Basic State Pension

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c. 1. Defined Benefits is also called Final Salary Occupational Pension Plan.

2. There are three conditions have direct relation. Firstly is the employee retirement’s final salary. Secondly, they leave their job’s final salary. Thirdly is the length of employee work time in the enterprise. The pension amount is as a proportion of relevant final salary. DB benefits= final salary* 1/60 * working year. Final salary is a year’s or three years’ average salary before the retirement, it depends on company’s specific rules. 1/60 is fixed index, working years is the length of serving.

3 To guarantee to get fixed sum pensions, generally payment is used by lump sum and annuity.

4. The employer undertakes financial risk, the employer need to pay the rest and if the pension’s final benefits lack.

5. Defined Benefits is suit for long-serving employee.

Question 4: Personal Pensions Scheme 个人养老金

- 1. In-House Additional Voluntary Contributions is also called Additional Voluntary Contribution. It can increase the value of pension fund and later pension account amount, or it may provide additional benefits.

Mani has two choices for payment that a lump sum and salary deduction. It is arranged by employer, the Mani chooses one to pay for employer.

2. Another is Free-standing Additional Voluntary Contributions. The method of payment is the employee choose the third company and choose to suitable products for themselves, the employer do not provide sponsorship and all expense is paid by employee.

b. 要结合案例 AVC advantage is more cheap than FSAVC, due to the employer will pay for part of expenses. But its disadvantage is most of employer can not provide in-house AVCs after April 6th 2006, so now the employee can not enjoy it.

FSAVCs advantage can accumulate if the employee changes their job and only their OPP is not stopping. So the employee can enjoy it and they need to pay OPP constantly. The disadvantage is expensive than in-house AVCs, due to the employee need to pay all expenses and the employer can not pay any expense.

- There are four restrictions to receive. Firstly, personal pension enjoy tax relief, it is tax free and the employee use it pay personal pensions is after taxable income, so the government can receivable tax return for personal pension account.

Secondly, for low earnings or no earnings people who at most allow to pay personal pension is ￡3600 per annual.

Thirdly for over ￡3600 annually and they can enjoy 100% tax relief for personal pensions, it is specific to increase the marginal tax rate in 2014/15. Marginal tax rate= ￡31865+personal pension total amount. Personal pension total amount= personal pay the personal pension amount add to government tax relief.

Last is the highest limit to tax relief is second cap, which is also called to annual allowance. From April 6th 2014 is ￡40,000 and over is not enjoy the tax relief.

In this case, if Mani enjoy annual allowance ￡40,000 and he cannot enjoy tax relief. But if Mani is not getting annual allowance ￡40,000 and he can enjoy tax relief.

Question 5 存托养老金

- Stakeholder Pension Plan depends on investment amount, fund performance and annuity rates to convert. The annuity rates to convert are taking amount ratio from pension account annually. Most of stakeholder pension account, 55 years old can take a lump sum and annuity is from insurance provided.

There are same places. At first, Stakeholder Pension Plan is a type of Defined Contribution, and it is an investment way to increase the earnings after the retirement. Under 75 years old people can purchase and last is purchase channel is wide and convenient, the insurance company, high street bank and the third investment company can purchase.

Secondly, new policies about trivial commutation limit in 2015, the age is over 60 years old and the pension amount is low ￡30,000, which account amount can take our as tax free lump sum. For some small pension pots allow to take out upper limit from ￡2000 up to ￡10000 as tax free cash. Besides, it allows take the lowest secured pension income from ￡20,000 down to ￡12,000.

Thirdly, it depends on investment amount, fund performance and annuity rates to convert. The annuity rates to convert are taking amount ratio from pension account annually. Most of stakeholder pension account, when 55 years old can take it. The methods have a lump sum or max tax free lump sum, and annuity. The low limit is 25% * value of total benefits at retirement or standard lifetime allowance, the allowance is ￡1.5 billion in 2013/14.

However, it has different places. Stakeholder Pension Plan protects low earnings vulnerable groups, such as women, children and elders, and middle class. The government rule the lowest standard.

The charge is lower. First 10 years max charge is 1.5% plus pension amount. Then the charge is less 1%. The participant can stop or transfer pension anytime without surcharge or penalties. The payment is freedom, it can more or less and the lowest lump sum only over or equal ￡20.

- In this case, Sunita is a self-employed, she is career coach and earnings are ￡32000. Her job and earnings are not stable, so her payment is free that she can stop or transfer pension anytime without surcharge or penalties. If she makes more, she will pay more. But she make less and she can pay the lowest lump sum is over or equal ￡20. Overall, the stakeholder pension is suit for Sunita.

Question 6 Annuity

- The DC, Personal Pension and SHP must be taken by annuity. The payments depend on annuity rates and investment and funder amounts. The lifetime annuity is provided by insurance company, the company is paid by fixed date. The payment frequency period is usually as months, quarters and half or one year. The maximum drawing pension amount cap is by equivalent annuity from 120% up to 150%.

- If oneself happen to accident and dead, the contract with insurance for parts or all of annuity to be taken by surviving spouse. Set the mini periods, such 5 or 10 years, if the person death in this duration, it is still to surviving spouse or inheritors.

In this case, if one of the Kris and Ken pass away and the annuity has rest, the surviving person or legal inheritors will take it.

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