1
Q
Drawdown Pensions: Capped Drawdown
When does the scheme administrator get a 60 days window to complete the basis re-calculation?
A
- When the member reaches their 75th birthday
The new valuation date does not change the reference date or the pension year
2
Q
Drawdown Pensions:
What are the two types of drawdown pension and when were they available?
A
- Capped drawdown, only available to people who were already in capped drawdown on 5th April 2015
- Flexi-access drawdown, only available to people commencing drawdown from 6th April 2015
3
Q
Drawdown Pensions: Capped Drawdown
Explain what the reference date is when referring to capped drawdown income limits
A
- The date in which funds were designated into the capped drawdown.
- this is the date on which the basis amount is calculated
- it is also known as the first day of the pension year
4
Q
UCFPLS
What are they ways UCFPLS can be taken?
A
- All uncrystallised funds as 1 lump sum
- A series of UFPLS spread over time
- Part of the fund as 1 or more UFPLS with the remaining being places in a lifetime annuity or flexi-access drawdown
5
Q
Small Pots & Trivial Commutation: Trivial Commutation
What happens if a member does not start to commute their benefits within 3 months of the nomination date?
A
- They can chose another nominated date and start the process again
6
Q
Small Pots & Trivial Commutation: Trivial Commutation
What happens if a trivial commutation death benefit is more than £30,000?
A
- £30,000 will be paid out as a trivial commutation death benefit and the surplus will (if there is no other form of authorised payment possible) be unauthorised and taxed accordingly.
there is no timescale for the payments to be made
7
Q
Drawdown Pensions: Capped Drawdown
How many times can a pension year of an arrangement for capped drawdown be changed?
A
- Once only
8
Q
Secured Pension Options: Scheme Pension
What are the 3 ways a scheme pension provides benefits following a members death?
A
- A dependents scheme pension
- A guarantee period
- A lump sum death benefit
9
Q
Compliance Requirements: COBS
When were critical yields first introduced?
A
- In 1990
10
Q
Drawdown Pensions: Flexi-Access Drawdown
Is the automatic conversion of a flexible drawdown to a flexi-access drawdown a trigger event for the MPAA or a BCE?
A
- Yes it is an automatic trigger for the MPAA rules
- No, it is not a BCE as they previously had one
11
Q
Secured Pension Options: Scheme Pension
Explain the lump sum death benefit options and what type of schemes they are payable from
A
- DB lump-sum death benefit: Only payable from a DB scheme
- Pension protection lump sum: Only payable from a scheme pension that arises from a DB
- Annuity protection lump sum: Only payable from a scheme pension that arises from a MP scheme
12
Q
Secured Pension Options: Scheme Pension
Explain the rules of a guarantee period for a scheme pension
A
- A term of no more than 10 years (often referred to as a ‘term certain’)
- The recipient can be anyone, friend, family etc
- Is possible to commute under trivial commutation lump sum rules
13
Q
Secured Pension Options: Scheme Pension
What is the format for continuing income for a dependent on DB schemes and MP schemes?
A
- DB schemes: No choice on the format of income
- MP schemes: Must give the choice of purchasing dependents annuity
14
Q
Secured Penson Options: Lifetime Annuities
What are the two main differences in the HMRC requirements for lifetime annuities purchased on or after 6th April 2015?
A
- 10-year limit guarantee removed
- Can reduce by more than the amount prescribed by HMRC
15
Q
UFPLS
When can a member not take an UFPLC specifically from an uncrystallised fund (where they usually can)?
A
- Where a member has primary or enhanced protection that gives more than £375,000 lump sum protection
- scheme specific tax-free cash that gives more than 25%
- An LTA enhancement factor where lump sum allowance is less than 25%
16
Q
Secured Pension Options: Lifetime Annuities
What are the main ways lifetime annuity payments can fluctuate?
A
- Indexation
- With profit variations
- Indexation / With profit combinations
- Selected rates of growth linked to the above 1,2 or 3
- Flexible withdrawals
17
Q
Compliance Requirements: COBS
What is Type A critical yield and what is Type B critical yield?
