1
Q
A
2
Q
Less than 1% of members of occupational pension schemes retire on what?
A
The maximum pension they could have built up
Many individuals retire on pensions between 20% and 30% of their pre-retirement earnings.
3
Q
What major cause leads to financial hardship in retirement?
A
Lack of planning
Contributing too little, starting too late, or ignoring shortfalls can lead to inadequate retirement funds.
4
Q
Name the main factors that affect retirement planning.
A
- Age
- Income
- Dependants
- Previous and current pension arrangements
- State provision
Each factor influences the urgency and priority of retirement planning.
5
Q
The current State pension age for both men and women is what?
A
66
It will rise to age 67 between 2026 and 2028, with a proposal to increase to age 68 between 2044 and 2046.
6
Q
True or false: Age affects the priority of pension planning in the context of other financial needs.
A
TRUE
Younger individuals with dependants may prioritize protection policies over pension contributions.
7
Q
What is the annual allowance for pension contributions in 2025/26?
A
£60,000
This applies to most people, with exceptions for high earners and those who have accessed pension benefits.
8
Q
What is the maximum contribution for someone with no earnings to a personal pension?
A
Up to £3,600 each year
This includes basic-rate income tax relief.
9
Q
What are the three potential sources of existing pension benefit?
A
- State pension
- Current membership of a pension arrangement
- Retained benefits in an old pension scheme or plan
Existing benefits must be considered to identify any shortfall in retirement provision.
10
Q
What is a Lifetime ISA (LISA)?
A
A longer-term savings account for those aged over 18 and under 40
It offers a 25% government bonus on contributions, up to £1,000 per year.
11
Q
What happens if cash or assets are withdrawn from a LISA for reasons other than buying a first home or at age 60?
A
A 25% penalty charge will be applied
Withdrawals for terminal illness are also exempt from penalties.
12
Q
What are the two main types of pension schemes in the UK?
A
- Occupational pension schemes
- Personal pension schemes
Employers historically provided occupational schemes, but personal pensions are now more common.
13
Q
What is a defined benefit (DB) scheme?
A
A type of occupational scheme that provides a guaranteed pension related to salary close to retirement
It is also known as a final salary scheme.
14
Q
What does the Pension Protection Fund (PPF) do?
A
Protects members of defined benefit schemes if the employer becomes insolvent
It generally provides 100% compensation for those over retirement age.
15
Q
What is the key difference between a defined benefit scheme and a defined contribution scheme?
A
- DB: Employee knows the pension amount
- DC: Benefits depend on investment returns
DC schemes are less certain for employees but allow employers to control costs.
16
Q
What is a purchased life annuity (PLA)?
A
An annuity bought from capital, providing income in retirement
Part of the payment is tax-free as a return of original capital.
17
Q
What is the maximum contribution for a Lifetime ISA?
A
£4,000 a year
Contributions can be made until the age of 50.
18
Q
What is the accrual rate in a defined benefit scheme typically set at?
A
1/60th or 1/80th of salary for each year of service
This determines how pension benefits accumulate.
19
Q
What is a personal pension scheme?
A
A scheme where the individual has their own pension pot, converted into income at retirement
The individual decides how much to save, and the provider invests the money.
20
Q
In a personal pension, who decides how much to save?
A
The individual
The saved amount is paid to the provider for investment.
21
Q
What do group personal pensions (GPPs) offer to employers?
A
- Cost control
- Avoidance of trustee expenses
GPPs are a collection of personal pension plans for employees.
22
Q
Members of defined contribution schemes aged 55 and over can take up to _______ of their fund as a tax-free lump sum.
A
25%
The remainder is subject to their marginal rate of income tax.
23
Q
What must members do if the transfer value of their defined benefit scheme is more than £30,000?
A
Receive appropriate independent advice
This is a requirement for transferring benefits.
24
Q
What is the purpose of Pension Wise?
A
To help individuals understand their choices under the pensions freedoms
It is a free and impartial service set up by the Government.
25
In June 2021, MaPS launched its consumer-facing brand called _______.
