Topic 10 Flashcards
What is annual allowance
Maximum amount that can be contributed to a pension during a tax year without a tax charge being applied (currently £40,000)
Can an individual carry forward any unused annual allowance
And the unused annual allowance from the previous 3 tax years to the current year can be carried forward
What is lifetime allowance
The total amount that an individual may hold in tax privilege pension schemes at the point where the benefits are taken without incurring a tax charge
What is a money purchase annual allowance
This applies where a pension scheme member draws benefits from their pension using flexy access drawdown income or takes an uncrystalized funds pension lump sum
At what age can benefits typically be withdrawn from a pension
Currently 55
Expected to rise to 57 in 2028
What is a pension commencement lump sum
A scheme member can usually take up to 25% of the fund as a tax free cash lump sum commonly referred to as a pension commencement lump some
How can benefits be taken in a defined benefit scheme
The balance over and above any tax free cash must be used to provide an income typically as a scheme pension direct from the pension fund
How can benefits be taken from a defined contribution scheme
The balance once tax free cash has been taken can be used to provide income in the form of;
Annuity
Flexible access drawdown (FAD)
Uncrystalised fund payment lump sum
What is a pension commencement lump some
The sum up to 25% of the individual’s pension fund that may be taken at retirement tax free
What are the 2 main types of occupational schemes
Define benefit
Defined contribution
What is a collective defined contribution pension scheme
It is similar to a defined contribution scheme however Pensions will be paid out from a shared pot
This new type of scheme Offers the employer more more predictable costs and is more resilient against economic shocks
What 3 ways can you top up a defined benefit scheme
Additional voluntary contributions
Free standing additional voluntary contributions
Personal/stakeholder pension plans
What are additional voluntary contributions
These are additional contributions to an occupational scheme
Sometimes such contributions purchase additional years service in a final salary scheme however most operate as money purchase arrangements and the employee will only have a limited choice of funds
AVC’s are deducted from gross salary and the employee therefore receives full tax relief at the same time
What are free standing additional voluntary contributions
These are an alternative To an AVC
An individual might choose to contribute to a free standing additional voluntary contribution money purchase fund provided by a separate pension provider
Contributions are made from taxed income, tax relief at the basic rate of 20% is claimed by the pension provider and added to the individual’s pension fund and additional rate taxpayers need to claim additional relief separately through the income tax self assessment
What is auto enrolment
Employers must enrol eligible workers in their qualifying workplace pension and contribute a specified amount to the scheme
What is the national employment savings trust (NEST)
Nest is an alternative to setting up or using their own pension scheme employers can meet their obligations by enrolling their employees in NEST
Nest is a trust based occupational pension scheme established to support workplace pension provisions it can be used by an employer either alongside or instead of its own occupational pension scheme
Nest offers a range of investment funds from which the member can choose and there are default fund selections for but fund selections for members who do not wish to make their own choice charges are capped benefits can be taken from age 55 and must be taken no later than age 75
What is the criteria for auto enrolment
The criteria for auto enrollment are that the employee:
Is not already in a pension at work
Is age 22 all over
Is under state pension age
Earns more than 10000 pound
Works in the uk
What is the minimum amount of an employee’s earnings that have to Be paid into the nest scheme
8% - this is made up from:
3% employer contribution
4% employee contribution
1% tax relief
What is a personal pension
They are individual arrangements provided by financial services companies such as life assurance companies banks and building societies
Contributions receive basic rate tax relief at source even for none tax payers
Hire or additional rate taxpayers need to claim additional relief separately through self assessment
What is a group personal pension
A collection of individual personal pension plans all administered by an insurance company on behalf of a single employer
What is a self invested personal pension (SIPP)
These are personal pension arrangements that give access to a wider range of investment options than would be available through a conventional personal pension
For example it may be possible to hold a direct shareholding or commercial property within a sipp
What is a stakeholder pension
It is a type of personal pension
They were designed to encourage those at lower earning levels to start pension provisions
What are the key standards that a product must meet in order to be designated a stakeholder pension
Charges cannot exceed 1.5% of the fund value per annum for the 1st 10 years of the term and cannot exceed 1% after that time
Entry and exit charges are not permitted
The minimum contribution required cannot be more than 20 pound
What are the 2 retirement planning phases
Accumulation phase - When savings are made into a pension to build-up a fund
Deccumulation phase - When benefits are drawn
