UK Financial Services and Consumer Relationships (4/80)

Question 1

What are some key considerations when assessing individual income?

Answer 1

• earned income from employed and self-employed jobs
• income received from investments and deposits
• rental income from investment property
• financial support from others, eg, a former spouse or partner, or an existing trust
• state benefits.

Question 2

What are some key considerations when assessing individual outgoings?

Answer 2

• rent or mortgage payments
• bills for food, heating and electricity
• council tax
• taxes – including National Insurance contributions (NICs)
• TV licence, phone and internet charges
40
• maintenance being paid to a former spouse or in respect of a child
• credit card and loan outgoings
• regular insurance premiums
• contributions to pensions and regular savings plans
• sums budgeted for holidays and major life events.

Question 3

What is the financial life cycle?

Answer 3

The financial life cycle is a concept that is used for the purpose of considering what people’s financial
needs typically are at various stages in their lives.

Question 4

What are the typical stages of the financial life cycle?

Answer 4

• Childhood
• Single young adulthood
• Young couple, no children
• Parents with dependant children
• Empty-nesters
• Retired

Question 5

What are the two forms of Pension Scheme?

Answer 5

Salary-related (also known as defined benefit (DB)), or money purchase (defined contribution (DC)).

Question 6

What is the maximum amount you can have in a UK pension scheme?

Answer 6

GBP 1 mn

Question 7

What are the UK Tax bands?

Answer 7

Up to 12,500 - No tax (Personal Allowance)
12,500 - 50,000 - 20%
50,000 - 150,000 - 40%
Over 150,000 - 45%

Question 8

What is Inheritance Tax?

Answer 8

To summarise, IHT is a tax on gifts or transfers of value. There are two main chargeable occasions:

• gifts made during the lifetime of the donor (lifetime transfers)
• gifts or transfers on death, for example, when property is left to someone in a will (the death estate).

Question 9

What typical information would a Financial Advisor look for in an initial fact-find?

Answer 9

• basic information (such as name and address)
• current financial situation (level of savings, investments, mortgage)
• current income and outgoings (financial commitments such as loans, mortgage, bills)
• expected income and outgoings (potential future issues such as school fees, bonuses to be paid by
employee)
• aspirations and goals (retire early, move home).

Question 10

What are the requirements of the FCA’s Treating Customers Fairly (TCF) initiative?

Answer 10

Firms must be able to demonstrate that they are behaving fairly in all areas of their activities – from the way in which they communicate to the quality of their advice they provide to their customers.

Question 11

Is Financial Planning a one-off process?

Answer 11

No, it should be repeated at least annually or if circumstances change

Question 12

What is a term assurance life insurance?

Answer 12

Term assurance stays in force for a set period only, and pays out a sum on the death of the life assured.

Question 13

What are examples of Direct Investments?

Answer 13

Direct investments include securities such as bonds and shares.

Question 14

What are examples of In-Direct Investments?

Answer 14

Indirect investments include vehicles such as unit trusts, open-ended investment companies
(OEICs) and investment trust companies.

Question 15

What are some tools for Estate Planning?

Answer 15

• a will (essential in every case)
• a lasting power of attorney (LPOA)
• trusts
• life products, eg, life assurance
• in some cases, other estate-planning vehicles or strategies.

Question 16

What is Income Support in the UK?

Answer 16

Income support is only available for people who are getting, or have recently stopped getting, severe
disability premium. Universal credit (UC) has now replaced income support for the majority of people.

Question 17

What is Jobseekers Allowance in the UK?

Answer 17

Jobseeker’s allowance is paid if they are available for work and actively seeking work. To get it they must
be under 65 (men), or under 60 (women) and either not working, or working on average fewer than 16
hours per week.

Question 18

What is Child Benefit in the UK?

Answer 18

Child benefit is a benefit for people raising children. It is paid for each child and is not affected by the
income or savings they have.

The income charge applies at a rate of 1% of the full child benefit award for each £100 of income
between £50,000 and £60,000. Therefore the charge on taxpayers with income in excess of £60,000 is equal to the amount of child benefit paid.

Question 19

What is Council Tax Reduction in the UK?