MoneyHelper
## Footnote
This brand replaced the Money Advice Service and The Pensions Advisory Service.
26
What does **MaPS** stand for?
Money and Pensions Service
## Footnote
It serves as the corporate brand for engagement with partners and stakeholders.
27
What is a key feature of **defined contribution schemes** compared to defined benefit schemes?
Greater freedom in accessing pension funds for members aged 55 and over
## Footnote
This includes the option to take a tax-free lump sum.
28
Who must be enrolled in a workplace pension scheme under **automatic enrolment**?
* Employees aged 22 to State pension age
* Earning more than £10,000 a year
## Footnote
Employees can opt out after enrolment but will lose tax relief and employer contributions.
29
What happens if an employee opts out of the **automatic enrolment** scheme?
* Loses income tax relief
* Loses employer contributions
## Footnote
Employers must re-enrol them every three years regardless of opting out.
30
What is the **minimum total contribution** required for workplace pensions?
8%
## Footnote
This includes a minimum of 3% paid by the employer.
31
If an employer pays the minimum of 3%, how much must the employee contribute?
5% (effectively 4% after tax relief)
## Footnote
Contributions are based on earnings over £6,240 in 2025/26.
32
What is the **National Employment Savings Trust (NEST)**?
A pension scheme that complies with auto-enrolment rules
## Footnote
Any employer can join NEST to meet their auto-enrolment requirements.
33
What does **long-term care** refer to?
Care required by older people as they lose the ability to carry out everyday activities
## Footnote
This may include support at home or in a residential nursing home.
34
What are the two types of **long-term care insurance (LTCI)**?
* Pre-funded LTCI
* Immediate care LTCI
## Footnote
Pre-funded LTCI is currently not available on the market.
35
What is **immediate care LTCI**?
Bought with a lump sum when a client is assessed as needing care
## Footnote
It pays out a regular income for care costs.
36
What are the **factors affecting long-term care needs**?
* Age
* Health
* Existing financial planning
* State benefits
## Footnote
These factors influence the type and amount of care required.
37
What does **ADL** stand for?
Activity of Daily Living
## Footnote
ADLs are used to determine an individual's physical capabilities.
38
List the **six standard ADLs**.
* Washing
* Dressing
* Mobility
* Transfer
* Feeding
* Toileting
## Footnote
These activities are essential for assessing long-term care needs.
39
What is a **deferred payment scheme**?
An agreement with a local authority allowing payment for care home fees before selling a property
## Footnote
This helps individuals transition to care without immediate financial strain.
40
What is the typical **emergency fund** amount recommended for individuals earning?
Three to six months' expenditure
## Footnote
This fund provides financial security in case of emergencies.
41
What is the **short-term investment** timeframe?
Up to five years
## Footnote
This includes savings for deposits, holidays, and other immediate needs.
42
What does **medium-term investment** typically cover?
5–15 years
## Footnote
This timeframe may include saving for school fees or weddings.
43
What is considered a **long-term investment** timeframe?
15 years plus
## Footnote
Longer terms require careful maintenance and growth of value.
44
What are the main types of **deposit-based savings accounts**?
* Savings accounts
* Cash ISAs
* Notice accounts
* Fixed-rate bonds
* High-interest regular savings
## Footnote
These accounts return capital with interest and are low-risk for savers.
45
What is the maximum amount that can be saved in a **Cash ISA** per tax year (2025/26)?
£20,000
## Footnote
Cash ISAs may pay slightly lower interest due to their tax-free status.
46
What is a **fixed-rate bond**?
Money must be left in for one year or more
## Footnote
It often requires a minimum deposit and may involve penalties for early withdrawal.
47
What are some features of **savings accounts**?
* Interest rates
* Notice periods
* Minimum deposits
* Additional bonuses
* Restricted access
* How interest is added
* Access methods
* Tax-free savings
## Footnote
Different accounts have varying conditions and benefits.
48
True or false: **Banks, building societies, and NS&I** pay interest without deducting income tax.
TRUE
## Footnote
This is referred to as a gross payment.
