Topic 10 Flashcards
Pension products
Mike is retiring from his employment after 25 years and will receive an occupational pension of £15,000 per annum.
He is planning to take a cash lump sum of £30,000 and an income of £4,000 pa from his personal pension plan. If the value of his personal pension is £120,000, what will the tax liability be on the benefits from the personal pension?
a. He will be liable to capital gains tax on the lump sum above the annual exempt amount.
b. He will not have a tax liability on either of the pension benefits.
c. The lump sum will be tax free, but he will pay income tax on the annual income.
d. The regular pension will be paid tax free, but Mike will pay basic-rate income tax on the lump sum.
c. The lump sum will be tax free, but he will pay income tax on the annual income.
When contributing to a personal pension, what tax relief, if any, is given at source?
a. None.
b. Relief equivalent to the basic rate of tax.
c. Relief equivalent to the higher rate of tax.
d. Relief equivalent to the contributor’s marginal rate of tax.
b. Relief equivalent to the basic rate of tax.
A person’s marginal rate of tax relates to the:
a. highest rate of tax that they pay on their income.
b. lowest rate of tax that they pay on their income.
c. tax relief available on all of their pension contribution.
d. tax paid on all of their income.
a. highest rate of tax that they pay on their income.
Alisha is just in the higher-rate tax band. She has a personal pension plan valued at £40,000 and wants to take all of it as one lump sum on her sixtieth birthday next month. How much of the withdrawal will be tax free?
a) It will all be taxable.
b) £30,000.
c) £20,000.
d) £10,000.
d) £10,000.
25% can be taken as a tax-free lump sum.
When does the Money Purchase Annual Allowance apply to pension contributions? If the plan holder:
a) takes benefits through the uncrystallised funds pension lump sum option.
b) earns more than the income threshold.
c) uses the fund to purchase an annuity.
d) takes benefits before the scheme retirement date.
a) takes benefits through the uncrystallised funds pension lump sum option.
Caroline is 38 and earns £25,000 a year as a department manager for a large firm. What is the maximum contribution that could be paid into her personal pension to give her maximum tax relief and avoid any tax penalties?
a) £25,000 from Caroline only.
b) Up to £25,000 between Caroline and her employer.
c) £25,000 from Caroline and £15,000 from her employer.
d) £40,000 from Caroline only.
c) £25,000 from Caroline and £15,000 from her employer.
Caroline can pay in an amount up to her salary, and her employer can top it up to the annual allowance amount. (Assumes the annual allowance is £40k)
The ‘direct pay’ arrangement is where a personal scheme member pays the contributions directly to the pension provider.
True or False?
False: It is where the employer collects the employee’s contribution from their pay and passes it on to the pension provider.
Ali has been a member of his company’s 1/50th defined-benefit pension for 20 years and is about to retire. His pensionable salary is £30,000. What will Ali’s pension be?
a) £10,000.
b) £12,000.
c) £15,000.
d) £30,000.
b) £12,000.
20/50th of £30,000 = 20/50 x £30,000 = £12,000.
Which type of pension scheme is most likely to allow an individual to hold a direct investment in commercial property?
a) A stakeholder pension.
b) A self-invested personal pension.
c) A defined-contribution occupational pension.
d) A personal pension.
b) A self-invested personal pension.
Which statement best describes the uncrystallised funds pension lump sum option on a personal pension?
a) Each withdrawal is taxed as income in the owner’s hands.
b) The whole fund must be taken, with 25% as a tax-free lump sum.
c) Each withdrawal will be tax free.
d) 25% of each withdrawal is tax free, with the balance taxed as income.
d) 25% of each withdrawal is tax free, with the balance taxed as income.
Which of the following is true regarding the NEST scheme?
a) It cannot run alongside an existing occupational scheme.
b) The minimum contribution per employee is 10% of earnings.
c) Benefits can be taken from age 55.
d) Contributions can only be made into the default fund.
c) Benefits can be taken from age 55.
Which method of providing a personal pension income is free from investment risk?
a) Purchasing an annuity.
b) Taking regular withdrawals using the uncrystallised funds pension lump sum option.
c) Taking the 25% pension commencement lump sum and leaving the balance in the fund.
d) Flexi-access drawdown.
a) Purchasing an annuity.
In order to qualify for auto-enrolment, an employee must:
a) earn more than £5,000.
b) be under age 60.
c) opt-in to the scheme.
d) be aged at least 22.
d) be aged at least 22.
In relation to a personal pension, an uncrystallised fund means:
a. the plan holder has withdrawn all of the funds.
b. the plan holder has withdrawn some of the funds and incurred a tax liability.
c. no withdrawals have been made from the pension plan.
d. only the pension commencement lump sum has been withdrawn.
c. no withdrawals have been made from the pension plan.
