Unit 1 topic 10- Pension Products Flashcards
What tax reliefs are available on pensions?
Anyone under 75 can receive income tax relief on annual contributions up to a maximum of the higher of 100% of UK earnings or £3,600.
What is the annual allowance and earnings limit before tax is applied on pension contributions?
Annual allowance 2021/22 of £40,000. If the combined total of contributions exceeds this figure, tax is charged on the excess.If an individual has income in excess of £150,000, the annual allowance is reduced: £1 is lost for each £2 of income over £150,000 down to a minimum of £10,000.Unused annual allowance from the previous three tax years can be used.
What is the Lifetime allowance on pensions?
Lifetime allowance of £1,055,000 (2019/20) at point when benefits are taken.Lifetime allowance tax charge of 55% on lump sums and 25% on income taken from pension pot.
What is Money purchase annual allowance on pension?
Applies when pension scheme member draws benefits using flexi-access drawdown income, or takes an uncrystallised funds pension lump sum.MPAA is £4,000
What is the ‘marginal rate’ of tax?
A person’s highest marginal rate of tax is the highest rate that they pay on their income.
When and how can benefit be taken from pensions?
Benefits can generally be taken from the normal minimum pension age, which is currently age 55 (expected to rise to 57 in 2028). When benefits are drawn the member can usually take up to 25% of the fund as a tax-free cash sum referred to as a pension commencement lump sum (PCLS).
What are the rules on drawing benefits from a Defined-benefit scheme pension?
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.
What are the rules on drawing benefits from a Defined-contribution scheme?
The balance once tax-free cash has been taken can be used to provide income in the form of an annuity or flexible access drawdown (FAD).- An alternative is to take an uncrystallised funds pension lump sum (UFPLS).
What is an Annual allowance for pensions?
Maximum amount that can be contributed to a pension during a tax year without a tax charge being applied.
What is a Lifetime allowance for pensions?
The total amount that an individual may hold in tax-privileged pension schemes at the point where benefits are taken, without incurring a tax charge.
What is a Defined-benefit scheme?
A scheme in which the pension benefits the individual will receive are specified from the outset. Also referred to as a final salary scheme.
What is a Defined-contribution scheme?
A scheme in which an agreed level of contributions is paid but the benefits that the individual ultimately receives depend on the performance of the investments into which the contributions are paid.Also referred to as a money-purchase scheme.
What is a Pension commencement lump sum?
The sum (up to 25% of the individual’s pension fund) that may be taken at retirement tax-free.
What is a Defined benefit occupation scheme?
The employee may receive a pension that is calculated as a percentage of final salary (the salary at or near retirement).
What is a Defined contribution occupation scheme?
An agreed contribution is invested for each member. On retirement, the accumulated fund is used to purchase benefits.The scheme member has more control over how their contributions are invested.Depends on investment performance.