49
What is the **starting-rate band** for savings income of 0%?
£5,000
## Footnote
This applies only if taxable non-savings income is not more than £5,000.
50
What is the role of **deposit-based savings** in financial planning?
To ensure money is available for emergencies
## Footnote
This helps avoid penalties and disruptions in longer-term investment strategies.
51
What are the three layers of understanding investments?
* Asset class
* Collective investment
* Tax wrapper
## Footnote
Each layer represents a different aspect of investment structure.
52
What are the four main **asset classes**?
* Cash
* Bonds
* Shares (equity)
* Property
## Footnote
A possible fifth class includes alternatives like cryptocurrencies and fine art.
53
What is a **collective investment scheme**?
A fund where investors' money is pooled together and managed by a fund manager
## Footnote
This allows for professional management and reduced risk through diversification.
54
What is the difference between **active** and **passive** investment management?
* Active: Fund manager buys and sells assets
* Passive: Tracks a market index
## Footnote
Active management aims for higher returns, while passive management aims to replicate market performance.
55
What type of investment is an **OEIC**?
Open-ended investment company
## Footnote
It allows for the creation of new units for new investors.
56
What is a **closed-ended fund**?
Has a set number of investment units and prices determined by supply and demand
## Footnote
Shares can trade at a premium or discount to net asset value.
57
What is the **benefit of pooling** investment monies in a collective investment scheme?
* Professional management
* Smaller investment amounts
* Reduced risk
* Cost efficiencies
* Wide choice of funds
## Footnote
Pooling allows for a broader range of underlying investments.
58
What is the **price of a share** determined by?
* Supply and demand
* Underlying value
## Footnote
Shares can trade at a 'premium to net asset value' or a 'discount to net asset value' depending on their market price.
59
What are the **types of corporate based funds**?
* OEIC/Unit trust: Open-ended
* Investment trust: Closed-ended
* Offshore funds: Mostly open-ended, but can be either
* UCITS: Subject to specific regulations
## Footnote
UCITS rules ensure diversification and prudent risk management.
60
What is the role of the **FCA** regarding UCITS schemes?
Imposes obligations on authorised fund managers
## Footnote
The FCA has retained the UCITS rulebook for UK domiciled funds.
61
What are the **benefits** of adopting UCITS regulations for fund managers?
* Access to a wider range of investments
* Ability to mix asset classes
* Limited use of derivatives
## Footnote
These benefits enhance investment flexibility and opportunities.
62
What are **Open-ended Investment Companies (OEICs)** also known as?
Investment companies with variable capital (ICVCs)
## Footnote
OEICs are a form of collective investment.
63
What must OEICs do if there are more sellers than buyers of shares?
Dispose of assets
## Footnote
This ensures liquidity for investors.
64
What is the **net asset value (NAV)** of a fund?
Value of underlying investments divided by number of shares in issue
## Footnote
NAV is crucial for determining share prices in open-ended funds.
65
Who is responsible for fund management in an **OEIC**?
Authorised Corporate Director (ACD)
## Footnote
The ACD is supported by a board of directors.
66
What is the role of the **depositary** in an OEIC?
Protects the fund’s assets and controls third parties
## Footnote
The depositary is independent of the ACD.
67
What are the two pricing systems OEIC managers can use?
* Single pricing system
* Dual pricing system
## Footnote
Each system has different implications for how charges are applied.
68
What is a **highly geared** investment trust?
A trust with a high level of borrowing relative to its share capital
## Footnote
Highly geared trusts can yield exceptional returns in rising markets but are riskier.
69
What happens when the market price of an investment trust is less than its net asset value?
Shares are trading at a discount to net asset value
## Footnote
This indicates lower market demand compared to the underlying asset value.
70
What is the typical **annual management fee** for investment trusts?
0.75%–1%
## Footnote
This fee is charged in addition to dealing costs.
71
True or false: Investment trusts must sell assets to pay shareholders who want to encash their investment.
FALSE
## Footnote
Shareholders sell their shares in the market instead.
