Podcast
Questions and Answers
What type of pension scheme depends solely on investment performance?
What type of pension scheme depends solely on investment performance?
- Defined-benefit occupational pension
- Defined-contribution occupational or personal pension (correct)
- Final-salary occupational pension
- State pension entitlement
What does AVC stand for in pension terms?
What does AVC stand for in pension terms?
- Annual Validated Contributions
- Average Voluntary Contributions
- Additional Voluntary Contributions (correct)
- Alternative Variable Contributions
Which of the following describes a key feature of defined-benefit pension schemes?
Which of the following describes a key feature of defined-benefit pension schemes?
- Benefits determined by an employee's earnings and years of service (correct)
- Higher employee contribution rates compared to defined-contribution schemes
- Flexibility in choosing investment options
- No guarantee of a specific payout at retirement
Which tax relief is typically available for personal pension contributions?
Which tax relief is typically available for personal pension contributions?
How does an FSAVC differ from an AVC?
How does an FSAVC differ from an AVC?
What is a primary eligibility rule for workplace pensions?
What is a primary eligibility rule for workplace pensions?
What does FAD stand for in pension terminology?
What does FAD stand for in pension terminology?
When a pension scheme member dies, which option is typically NOT available?
When a pension scheme member dies, which option is typically NOT available?
What is the primary benefit of a group personal pension for employees?
What is the primary benefit of a group personal pension for employees?
Which of the following best describes a self-invested personal pension (SIPP)?
Which of the following best describes a self-invested personal pension (SIPP)?
What was the primary aim of introducing stakeholder pensions?
What was the primary aim of introducing stakeholder pensions?
Which statement accurately reflects a characteristic of a group personal pension?
Which statement accurately reflects a characteristic of a group personal pension?
How does a SIPP differ from a conventional personal pension?
How does a SIPP differ from a conventional personal pension?
Which of the following does NOT accurately describe stakeholder pensions?
Which of the following does NOT accurately describe stakeholder pensions?
What is a key feature of a direct pay arrangement in a group personal pension?
What is a key feature of a direct pay arrangement in a group personal pension?
For whom are stakeholder pensions primarily designed?
For whom are stakeholder pensions primarily designed?
What percentage of the accumulated fund can be taken as a tax-free PCLS?
What percentage of the accumulated fund can be taken as a tax-free PCLS?
What is a key benefit of purchasing an annuity?
What is a key benefit of purchasing an annuity?
Which option allows for potential growth of the pension fund after taking any PCLS?
Which option allows for potential growth of the pension fund after taking any PCLS?
What risk does an annuity eliminate upon purchase?
What risk does an annuity eliminate upon purchase?
What should clients be informed regarding annuity purchase options?
What should clients be informed regarding annuity purchase options?
What is the primary risk associated with flexi-access drawdown?
What is the primary risk associated with flexi-access drawdown?
What is the recommended approach to withdrawing funds from flexi-access drawdown?
What is the recommended approach to withdrawing funds from flexi-access drawdown?
Once an annuity is purchased, what is likely to occur?
Once an annuity is purchased, what is likely to occur?
What rate of tax relief is applied to contributions to an individual's pension plan?
What rate of tax relief is applied to contributions to an individual's pension plan?
Which statement is true regarding auto-enrollment in a workplace pension scheme?
Which statement is true regarding auto-enrollment in a workplace pension scheme?
Which of the following statements about stakeholder pensions is correct?
Which of the following statements about stakeholder pensions is correct?
What is the amount of each uncrystallised funds lump sum payment that is free of tax?
What is the amount of each uncrystallised funds lump sum payment that is free of tax?
How do contributions to Additional Voluntary Contributions (AVCs) affect gross income?
How do contributions to Additional Voluntary Contributions (AVCs) affect gross income?
Which previous form of income drawdown was converted to flexi-access drawdown after April 2015?
Which previous form of income drawdown was converted to flexi-access drawdown after April 2015?
In what year did personal pension providers start allowing uncrystallised funds lump sum access?
In what year did personal pension providers start allowing uncrystallised funds lump sum access?
What is a key feature of lump sum allowances in pensions?
What is a key feature of lump sum allowances in pensions?
How is threshold income calculated?
How is threshold income calculated?
What adjustments are made to calculate adjusted income?
What adjustments are made to calculate adjusted income?
What is the result of applying the tapering rule for adjusted income over £260,000?
What is the result of applying the tapering rule for adjusted income over £260,000?
What is the annual allowance after the taper for someone with an adjusted income of £300,000 and a base annual allowance of £60,000?
What is the annual allowance after the taper for someone with an adjusted income of £300,000 and a base annual allowance of £60,000?
What happens if pension contributions exceed the total annual allowance including carry forward?
What happens if pension contributions exceed the total annual allowance including carry forward?
What does the money purchase annual allowance (MPAA) apply to?
What does the money purchase annual allowance (MPAA) apply to?
What was the lifetime allowance (LTA) in relation to pension savings?
What was the lifetime allowance (LTA) in relation to pension savings?
Which of the following is NOT included when calculating threshold income?
Which of the following is NOT included when calculating threshold income?
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Study Notes
Pension Products Overview
- Threshold income: total net income minus gross pension contributions (excluding employer contributions), lump sum death benefits, plus any pension provision reductions from salary sacrifice post-8 July 2015.
- Adjusted income: total net income plus claims for tax relief on pre-relief contributions, pension savings with tax relief, overseas pension scheme relief (for non-domiciles), and employer contributions; deduct lump sum death benefits.
Annual Allowance Reduction
- Adjusted income of £300,000 triggers a tapering reduction of the annual allowance; for every £2 over £260,000, the allowance is reduced by £1.
- Initial annual allowance of £60,000; post-tapered allowance is £40,000.
- Unused annual allowance can be carried forward from the previous three tax years, allowing contributions beyond the annual limit without penalties.
Types of Pension Plans
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Group Personal Pension:
- Structured group of individual plans managed by an insurance company for multiple employees.
- Offers bulk discounts on setup and management fees.
- Employees retain individual plans, even upon leaving the employer.
-
Self-Invested Personal Pension (SIPP):
- Provides broader investment options, including direct shareholdings and commercial property.
- Ideal for individuals comfortable making their own investment decisions while still having conventional fund access.
-
Stakeholder Pension:
- Introduced to encourage pension contributions, especially among low earners.
- Designed as simple and low-cost alternatives.
Pension Benefits Options
-
Annuity Purchase:
- Exchange a lump sum for guaranteed income for life.
- Allows shopping around for better rates (open-market option).
- Removes investment risk but halts growth potential once purchased.
-
Flexi-Access Drawdown (FAD):
- Allows pension fund withdrawal post-tax-free cash (PCLS) and reinvestment for income.
- Fund remains invested; potential for growth but also risks value fluctuation and subsequent taxable income.
- Withdrawals can be tailored as regular or one-off payments, mindful of tax implications.
Regulation and Planning
- Pensions dashboards assist in managing state pension entitlements and various pension funds to aid retirement planning.
- Implementation of dashboards has faced delays; ongoing monitoring is essential.
Knowledge Assessment
- Understand differences between defined-contribution and defined-benefit schemes.
- Familiarize with tax reliefs and allowances for pension contributions.
- Recognize eligibility criteria for workplace pensions.
- Identify the options available when taking benefits from personal pensions and how they apply upon a member's death.
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