A
- Type A: The growth rate needed to provide an income equal to that on an equivalent annuity
- Type B: The growth rate needed to provide a selected level of income.
type A must be accompanied by type B
the regulator prefers type A to be client specific
18
Q
Scheme Pension Options: Lifetime Annuities
Explain the basics of the transfer of a lifetime annuity
A
- HMRC allow a lifetime annuity to be transferred
- However, there are no requirements for the insurance companies to either make or accept such transfer
- The two insurance companies need to agree on the value of the annuity first
- The terms of the annuity can be re-shaped
any pre-2015 lifetime annuities can only be transferred to a conventional lifetime annuity and not flexible ones.
19
Q
Secures Pension Options: Lifetime Annuities
What type of pension scheme funds can buy a lifetime annuity?
A
- They can only be purchased from money purchase funds
- They can be from crystalised or uncrystallised funds
- They can be from a capped drawdown fund or a flexi-access drawdown fund
20
Q
Drawdown Pensions: Capped Drawdown
GAD tables are based in 15-year gilt years for capped drawdown and a notional annuity which is..?
A
- Level in payment
- single life
- payable monthly in areas; and
- has no guarantee
21
Q
Secured Pension Options: Lifetime Annuities
What are the HMRC requirements for lifetime annuities purchased before 6th April 2015?
A
- Bought from an insurance company
- Payable at least once a year
- Payments stay level/up/down prescribed by HMRC
- Not allow payment of capital sum (other than annuity protection on members death)
- Not capable of assignment or surrender (unless under pension sharing order)
- could offer the option of a guarantee “no more than 10 years” or annuity protection lump sum
22
Q
UFPLS
When cant a member take an UFPLC?
A
- Cannot be taken from crystalised funds
- Cannot be taken from pension rights arising out of a pension credit where funds are already in payment
23
Q
Scheme Pension Options: Lifetime Annuities
Explain the rules of the guarantee period for a lifetime annuity and the differences compared to a scheme pension guarantee
A
- The rules are exactly the same as a scheme pension accept:
- The length of the guarantee period is now unlimited as opposed to 10 years
- The taxation of the income which depends of the age of the member at death
24
Q
Drawdown Pensions: Capped Drawdown
What else will trigger a recalculation of the basis amount for a capped drawdown?
A
- Part of the funds used to purchase a lifetime annuity or scheme pension
- Part of the fund used to enter flexi access drawdown
- Pension sharing order due to divorce
- Member designates additional funds
none of these have the 60 day window
25
_Drawdown Pensions: Short-Term Annuities_
What are the HMRC requirements to be classified as a short-term annuity?
* Must be purchased using funds held in a drawdown pension
* Must be payable by an insurance company
* Must hold a term for a maximum of 5 years
HMRC _does not_ limit the level payments can be reduced by
26
_Secured Pension Options: Scheme Pension_
What is the calculation for income being set up for a MP scheme pension and a lifetime annuity
Gross income x 20 + (PCLS) = Ans
*or*
Total funds including PCLS = Ans
27
_Drawdown Pensions: Transferring a contract_
Can a _capped_ drawdown contract when being transferred to another scheme ask to be converted into a flexi-access drawdown? What else will change?
* Yes
* Nothing, all dates stay exactly that same
28
_Secured Pension Options: Scheme Pension_
What are the 9 circumstances HMRC allow schemes to reduce annual payments?
* Ill health
* Reduction being applied to all members
* It was a bridging pension
* The scheme being wound up
* A consequence of pension sharing order
* Forfeiture if entitlement due to defrauding etc
* Court order
* Public service pension abatement reduction (NHS to NHS)
* Administrator paying annual allowance charge
29
_Drawdown Pensions: Transfering Drawdowns_
What are the requirements when transferring a drawdown pension to be recognised?
* All the sums and assets must be included in the transfer
* It must be placed in a new arrangement that holds no other funds or assets
30
_Drawdown Pensions: Capped Drawdown_
What are the main points when considering withdrawals under capped drawdown?
* Subject to a maximum level of income but no minimum
* Maximum expressed as a % of an equivalent annuity that could be purchased
* The equivalent annuity is known as the basis amount
* Maximum income level is set at 150% of the basis amount
* Based on 15-year gilt yields (unless under 23)
31
_Small Pots & Trivial Commutation: Trivial Commutation_
What is the trivial commutation lump sum death benefit limit?
* for the death benefit, it is £30,000 _per scheme_
32
_Drawdown Pensions: Capped Drawdown_
What is the date that the minimum GAD rates changed to 0% and what was the previous minimum rate?
