Topic 10 Pension Products Flashcards
Other than the State Pension what are the other types of pension available to people?
- Occupational Pension
- Private Pension
What age does a person need to be to qualify for tax relief on non government pension schemes
75 and below up to a highest marginal rate on annual contributions
True or False
Tax relief is only available to UK residents?
False. A non-resident who receives UK earnings also qualifies
What is the name of system that stops people contributing too much into a pension scheme?
Annual Allowance
True or False
Unused Annual Allowances can be carried forward from the previous 3 tax years?
True
What is the tax relief for someone earning £80,000?
£60,000 Annual Allowance
What is the tax relief for someone earning £40,000?
£40,000 as 100% of their income
But employer and employee can top up the AA if they wish
What is the pension tax relief for someone who isn’t earning?
£3,600
For a higher person with income above the “Threshold” & “Adjusted” income limit what happens to their annual allowance?
It is tapered down £2 for every £1 over the adjusted income allowance
What is “Marginal Rate” of tax?
The highest rate of tax a person pays on their income
If a higher rate tax payer paid £10,000 at 40% how much tax relief can they claim?
20% of £10,000 so £2,000 as tax relief
What age can a person begin to take their non state-pension?
55 or (57 from 2028)
What is the Pension Commencement Lump Sum (PCLS) and how much can be taken?
A 25% withdrawal by a person that is tax free
What is a Defined Benefit Scheme?
Pension scheme in which the benefits a person will receive from their occupational pension that are specified from the outset
What is a Defined Contribution Scheme?
An agreed level of contributions are made but the income received will depend on the investments
How does Defined Benefit work for an employee in an Occupational Scheme?
- Pension calculated on their final salary and the amount of time they have paid into a scheme
- The longer the amount of time in a scheme then more income received at retirement
What is a Career Average Scheme in relation to a Defined Benefit Scheme of an occupational scheme?
Pension dependent on the employees average earnings over the period employed by a single employer
How does Defined Contribution work for an employee in an Occupational Scheme?
- Agreed contributions invested for each member
- On retirement funds are used to purchase benefits
- Benefits is not guaranteed by employer
What is a Collective defined-contribution scheme (CDC)?
- possible scheme
- a mix between the two types of pensions
- Paid for by employers & employees
- More predictable for employer & against economic shocks
What is an Additional Voluntary Contribution (AVC)?
- Additional contributions to pension normally as a defined contribution
- Admin covered by employer who claims tax relief
- Deducted from gross salary of employee
What is a Free Standing Additional Voluntary Contributions (FSAVC)?
- Employee choosing to contribute to a separate pension fund
- Contributions are taxed
- Tax relief claimed by pension provider
What is auto-enrolment?
Is where an employer must enrol a employee in a qualifying pension scheme
How much must an employer contribute to an auto-enrolment scheme?
A specified amount
What is the employee criteria for auto-enrolment?
- Not already in a pension scheme
- Over 22
- Under state pension age
- Earns over £10,000
- Works in the UK
At what stage can a person opt out of a pension scheme?
Only after they have made a member
What is the minimum percentage amount that must be contributed to an auto enrolment scheme?
8%
What is the breakdown of the employees salary paid into an auto enrolment scheme?
- 3% employer contributions
- 4% employee contributions
- 1% tax relief
What is the Nest?
A trust based occupational scheme to support workplace pension provisions
How can the Nest be used?
Either independently or alongside workplace pension
Between what ages must the Nest be drawn?
Earliest 55
Latest 75
Personal pensions are set up as defined-benefits
True or False?
False
They are set up as defined contribution arrangements
Contributions to a personal pensions scheme receive tax relief at source
True or False
True but only at basic rate of 20%
What is a Group Personal Pension?
Collection of individual person pensions administrated on behalf of an employer by an insurance company
How are Group Personal Pensions similar to Personal Pensions?
The member has their own personal plan which can be moved to a different employer
Why would an insurance company offer discounts on a Group Personal Pension?
As the fund is large and set up in bulk
What is a Self-invested Personal Pension (SIPP)?
Person pension that enables the invest access to a wider range of investments.
E.g shares in a company
What is the Lump Sum Allowance (LSA)?
The maximum a person a person can take from their pension tax free
How much is the Lump Sum Allowance (LSA)?