Answer 19

CTR replaced council tax benefit and is sometimes known as council tax support. Local authorities have
responsibility for running their own schemes for help with council tax. CTR will be either a discount
worked out as a percentage of the council tax bill, a discount of an amount set out in the scheme or a
discount equal to the whole amount of the council tax bill.

Question 20

What is Universal Credit in the UK?

Answer 20

UC has now replaced the following for most people:

• Housing Benefit
• Income-related Employment and Support Allowance
• Income-based Jobseeker’s Allowance
• Child Tax Credit
• Working Tax Credit

Question 21

How many years of NI does a person have to pay in order to get a State Pension?

Answer 21

10 years

Question 22

How many years of NI are required for the Full State Pension?

Answer 22

35 years

Question 23

What are the current state pension levels?

Answer 23

The basic state pension from April 2020 will rise to £134.25 (from £129.25), while those receiving the full
flat rate introduced in 2016 will see their pension increased to £175.20 (from £164.35). (Per week)

Question 24

What is the minimum age for State Pension Payout?

Answer 24

66 (as of 2020). Plans to increase to 68 by 2028

Question 25

What is secured borrowing?

Answer 25

Secured borrowing is when the lender has a legal charge over the borrower’s home or other assets they
own, so that if they default on repayments, the lender can possess that property and sell it to get their
money back.

Question 26

What is a Consolidated Loan?

Answer 26

A consolidated loan is a type of secured loan. It allows the conversion of one or a number of unsecured
loans – eg, credit card debts, overdrafts or bank loans – into one loan which is secured, usually against a
property.

Question 27

What are examples of unsecured borrowing?

Answer 27

• personal loans
• overdrafts
• credit cards
• student loans
• store cards.

Question 28

What re the 6 major types of pension scheme in the UK?

Answer 28

• basic state pension
• S2P (State Second Pension)
• occupational pensions
• stakeholder pensions
• group personal pensions and personal/individual pensions
• NEST – automatic enrolment and a minimum employer contribution pension which require
minimum contributions from the employee of 5% and 8% from the employer and government
respectively.

Question 29

What is a Group Personal Pension (GPP)

Answer 29

Group personal pensions (GPPs) are personal pension arrangements, but are linked to an employer.

Question 30

What is a Self-Invested Personal Pensions (SIPPs)

Answer 30

This is the name given to the type of UK government-approved personal pension scheme that allows
individuals to make their own investment decisions from the full range of HMRC-approved investments.

Question 31

Why choose a SIPP over a Personal Pension?

Answer 31

The HMRC rules allow for a greater range of

investments to be held in SIPPs than in personal pension plans, notably equities and property.

Question 32

What are the 3 types of SIPP?

Answer 32

Deferred – this is effectively a personal pension plan in which most or all of the pension assets are
generally held in insured pension funds (although some providers will offer direct access to mutual
funds).

Hybrid – a scheme in which some of the assets must always be held in conventional insured
pension funds, with the rest being able to be self-invested.

Pure or full – schemes offer unrestricted access to many allowable investment asset classes.

Question 33

What is the minimum early retirement age?

Answer 33

55

Question 34

Are SIPP contributions taxed?

Answer 34

No. Pension provider reclaims the base rate (20%). Higher tax payers can apply for rebate.

Question 35

Are SIPP drawdowns taxed?

Answer 35

Not if the pot is under GBP 1mn. Over 1mn and they are taxed at 25% for income or 55% for lump sum.

Question 36

What are the 3 categories of Financial Advisor?

Answer 36

• Whole-of-market advisers, who also provide advice on products from across the whole market.
• Multi-tied advisers, when the adviser will recommend products from a limited range of providers
(the panel).
• Single-tied advisers, when the adviser will recommend products from one provider only.

Question 37

What are Provider Platforms?

Answer 37

Provider platforms are services used by intermediaries (and sometimes consumers directly) to view and
administer investment portfolios; they include wraps and fund supermarkets.

Question 38

What is Commission Bias?

Answer 38

In markets involving commission payments to an intermediary, there are incentives for the intermediary to recommend either an individual product that offers the highest commission rates, or products from a particular provider offering high commission rates in general. The former may be termed product bias, the latter provider bias.