W1S1: Context For Pension Planning Flashcards
What are the three major forms of pension? D
Defined benefit,
Defined contribution
and state pension
What is a defined benefit pension also known as?
Final salary scheme
What do you define benefit schemes promise and what is it based on?
They give the scheme member, a promise of a certain level of pension, based on:
- pensionable service.
- pensionable pay
- an accrual rate.
What is an accrual rate and How’s it usually expressed?
The accrual rate is usually expressed as a fraction, such as 1/60
So, for example, a pensioner with 40 years of pensionable service in a 1/60th accrual scheme, and pensionable earnings of £60,000 will receive a pension of:
40/60 x £60,000 = £40,000
What is a defined contribution scheme?
This includes both occupational and Personal arrangements.
No promises, given as to the level of pension to paid. Instead contributions are invested in one or more investment funds.
At retirement, the accumulated value of the pension fund is then used to provide income either through the purchase of an annuity or an unsecured pension whereby income is drawn directly from the pension fund.
What is another name for defined contribution?
A money purchase scheme
Which scheme pension schemes have the facility to provide a tax-free cash amount when benefits of taken?
Both defined benefit and defined contribution schemes
When did the single tear state pension come into operation?
April 2016
Define what is meant by the scheme member?
Ski members role is pretty straightforward. They are the person who will ultimately benefit from the pension fund.
Define what is meant by the trustee of a pension scheme
The trustee of a pension scheme is responsible for protecting the members interests.
The trustee will monitor the work of the other parties and ensure the member is protected and most pension scheme as a trustee will also be responsible for determining who receives any death benefits under the scheme.
Define what the administrator of a pension scheme does
The administrator is the body responsible for running the pension scheme and ensuring compliance with HMRC and other regulations
Define what the practitioner of a pension scheme does
The administrator can delegate their role to another person called a practitioner. This is generally either insurance company or a specialist provider who will take responsibility for running the scheme on a day-to-day basis on behalf of the administrator. However, the administrator still remains legally responsible for the actions of the practitioner.
Define the dependent of a pension scheme
This is someone who meets the HMRC criteria, broadly speaking, the spouse or civil partner, child under 23, who is dependent due to disability or anyone else who is financially dependent/codependent on the member or dependent due to disability.
Define what is meant by the nominee
This is a relatively new title given to the person who is nominated by scheme member to receive benefits under the scheme on the death. Other than a dependent.
This role only applies to Money purchase and not defined benefit schemes.
Define what is meant by successor
Against a new title, given to the person who is nominated continue, receiving the benefits on the death of the nominee. This also only applies to Money purchase schemes.
