Topic 10 - Pension Products Flashcards
Defined benefit scheme
A way of setting up a pension scheme, can ONLY be offered to by employer. Also referred to as (final salary scheme)
The benefits an individual receives are specified from the outset
Defined contribution scheme
Setting up a pension scheme. can be offered by employer and set up individually. Also referred to as (money purchase scheme)
The benefits received depend on performance of the investment contributions are paid.
Annual allowance
Maximum amount of pension contributions during tax year without being taxed.
Can be carried forward if unused previous 3 tax years
Lifetime allowance
Total amount an individual may hold in pension scheme where you can take benefits without getting taxed
Pension commencement lump sum
PCLS means you can take 25% from pension scheme as lump sum tax free
Collective defined contribution pension scheme
Both employers and employees pay into a joint fund with pension ls paid out from shared pot.
Offers predictable costs and less effected by economy
Additional voluntary contributions
AVCs are additional contributions to occupational schemes
Free standing additional voluntary contributions
FSAVCs are an alternative to AVCs. Contributions are made from taxed income. More expensive than AVCs
Workplace pensions
Introduced to combat people not saving for retirement. People auto-enrolled.
3% from employer
4% from employee
1% from tax relief
Personal pension
Individual arranged pension scheme via life assurance/banks/building societies.
Basic rate tax relief
What is a group personal pension
Cheaper alternative for small-medium sized company. Administered by an insurance company on behalf of employer
What is a self-invested personal pension
(SIPP) is a type of personal pension which gives member access to wide range of investment options.
What is a stakeholder pension
Type of personal pension introduced to encourage lower incomes to contribute to their own pension arrangements.
Designed to be simple, low cost and must meet requirements.
How are pension contributions invested
Accumulation phase - when savings are made into a pension to build up a fund
Decumulation phase - when benefits are drawn
How to take benefits from personal/stakeholder pension
Annuity purchase - pension lump sum exchanged as an income
Flexi-access drawdown - reinvesting pension fund after PCLS is taken.
Uncrystallised funds pension lump sum - the full pension fund is invested
PCLS - release 25%