* 1st of July 2017 it changed to 0% and it was previously 2%
33
_Secured Pension Options: Scheme Pension_
What are the HMRC requirements to qualify as a scheme pension?
* Paid for the life of the member
* Paid at least annually
* Not possible to reduce accept in limited circumstances
* Paid by scheme administrator or insurance company
34
_Phased Retirement:_
What are the 4 methods of phasing retirement available since 6th April 2015?
* Phased annuity purchase
* Phased capped drawdown
* Phased flexi-access drawdown
* Phased taking of UFPLC
35
_Secured Pension Options: Scheme Pension_
What can a dependants scheme pension and survivors annuity NOT include?
* A guarantee period; or
* Any form of pension protection death benefits
36
_Drawdown Pensions: Flexi-Access Drawdown_
What is a successor? What does the new pension flexibility help with
* A successor is someone chosen by a previous survivor.
* This means pension funds are a very useful tool for IHT planning as the money can be passed on unlimited times.
37
_Drawdown Pensions: Capped Drawdown_
When would a 3 years review period for a capped drawdown remain in please until?
* Request to end the reference period by the member and approved by the scheme administrator
* Member informs administrator of wish to convert to flexi-access drawdown
* Whole fund used to purchase a secure income
* member dies
* member reaches 75
38
_Compliance Requirements:_
What are the risk factors involved in the sustainability report?
* Capital value of fund may be eroded
* investment returns may be less than shown on illustration
* annuity or scheme pension rates may be worse level in the future
* levels of income provided may not be sustainable
* there may be tax implications
39
_Drawdown Pensions: Risk_
Drawdown funds should only be used to provide regular income when the pension funds exceed what amount?
* £250,000
40
_Drawdown Pensions: Short Term Annuities_
Is it possible to transfer a short-term annuity?
* Yes! Exactly the same rules apply as a lifetime annuity
41
_Secured Pension Options: Scheme Pension_
How do you calculate the maximum lump sum death benefit and annuity protection lump sum death benefit that can be paid?
Crystallised amount of scheme pension or annuity for LTA purposes
**(less)**
Gross amount of scheme pension already paid to the member
42
_UFPLS_
Explain the impact of IHT when someone takes an UFPLS
* It will now form part of their wealth for IHT
* Where all or part is gifted it will be a transfer of value for IHT purposes
* The impact after gifting will last for 7 years
43
_Secured Pension Options: Lifetime Annuities_
Explain what **enhanced** annuities are
* Enhanced annuities offer higher rates for individuals with certain medical conditions or lifestyles such as diabetics or smokers.
this is done on an automatic basis using a points system, therefore, no medical examination is required
44
_Secures Pension Options: Lifetime Annuities_
What type of individuals are lifetime annuities most suited too?
People who:
* Have a low attitude to risk Have low or no capacity for loss
* Need guaranteed income
* Have no desire to manage the investment
* Have a longer life expectancy
* Have a medical condition that would quantify a higher annuity rate
45
_Secured Pension Options: Scheme Pension_
How does a **dependents** scheme pension differ from a members scheme pension?
* Does not have to be paid for the life of the dependent
* Does not have to be paid annually
* Can be reduced at any time in accordance with the rules
* Does not need to start as soon as the member dies
* Not possible to commute for lump sum EXCEPT on the grounds of triviality
46
_Drawdown Pensions: Risk_
What is the gain known as in Mortality Gain?
* Cross Subsidy
47
_Secured Pension Options_
What does EPP stand for and is it an occupational or non-occupational pension?
* Executive Pension Plan
* It is an occupational pension
48
_Secures Pension Options: Lifetime Annuities_
What quantifies the level of income provided on an annuity?
How is the annuity rate decided?
* Size of the fund purchasing the annuity and the annuity rates available
* The members age and the options selected (eg guarantee period, survivors pension)
49
_Compliance Requirements: Advisor Knowledge_
What does an advisor only need _awareness_ in?
* Financial strength
* Types of annuity
* advantages of occupational schemes
* structure of investment funds
* developments affecting the market
50
_Drawdown Pensions: Risk_
What are the main risks when considering drawdown pensions?
* Mortality risk
* Investment risk
* Charges
* Annuity Risk
* Depletion of the fund
51
_Drawing Pension Benefits_
What are the minimum ages for drawing benefits from pensions?
* 55 now
* Rising to 57 in 2028
52
_UFPLS_
Under HMRC rules how many UFPLCs can be taken?
