose.
Transitional relief on LTA
- how to apply
- forms of protection
As some pension members had done nothing wrong we’re now at risk of ending up with a tax penalty. Gov. protected them from being punished.
- complete protection of existing rights form
- Forms:
Primary protection - Funds over £1.5mil their own individual life time allowance (ILTA) which is more than LTA. Taxable at marginal rate above own ILTA
Enhanced protection - No min. value and completely protected against charges above LTA however no further contributions can be made or new schemes joined (unless auto-enrolled to work scheme and have 1 month to unenrol) otherwise taxable above LTA at marginal rate
How does tax free pension lump sum differ from normal rules for enhanced protection?
Approved for enhanced protection before 15th March 2023:
Is a variable % of overall fund value with no limit. NOT set 25% of pension value upto LTA.
Fund valued at 5th April each yr and that is max. fund value for the year, but if fund value reduces then reduced value used for tax free pension lump sum amount.
Approved for enhanced protection from 15th March 2023:
Cessation event rules - Max. pension lump sum is lower of £375k or 25% of pension value
What must you be as a sheme admin. for a RPS?
Known to HMRC as they register the scheme - Not registered with TPR or authorised by FCA
Can a scheme admin. outsource work?
How many days must a scheme admin. give if need to give notification for something of note as required?
How many days does a scheme admin. have to report any contribution payment delays to TPR?
Yea, but responsibility lies with scheme admin.
31days notification from date
30 days
How long do you have to contact a scheme admin. when accessed pension fund?
91 days
Pension dashboard
Access info. on all of their pensions online
‘Pension providers’ do what?
Ensure people info. is kept upto date
What types of schemes do TPR focus on?
Occupational schemes
Scheme rules override
If scheme is old an has not allowed pension freedoms then scheme override is done so scheme rules don’t need to be amended and no negative tax implications caused.
Types of divorce settlements:
- Offsetting
- Earmarking
- Pension sharing
O - member keeps pension but gives other assets to compensate for this
E - ex-spouse gets entitlements to pension on crystallisation
P - Split pension on divorce either transferring into own name or transfer to own RPS
Cash equivalent transfer value (CETV)
Fund value - charges
How does earmarking for divorce settlement effect LTA?
Both members and ex-spouse is calculated as members funds so all deducted from LTA
Equalisation within EU law focuses on what?
Ensures no gender discrimination within RPS
Min. value of a bankruptcy?
£5k
Income payment order
- max length
- how often are reviews
Pension income above funds meeting basic needs can help repay creditors
- 3yrs
- Reviews every 1yr
How are pension benefits treated by a trustee in bankruptcy for both crsytalised and Uncrystalised for the below schemes?
Uncrystalised:
- All protected by Welfare reform pension act (WRPA), except state benefits which do not form part of the estate
Crystallised:
- All can be accessed through an income payment order (Even state benefits) except GMP which cannot be accessed
The Pension Ombudsman
Deals with pension admin. and running complaints. NOT advice complaints.
FOS
- If no resolution through complaints process then how long before provider must make client aware of FOS rights?
Deals with advice complaints
8 weeks
FOS time constraints (3) & money limit?
- 6 months from firm final response
- 6 years after event
- 3yrs from when know had cause of complaint
- £415,000 + interest and costs
Pension protection fund
- how is this funded?
Protect DB members should employer goes insolvent and asset’s insufficient to cover DB scheme
- funded through levy on both DB & DC schemes
Moral hazard
Employer knowing they’re insolvent gives amount of benefits to members knowing PPF will cover the remainder
Section 143 valuation
Section 179 valuation
143 - For insolvency - Value if all assets were purchased by insurance company
179 - Valuation for on-going schemes to establish the level of scheme based risk levy paid
Who gets 100% or 90% compensation from Pension Protection Fund?
100%:
- Receiving pension or dependent pension (unless taken early and of good health)
90%:
- Not yet receiving pension or taken early and of good health
Dependent
Under 18
or
under 23 and in full time education or disabled
Financial assistance scheme
Old version of PPF and pays 90% upto value of £41,888 for an insolvent DB scheme or 50% for dependent pension.
Fraud compensation fund
Gives compensation for victims of fraud, dishonesty or assets misinterpretation. Covering DB &DC scheme.
Pension liberations schemes
Scams tempting RPS members to transfer funds into unregistered scheme