£268,275
What is the Lump Sum & Death Benefit Allowance (LSDBA)?
The maximum that can be taken from a pension fund during lifetime & death.
How much is the Lump Sum & Death Benefit Allowance (LSDBA)?
£1,073,100
How does the Lump Sum & Death Benefit Allowance (LSDBA) work?
It pays both lump sums a member can take while alive & in death
What are Stakeholder pensions?
Personal pension aimed a lower earners
What must a Stakeholder pension do?
- Chargers must not 1.5% of the fund per year
- Entry & Exit charges not permitted
- low contributions of no more than £20
The 2 main pension phases are?
- Accumulation Phase
- Decumulation Phase
Is a member of a definite-benefit scheme allowed to make decisions on the investments in their pension fund?
No this is done by the scheme
Is a member of a definite-contribution scheme allowed to make decisions on the investments in their pension fund?
They have a choice but it may be limited depending on whether is a company or a personal pension?
If funds are not drawn from a defined contribution scheme they are referred to as?
Uncrystallised
If funds begin to be drawn from a defined contribution scheme they are referred to as?
Crystallised
What is an Annuity Purchase?
Is a purchase of a guaranteed income from a lump sum payment from a defined contribution scheme
What is the open market option in relation to an Annuity?
The pension provider must inform customers they can shop around for more appropriate annuity products to suit their circumstances
What is a Flex-Access Drawdown?
Drawing of a pension once the PCLS is taken and is reinvested in to another pension scheme
What is the risk of Flex-Access Drawdown?
The fund value may fall after reinvestment
What is an advantage of a Flex-Access Drawdown for a person?
It can be drawn down to suit the customers needs
What is a Uncrystallised Funds Pension Lump Sum?
Pension funds that remain invested
How can a customer draw down a Uncrystallised Funds Pension Lump Sum?
In lump sums to suit their lifestyle
What percentage of each Uncrystallised Funds Pension Lump Sum is tax free?
25%
What is Money Purchase Annual Allowance (MPAA)?
Is a limit to the tax relief on pension contributions once FAD & UFPLS have been crystallised
What is the Money Purchase Annual Allowance (MPAA) limit?
£10,000
What type of Defined Pension type is relevant to Money Purchase Annual Allowance (MPAA)?
Defined Contribution
What was a Capped Drawdown?
Was a pension drawdown fund that had a cap on how much could be drawn
What was a Flexible Drawdown?
A pension drawdown option that allowed unlimited pension withdrawals
Who were Capped and Flexible drawdowns available to?
Anybody who retired before 6th April 2015
What can pension schemes offer when a member of a pension scheme dies?
Death Benefits
What is a death in service?
A lump sum benefit that is payable if a person dies before retirement
A death in service benefit is available to which type of occupational pension scheme?
Defined-benefit Scheme
If a member of a defined benefit scheme dies after retirement what can the pension still do?
- Pay the pension for guaranteed period
- Pay spouses pension as proportion to that being paid to the member
On a defined contribution scheme’s Crystallisation what can death benefits provide?
- An income
- Lump Sum Benefits
What are these related to?
- Continuing Scheme Pension
- Lifetime Annuity for a period
- Annuity Lump Sum Payment
- Continuing drawdown income
Death benefits of a defined-contributions scheme for a member’s spouse for death post retirement
Public Sector Schemes are unfunded by the government.
True or False
True pension benefits provided by government funds
How do criminals try to scam pension funds
- May offer a customer to drawdown whole pension funds tax free
- Offer investment returns that seem too good to be true
What is a Pension Dashboard
A proposed government scheme that will enable people to see details of all their uncrystallised funds and values of the pension pot
For a higher or additional rate tax payer how would they pay tax on contributions above the 20% basic rate?
They would pay tax on income in higher or additional band and claim back this amount as tax relief
Are Annuity still invested once purchased?
No they are no longer invested, so the fund will not grow
What is “direct pay”?
Is where an employee passes an employee’s pension contributions to the pension provider
Is an employer able to contribute to the annual allowance of an employee?
Yes if someone earns £50K the employer can add an additional £10K to take them to the limit of AA
Why did Stakeholder pensions fail?
The restrictions on charges meant that advisers found it difficult to give advice