72
What is the primary risk associated with **investment trusts** compared to unit trusts and OEICs?
Higher risk due to borrowing and market price volatility
## Footnote
This makes investment trusts more susceptible to market fluctuations.
73
What is the only **trust based collective investment** in the UK?
Unit trust
## Footnote
Unit trusts are established by a trust deed outlining investment objectives and restrictions.
74
What do **trustees** do in a unit trust?
* Hold the trust’s assets
* Ensure managers do not breach rules
* Remove a manager in case of serious breach
## Footnote
Trustees act on behalf of the investors.
75
What are the responsibilities of **trust managers** in a unit trust?
* Marketing the trust
* Managing the assets
* Maintaining the unit holder register
* Performing reporting requirements
## Footnote
Managers run the commercial side of the investment.
76
What are the two main types of **units** that can be bought in a unit trust?
* Income units
* Accumulation units
## Footnote
Income units distribute income regularly, while accumulation units retain income for reinvestment.
77
In a **dual pricing system**, what are the two prices quoted?
* Buying price
* Selling price
## Footnote
The selling price is usually 4-5% below the buying price.
78
What is the **annual management charge** range for unit trusts?
0.5–1% per annum
## Footnote
This charge may vary based on underlying assets and special functions.
79
What is the **tax-free dividend allowance** available to everyone?
£500
## Footnote
Above this allowance, different tax rates apply based on taxpayer status.
80
What are the tax rates for dividend distributions above the allowance for different taxpayer categories?
* Basic-rate: 8.75%
* Higher-rate: 33.75%
* Additional-rate: 39.35%
## Footnote
Dividend distributions from equity-based collectives are paid gross.
81
To pay **interest distributions**, what percentage of investments must a unit trust or OEIC hold in interest-bearing investments?
At least 60%
## Footnote
Interest distributions are also paid gross.
82
What is the **tax-free Personal Savings Allowance (PSA)** for basic-rate taxpayers?
£1,000
## Footnote
Interest above this is taxed at 20%.
83
What is the tax rate for higher-rate taxpayers on interest above their PSA?
40%
## Footnote
Additional-rate taxpayers pay income tax on interest at 45%.
84
What happens to **internal capital gains** made by fund managers within collective investments?
Exempt from tax
## Footnote
Capital gains tax may apply to profits made by investors upon selling their investment.
85
What are **offshore funds**?
Funds based outside the UK
## Footnote
Some are authorized in the UK while others face marketing restrictions.
86
What is an **Individual Savings Account (ISA)**?
A tax wrapper for investments
## Footnote
Assets within an ISA are free from capital gains and income tax.
87
What types of investments can be held in an **ISA**?
* Unit trusts
* OEICs
* Investment trusts
* Individual shares
* Bonds
## Footnote
ISAs offer advantageous tax treatment.
88
What is the maximum annual subscription limit for ISAs for the tax year 2025/26?
£20,000
## Footnote
Only £4,000 can be placed in a Lifetime ISA (LISA).
89
What is a **Junior ISA (JISA)**?
A tax-free savings account for children
## Footnote
Funds cannot be withdrawn until the child reaches 18.
90
What is the maximum investment allowed in a **Junior ISA** for the current tax year?
Up to £9,000
## Footnote
This can be split between cash and stocks and shares JISA.
91
What are the two basic types of **with-profits policies**?
* Conventional (bonus based)
* Unitised
## Footnote
With-profits policies aim to smooth investment returns.
92
What is the purpose of a **terminal bonus** in a with-profits policy?
To reward investors for sticking with the policy
## Footnote
It reflects increases in the underlying with-profits fund.
93
What is an **endowment policy**?
A regular premium life insurance policy for a fixed term
## Footnote
It pays out on maturity or earlier death.
94
What must a policy be to pay out free of income tax in an endowment policy?
A qualifying policy
## Footnote
The sum insured must be a minimum of 75% of the premiums paid.
95
What are **mortgage endowments** commonly used for?
