KnowR0 1

Why an employer likes paying bonuses into pensions instead of a direct payment

Employer & employee would not be subject to national insurance

Bonus sacrifice is effective in same way as salary sacrifice

small pots example

3 PP’s

£3k

£7k

£12k

only £3k & £7k would be used

3+7 =10,000

25% is TF = £2,500

Remaining 75% is taxed at marginal rate (20%)

7,500 × 20% = £1,500

Would get = £10,000 - £1,500

= £8,500

Unauthorised payment

Unauthorised payment charge = 40%

Doesn’t matter who made the mistake - charge applies to person payment made to

Unauthorised payment surcharge

Surcharge applies if the value of the loan or whatever is more than 25% of the overall fund value

• I.e. - £50,000 loan from SIPP with value of £400,000 - less than 25%

Spreading of contributions

3 steps

1) Is contribution more than 210% of previous yr - If yes go to step 2

2) Take last yrs contribution and multiply by 110% and see if excess is above £500,000 = X

3) Original contribution - X = answer then see which period it falls into

Spreading example

Contribution last year- £580,000

Contribution this year - £2,600,000

£580,000 × 210% =£1,218,000.00

New contribution is bigger than that so next step

£580,000 × 110% =£638,000.00

To see if excess is above £500,000 do

£2.6m - £638k = £1.962m

Excess is above £500,000

Now last step put that £1.962m into a period = 3 year band

2 charges to pay after death of pension scheme member

• Income tax - on anything above LSDBA

• Special lump sum death charge - if funds aren’t designated within 2 yrs

Tax treatment of a dependents scheme pension

Taxed at marginal rate regardless of age of death

Tax treatment of QROPS withdrawals

Tax-free if the withdrawal is below specified threshold

• £100,000

Maximum fine from TPR

If it’s not serious under their ‘high fines policy’

• Individual = £5,000

• Company = £50,000

PPF entitlement

It haven’t reached NRA at time scheme enters PPF = 90%

If have reached NRA = 100%

Escalation

• Pre 1997 benefits = No benefits

• Post 1997 benefits = increases

Income Payments Order

If you’re bankrupt - the court forces you to use part of your income to repay creditors

• State pension can’t be touched

• Private pensions can (annuities, drawdown etc)

2 actuary responsibilities in DB schemes

• Calculate level of premium needed

• Certify schedule of contributions is consistent with statutory funding objective

What would teachers who joined the scheme prior to 2015 get

Will receive benefits from 2 DB structures:

• A final salary for service up to 2015

• And a career average basis for service from 2015

What would the salary be based on for final salary benefit of teachers who joined scheme prior to 2015

The higher of:

• Final salary in last year of teaching

  Or

• An average of the best 3 years from last 10 years

What benefits would a public sector worker who is forced to retire before NPA get

Get the accrued pension plus the pension they would have earned up to NPA

Set against final salary

Maximum allowed annual charges for occupational default funds

0.75%

Set by TPR

Why might a dependents pension be reduced lower than 50%

If they are substantially younger

Tax treatment of UFPLS payments

25% TFC

75% Taxable (marginal)

To be entitled to any new state pension you need

10 years worth of National insurance credits through:

• qualifying years (working)

• NIC credits - like carers allowance

What can affect your starting/foundation amount for state pension

Can start on less if:

• Have significant contracted out benefits (GMP)

How do all additional state pension (including SERPS) increase

Increase with CPI only and not provide widows benefit

Trust based schemes

• Higher cost to operate than contract

• Trustees will receive advice when choosing funds

• Use Net Pay method

SSAS vs SIPP

SSAS

• Trust based

• Can invest in commercial

• Liable to stamp duty on purchase of property

SIPP

• Contract based

• Can invest in commercial

• Liable to stamp duty on purchase of property

If someone is 68 and has some funds uncrystallised. The max income she can take from her capped drawdown will be revived when

• She designates further funds

• The scheme administrator agrees to an interim review on request

  they choose to purchase a lifetime annuity from drawdown funds

Annual reviews take place when hit 75 yrs old

Lifetime annuity death benefits

• Designate to FAD (drawdown as much or little TFC as want)

• Continue payment (if a guarantee period)

• Can purchase a short term annuity (max 5 yrs)

Benefits of purchasing fixed interest securities

• Hedge against annuity

• Match her investment horizon