Policyholder Taxation

Not necessarily: premium levels may vary for other reasons e.g. may be scheduled to increase during the policy's premium payment period, or (for a unit-linked product) policyholders may be allowed to pay in higher amounts at different stages of the policy. There is an example of this at the end of Section 2.1 of Chapter 5 of the course notes.

Policyholders can take the tax-free cash and simultaneously enter into a drawdown arrangement or purchase an immediate annuity (or take it all as lump sum cash) at any age from 55 onwards: it doesn't have to be at age 55 exactly. Once they have entered into a drawdown arrangement, they can start to take income immediately. Once they have purchased an immediate annuity, they will start to receive the payments straight away (hence "immediate" annuity).

They mean the same thing. [The word "full" is sometimes inserted to emphasise the difference between policies (such as general annuities) where the benefits are taxed at the marginal rate, and policies (such as non-qualifying life insurance business) where the benefits are taxed at the marginal rate less the lower rate, but in both cases "marginal rate" and "full marginal rate" mean the same thing: the highest band of tax into which the policyholder's income falls.]

 

Yes, broadly speaking (an accumulated premium equivalent) - but you are not required to know how the capital content for a deferred annuity is determined as this is not included in the Core Reading.

 

A fair question! However, some individuals do choose to move some of their funds into income drawdown arrangements but still to make pension contributions to a remaining defined contribution pension scheme. Bear in mind that most individuals have more than one pension arrangement, particularly where they have changed employers. At or after age 55 they may choose to start to drawdown from one or more of these in order to supplement their employment income, but also may decide to continue to make pension contributions in another, for example in order to benefit from an additional employer contribution.

Pensions can be somewhat messy - speaking from experience!

 

Yes - this is correct: you have to apply both rules. Start with the personal allowance, which states that you can only contribute up to a maximum of your taxable earnings (or £3,600 if higher), which would be £100,000 in your example.

You then have to apply the second rule, the annual allowance, which currently limits contributions to £40,000. So the overall maximum that this example person could pay in a year is £40,000, as you say.

[The annual allowance used to be much higher, and in fact up to 2010/11 it was consistently more than £200,000. It has been brought down significantly in more recent years as a means of reducing the tax advantages of pension savings for those on higher earnings.]