* Paying off interest-only mortgages
* Providing life cover to repay the mortgage if the investor dies
* Aiming to repay the mortgage at the end of the term
## Footnote
Mortgage endowments have lost popularity, but some investors may still have existing policies.
96
What is a **maximum investment plan (MIP)**?
A type of **savings endowment** offered by life companies, limited to total premiums of £3,600 per annum
## Footnote
Savings endowments can be held for specific savings goals or general investment.
97
What are the tax advantages of **friendly society savings plans**?
* No shareholders
* Tax-free growth on income and capital gains
* Savings limit of £25 a month or £270 a year
## Footnote
Friendly societies are mutual associations.
98
What is a **life insurance bond** also known as?
Investment bond
## Footnote
It is a single premium whole of life insurance policy that includes a small amount of life cover.
99
True or false: **Investment bonds** can be qualifying policies.
FALSE
## Footnote
Qualifying policies require yearly premiums, while investment bonds are funded by a lump sum.
100
What is the **5% tax deferred cumulative allowance**?
Withdrawals of 5% or less for each year without immediate tax consequences
## Footnote
Unused allowance can be carried forward.
101
What are **chargeable events** in the context of life insurance bonds?
* Death
* Assignment for money or money’s worth
* Maturity
* Partial surrender above the 5% cumulative allowance
* Surrender
## Footnote
Chargeable events can lead to a tax charge.
102
What are the variations of **investment bonds**?
* Unit-linked investment bonds
* Guaranteed income bonds
* Guaranteed growth bonds
* Distribution bonds
* Stock market linked income and growth bonds
## Footnote
Each type has different characteristics and tax treatments.
103
What is the **risk rating** for **low risk** investments?
* With-profits funds
* Gilt funds
* Fixed-interest funds
* Index-linked funds
## Footnote
These investments are considered low risk.
104
What are the **rewards** associated with collective investments?
* Slow and steady growth (with-profits)
* Greater potential for medium to long-term growth
* Potential for fast profits (emerging markets/technology)
## Footnote
Higher potential rewards come with increased risk.
105
What is the typical **minimum term** for an investment that can vary in value?
Five years or more
## Footnote
Shorter terms may not be suitable due to potential fluctuations in capital value.
106
What are some **medium-term uses** of collective investments?
* Diversification of assets
* Provision of real growth above inflation
* Provision of income
## Footnote
Medium-term investments can include ISAs, insurance bonds, and unit trusts.
107
What types of investments are particularly suitable for **long-term capital growth**?
* ISAs
* Lump sums into life insurance bonds
* Regular premium life insurance policies
## Footnote
Long-term investments help preserve capital against inflation.
108
What is a **platform** in investment terms?
A service that allows investments to be held and dealt with conveniently
## Footnote
Platforms provide access to a wide range of investment funds and simplify administration.
109
What is a **platform** in the context of investments?
A service that allows investments to be held and dealt with more conveniently
## Footnote
Platforms offer access to a wide range of investment funds or collective investments.
110
List the features of **investment platforms**.
* Single fee across all accounts
* Improved transparency on costs
* Reduced paperwork and simplified administration
* Wide choice of investment funds
* Access to tax wrappers
* Asset allocation across tax wrappers
* Consolidated valuations, income and gains statements
* Access to online valuations
* Adviser fees deductible from cash accounts
* Automatic re-balancing of portfolios
## Footnote
These features enhance the convenience and efficiency of managing investments.
111
How do **investment platforms** benefit advisers?
* Better perspective on client's portfolio
* Easier holistic financial planning
* Streamlined, cost-efficient service
* Reduced costs of managing diverse portfolios
## Footnote
Advisers can provide a more transparent service due to consolidated management.
112
How do **investment platforms** benefit clients?
* Access to valuations on demand
* Consolidated tax statements
* Tools for portfolio modeling and goal planning
## Footnote
Clients can project future portfolio values based on various assumptions.
113
What is the focus of **conventional investing**?
Generating financial returns through investing in companies expected to perform well
## Footnote
ESG factors may be considered, but the primary focus is on financial returns.
114
What does **sustainable and responsible investing** enable clients to do?