* There is no limit to the amount of UFPLS that can be taken
53
_Secured Pension Options_
Name the _drawbacks_ of paying a scheme pension directly from the scheme's assets
Drawbacks:
* Payments must be made whatever funding position
* Member may live longer than expected, cost for extra payments
* Scheme retains longevity and investment risk
* Additional admin fee
54
_Phased Retirement:_
What are the 2 main ways a member can phase their retirement?
* Crystalise part and then gradually crystalise over time
* Have separate policies, crystalised at different times know as segmentation
55
_Secured Pension Options: Scheme Pension_
Who can receive **continuing income** from a scheme pension after the member dies?
* Only a dependent can receive continuing income from a scheme pension
* i.e. a spouse, child or disabled child over 23
56
_Secured Pension Options: Scheme Pension_
Does HMRC allow "phasing in" of a scheme pension?
* Yes, however, the individual scheme will decide whether to offer this facility or not.
57
_Secured Pension Options: Lifetime Annuities_
Explain the main difference between **with-profit annuities** and **unit-linked annuities**
* There is no smoothing out with a unit-linked annuity
58
_UFPLS_
When can a member take an UFPLC?
* Can only be paid from uncrystallised funds in a MP plan
* Must have reached normal mim pension age, protected age, or ill health
* Member below 75 must have LTA allowance great than amount
* Member above 75 must have some LTA left
* Must crystalise ALL funds and remaining put into a flexi-access or lifetime annuity
59
_Drawdown Pensions: Flexi-Access_
What are the 3 ways someone can enter flexi-access drawdown?
* Designate uncrystallised or unused funds into a flexi-access drawdown
* Switch from capped drawdown to flexi-access drawdown or take income that exceeds 150%
* Flexible drawdown prior to 6th April 2015 which automatically become flexi-access drawdown
60
_Compliance Requirements: Open Market Options_
When must a firm give a client an **open market options statement**?
* If a client asks for a retirement quotation 4 months before clients intended retirement date
* If a firm does not receive a request for retirement quotation, they must provide one 4-6 months before intended retirement date
* It a client is stopping income withdrawal **or** wishes to take a further sum of money for open market options, the firm must provide a statement unless one has already been provided in the last 12 months
* Must remind at least 6 weeks before the client intends on retiring
61
_Secured Pension Options: Lifetime Annuities_
When setting up the pension income from a lifetime annuity what is the member able to choose?
* The frequency
* How long their income guaranteed for
* How much annuity protection
* Level of survivors pension
62
_Secured Pension Options_
Explain the rules for DBs and MPs when it comes to secured pension options
* DB can only provide a scheme pension
* MP can provide a scheme pension but doesn't have to
* MP must first give the option of lifetime annuity
63
_Secured Pension Options: Lifetime Annuites_
What are the most expensive **options selected** when it comes to annuity rates?
* The _most expensive_ option to include is a "fixed income increase" followed by;
* Spouse/survivors benefit
* Annuity protection
* Guarantee period
64
_Drawdown Pensions: Short Term Annuities_
What are the death benefits of a short-term annuity?
* There is only one death benefit which is a guarantee period of no more than 5 years
dependants, nominees, successors, cannot include another guarantee period
65
_UFPLS_
What are drawdown pensions also know as?
* Unsecured Pensions
66
_Secured Pension Options_
Name the _benefits_ of paying a scheme pension directly from the scheme's assets
Benefits:
* No immediate outflow of capital
* Funds remain invested
* Option to secure income at a later date
* Benefits from mortality gain
67
_Secured Pension Options: Lifetime Annuities_
Explain what **impaired** life annuities are
* Where higher annuity rates are offered to individuals with lower than average life expectancy (usually less than 5 years) because they are suffering from particular medical conditions
a medical examination may be required
68
_Scheme Pension Options: Lifetime Annuities_
What are the 2 main factors affecting annuity rates?
* Long-term bond yields
* Longevity expectations
any individual choices they make also affect the annuity rates that are offered.
69
_Secured Pension Options: Scheme Pension_
When is a PCLS to be paid to a member and what are the requirement?
* Must be paid no earlier than 6 months before and no later than 12 months after the member becomes entitled to a pension
* Lump sum entitlement must be linked to the scheme pension entitlements
RO4
flashcards
Decks in class (2)
# Cards
