Lifetime Allowance is likely to be tested on CII Pension Exams
A question that will often appear in both the CII pension exams at Diploma level, as well as those at Advanced Diploma level, is one that tests the lifetime allowance. It can also appear in the two financial planning papers, AF5 and R06, which is exactly what happened in July 2017. Learn more about the Lifetime Allowance so you’re prepared on exam day.
THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2019/20.
In the R06 paper, we were introduced to Laura, a 57-year-old who had the following:
- Contracted-in money purchase scheme (CIMP) – she stopped being a member on 5 April 2016. Fund value of currently £250,000 but valued at £210,000 on 5 April 2016.
- SIPP currently valued at £745,000 set up in December 2016 as a result of a transfer from a DB pension scheme. As of 6 April 2016, her deferred pension was valued at £27,000 per annum plus a PCLS of £50,000.
In respect of the client’s pension benefits, calculate, showing all your workings, the value of these benefits as of April 2016 for the purposes of the lifetime allowance. This question was for 4 marks.
The model answer was:
- 20 x £27,000 plus tax-free cash of £50,000
- £210,000 CIMP
- Giving a total of £800,000
All candidates really had to remember here was that entitlement to a scheme pension is valued as the scheme pension x 20 to which the lump sum is added and that values as at 5/4/2016 were used.A question that will often appear in both the #CII pension exams at Diploma level, as well as those at Advanced Diploma level, is one that tests the lifetime allowance. Click To Tweet
The second part of the same question asked:
Recommend to the client how she can protect her pension benefits from an excess lifetime allowance charge and explain briefly how the protection applies. This question was for 8 marks.
The model answer was:
- Fixed Protection 2016
- Receive up to £1.25m LTA
- No minimum pension value to apply/fund is less than £1m
- Contributions to all DC schemes must have ceased by 5 April 2016
- No further accrual allowed within DB schemes
- If Fixed Protection is lost, the member must inform HMRC within 90 days
- Not available if she already has Primary enhanced/previous Fixed Protection
Remember individuals can still elect for Fixed protection 2016 online, as there is no deadline date for applications.
The fact this question would be asked in the R06 paper was very clear as it was one of the given objectives: ‘protect Laura’s accrued pension benefits from being subject to a lifetime allowance tax charge’ so there was no excuse for anyone not being prepared for it. Other papers may not be so kind!
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