Reflect their views on environmental, social, and ethical issues through investments
## Footnote
This approach encompasses a wide range of sustainability issues.
115
What are **ethical issues** in investing typically related to?
Personal values
## Footnote
Topics often include armaments, tobacco, gambling, and adult entertainment.
116
What distinguishes **sustainable funds** from other types of investing?
Significant attention to environmental and social issues
## Footnote
Sustainability issues influence investment decisions alongside standard financial analysis.
117
What is involved in **responsible ownership or stewardship activity**?
Fund managers working with companies to encourage higher standards
## Footnote
This activity aims to improve financial outcomes.
118
What is **estate planning** primarily concerned with?
Managing the disposal of an individual's property in anticipation of their death
## Footnote
It includes considerations for inheritance tax (IHT) liabilities.
119
What does **IHT** stand for?
Inheritance Tax
## Footnote
It is a tax paid on death and on some lifetime transfers.
120
Who is potentially liable to pay **IHT**?
* Anyone who is UK domiciled
* Long-term residents of the UK
## Footnote
IHT is based on the value of an individual’s worldwide assets.
121
What is the **nil rate band (NRB)** for the estate in 2025/26?
The first £325,000 of an estate is covered by the NRB and taxed at 0%
## Footnote
A further £175,000 is available under the residence nil rate band (RNRB) for estates passing the main residence to direct descendants.
122
What is the **residence nil rate band (RNRB)**?
An additional £175,000 available to estates where the main residence is left to a direct descendant
## Footnote
It is also available for those who downsized after 7 July 2015.
123
When does a potential liability to **IHT** typically arise?
* On death
* On certain lifetime transfers (gifts)
## Footnote
Advisers should identify potential tax liabilities as part of financial planning.
124
Name the **three main ways** to reduce the impact of **IHT**.
* Organising an estate to reduce liability
* Providing money to cover the liability
* Investing in products with reduced IHT liability
## Footnote
Examples include trusts and life policies.
125
What happens if an estate is left to a **UK domiciled/long-term resident spouse**?
No IHT is payable
## Footnote
However, amounts exceeding the NRB and RNRB left to others may be taxed at 40%.
126
What is a **potentially exempt transfer (PET)**?
A gift that is not subject to IHT at outset and becomes fully exempt if the donor survives for seven years
## Footnote
The gift must be irrevocable and part of a long-term planning strategy.
127
What is the **advantage** of a spouse electing to be treated as a long-term resident for **IHT** purposes?
Availability of the full spouse exemption
## Footnote
This means the spouse is taxed on their worldwide property.
128
What is a common type of policy used to cover **IHT** liabilities?
Whole of life policy written on a last survivor basis
## Footnote
It is placed in trust to keep proceeds outside the estate.
129
What is the impact of the **Autumn Budget 2024** on unused pension savings?
From 6 April 2027, unused pension savings may be included in the estate for IHT purposes
## Footnote
This change could subject unused pensions exceeding the IHT threshold to tax.
130
What is **tax mitigation**?
Legitimately arranging affairs to pay less tax
## Footnote
It is different from tax evasion, which is illegal.
131
What are some **tax concessions** that attract clients?
* Tax concessions on ISAs
* Tax reliefs on pensions, VCTs, EISs, SEISs
* Benefits free of taxes on certain policies
## Footnote
These factors can influence an adviser’s recommendations.
132
What is the **maximum amount** that can be passed to children or grandchildren under the **NRB**?
£325,000 at 0% IHT
## Footnote
Assets passed to a spouse/civil partner are exempt.
133
What happens to the **NRB** if the first partner dies and leaves their estate to the second partner?
The second partner inherits their own NRB plus the unused NRB of the first partner
## Footnote
This can total £650,000 if the full NRB is unused.
134
What is the role of **trustees** in relation to life policies written under trust?
Trustees hold the policy for the benefit of named beneficiaries
## Footnote
They ensure the deceased’s wishes are carried out.
CII CF1 2025-26
flashcards
Decks in class (13)
# Cards
