1
Q
APTA Process
A
Firm must do APTA prior to giving recommendation. Must include TVC.
No need for APTA if only guarantee is GAR.
Step 1: assess benefits likely to be paid and options available under ceding scheme
Step 2: compare results from step 1 with benefits and options of proposed scheme
- COBS to illustrate income likely to be paid from ceding scheme
- Tax implications
- Implications on state benefits
- Comparison: likely pattern of income
- Comparison: consistent
- Plan for reasonable period beyond life expectancy
- Income needs
- Prioritisation of objectives
- Charges
- TVC
2
Q
Describe the TVC
A
- mandatory element of APTA
- based on ‘risk free’ return of gilts, in order to compare ‘risk free’ income from DB
- 0.75% product charge, 4% annuity charge on purchase
- y axis: cash
- x axis: CETV and estimated cost of equivalent benefit from an insurer
3
Q
Explain triage services
A
- Giving facts about safeguarded and flexible benefits
- Explaining the requirement for advice and cost of advice
- Describing how safeguarded benefits would be suitable for general groups of people
- Explaining a CETV
4
Q
List BCE events and how they’re valued
A
BCE 1: age 75 - amount of unused funds
BCE 2: scheme pension - 20 x income
BCE 3: excessive increase to scheme pension - 20 x increase
BCE 4: lifetime annuity purchase - purchase price
BCE 5: DB age 75 - 20 x income plus lump sum
BCE 5B: age 75 - unused funds
BCE 5C: death benefits in FAD before 75 - fund value
BCE 5D: death benefit for lifetime annuity before 75 - purchase price
BCE 6: lump sum - amount of lump
BCE 7: lump sum death - amount of lump
BCE 8: overseas transfer - amount of transfer
BCE 9: adhoc payment - amount of payment
5
Q
Benefits and drawbacks of defined benefit pensions
A
Benefits
- Income
- Guaranteed and paid for life
- PPF protection
- Income will increase at least at statutory minimum - Death benefits
- Benefits can be paid to beneficiary
- If remaining instalments are less than £30k a they may be able to commute
- Dependent’s pension may be payable (typically 50%) - LTA - the following are not BCEs
- Payment of dependent’s scheme pension
- Payment of income in guarantee period
- Payment of pension protection lump sum - General
- Easy to understand
- No need for ongoing reviews (less costly)
- Doesn’t trigger MPAA
- No exposure to longevity, investment or sequencing risk
Drawbacks
- Income
- Once in payment, income cannot be varied
- If scheme enters PPF, benefits may be reduced or rate of escalation may be lower
- If member dies, income may cease - Death benefits
- Max guarantee period is 10 years
- Dependents pension always taxed at PAYE
- Scheme rules may be narrow about ‘dependent’
- Income paid to dependent may cease prior to death - LTA
- Further LTA tests can occur in payment (BCE 3) - General
- Inflexible
- Cannot pass through generations
- No ability to invest funds
6
Q
Benefits and drawbacks of lifetime annuities
A
Benefits:
- Income
- Secure and guaranteed for life
- 100% FSCS protection, no upper limit
- Can provide inflation protection - Death Benefits
- Remaining instalments under guarantee can be paid to anyone
- If remaining instalments are under £30k, can be commuted
- Level of protection can be selected - LTA
- On death of a member there is no test against survivor’s LTA - General
- Easy to understand
- No need for ongoing reviews so less costly
- Payment doesn’t trigger MPAA
- No exposure to investment, longevity, sequencing risk
Drawbacks:
- Income
- Once in payment, usually cannot be varied
- When member dies, payment will end (unless guaranteed) - Death Benefits
- Guarantees limited by cost
- Taxed as PAYE
- If beneficiary dies before member, wont be payable - LTA
- Value tested against LTA on purchase price (may be higher than DB equivalent) - General
- Inflexible
- Limited ability to pass through generations
- No ability to invest
- Cannot benefit from ill health increase if health worsens
- New spouse may not be paid
7
Q
Benefits and drawbacks of flexible options
A
Benefits:
- Income
- Full flexibility
- Full PCLS can be taken at outset
- PCLS can be taken flexibly to help with tax planning - Death Benefits
- Member can nominate anyone to receive death benefits
- Benefits can choose how to take benefits
- Can pass down generations
- Where member dies before 75 death benefits are paid tax free - LTA
- When member dies under 75 with crystallised funds, no BCE will occur
- When member dies after 75 with uncrystallised funds or funds in FAD, no BCE will apply - General
- Taking PCLS doesn’t trigger MPAA
- Ability to invest funds
- Outside estate for IHT purposes
- Flexibility
Drawbacks:
- Income
- All payment in excess of PCLS triggers PAYE
- Client takes longevity risk and possibility funds will run out - Death Benefits:
- Any UFPLS not spent will be in member’s estate for IHT
- After 75 or outside of 2 year window will be taxed at marginal rate
- Also applies to subsequent beneficiary
- If death benefits are taken as lump sum, will be in beneficiaries estate - LTA
- Where member dies under 75, there will be a BCE event - General
- Taking a flexible payment will trigger MPAA
- Investment/sequencing/longevity risk
- Cost (ongoing reviews)
8
Q
Definitions of:
- Dependent
- Nominee
- Successor
- Two year window
A
- Dependent:
- Widow/civil partner at time of death
- Child of member under 23 at date of death
- Child of member who was dependent on member due to mental/physical impairment
- Person who was, in the opinion of the scheme, financially dependent, on the member - Nominee
- Individual nominated by the member to receive benefits from the member’s pension plan upon death.
- If the member doesn’t make a nomination, the administrator can on member’s behalf - Successor
- Nominated by member to receive death benefits from flexi-access drawdown on death
- If no one is nominated, the administrator can on member’s behalf - Two year window
