Question 1
Albert (age 64, date of birth 16/02/1959) is working as a planning consultant for the local council. Albert is a member of the Occupational Pension Scheme arranged on a Defined Benefit (DB) basis. His pensionable salary will be £60,000, Normal Retirement Age (NRA) is 65, he has 31 years of service, and the scheme offers a 1/80th accrual rate, RPI enhancement, and 50% widow’s benefit.
Albert is married to Emma who is 59 (date of birth 10/04/1965) and is a self-employed piano teacher and has no private pension. She earns about £25,000pa. Albert has 41 years of National Insurance contributions, while his wife has 21. Next year he is turning 65 and is planning to retire. Emma would like to retire with her husband.
Their son Thomas is 31 and he is working as a marketing officer in the local car company. Last year he was enrolled into the workplace pension scheme and when he enquired about it he was informed that the plan is arranged on Defined Contribution (DC) basis and both his and employer contributions are at the level required by law. He knows that his father has been a member of an Occupational Pension Scheme and is hoping to have similar pension entitlement.
Required:
A. Explain to Albert and Emma what pension income they will be entitled to when they retire and what are the financial consequences of retiring next year when Martin turns 65. Use your knowledge of both State Pension and Private Pensions to inform your answers. Would you advise the couple to retire as planned? What can they do to maximise their pension income in the future? Support your discussion with relevant calculations. Up to 250 words
(10 marks)
B. Contrast the private pension scheme available to Albert with that available to Thomas, highlighting how and why the differences might affect the value of their respective pensions expectations at retirement. Up to 250 words.
(10 marks)
Question 2
Sarah (30) is a successful physiotherapist working with wealthy clients in the West and North Bristol. She is single and has a three-year-old daughter. Sarah currently lives in a one-bedroom flat she rents in Northern Bristol, but she feels it is the right time to get her own property. She earns £43,000pa and has £14,000 worth of savings. Sarah would ideally want to buy a 2-bedroom flat and is willing to compromise on location as she often travels to see her clients anyway.
Required:
A.
i) Inform Sarah what is the maximum amount she can borrow and maximum property value she can purchase.
ii) Suggest strategies she needs to adopt to be accepted for a loan and be able to get on the property ladder within the next 12 months.
iii) Briefly explain the difference between fixed and variable rate mortgages and suggest, with reason, which one you would recommend her to consider.
Up to 360 words in total.
(13 marks)
B. Sarah’s cousin Samia started a new job a couple of months ago and noticed pension contributions being deducted from her take home pay. She does not understand what is happening with the money and what the point of making those payments is. Her employer informed her that she could opt out of these payments, which she is now considering.
Explain to Samia why she started paying contributions, and whether you would advise her to stop making contributions. Justify your answer. Up to 170 words
(7 marks)
Question 3
Karan is a 54 years old self-employed transport consultant living in north Bristol. He recently suffered a heart attack and received an insurance payout of £200,000 from his Critical Illness Cover. Karan is married to Sylvia (52) who is a primary school teacher and they have a 15 years old daughter. Karan has been shaken by the recent health episode. He has always been busy and a very active, career-oriented person, working long hours under a fair degree of stress and pressure. Karan, is planning to reduce his work commitments knowing that this will reduce his take home pay. However, as they have £30,000 left on their mortgage (fixed interests at 2.89% pa until September 2024) and a relatively well-funded pension schemes, Karan is hoping to use the insurance payout to help secure the financial future for his family. He is confused about the options and has no financial knowledge, never having made any investments on his own.
Karan knows people who have made a very good return on a Buy to Let (BTL) property and is interested in this option. A friend recommended making an investment on the stock market, as this should be a much easier option, as long as he talks to a Financial Adviser.
Required:
A. What additional information would you need from Karan before making any financial recommendations? Up to 90 words.
(4 marks)
B. Advise Karan on relative merits of investing in a Buy to Let (BTL) against Equity investments for wealth accumulation. Up to 330 words.
(13 marks)
C. Explain how Karan’s Defined Contribution (DC) pension can be used to reduce his personal income tax. Up to 70 words.
(3 marks)
Question 4
Debbie is 73, her husband died unexpectedly 2 years ago. £100,000 worth of his estate was distributed at this time. She has a 4-bedroom town house in Bristol currently worth £840,000. She also has a holiday flat worth £180,000 (mortgage free), investment portfolio worth £250,000, cash savings of £80,000, and a jewellery collection worth £20,000. She has a full state pension entitlement and a Defined Benefit pension scheme that is sufficient to live comfortably. Debbie has 3 children, 4 grandchildren and is worried about the potential inheritance tax (IHT) liability on her estate in the event of her death, as she would like to maximise the amount passed on to her children and grandchildren
Required:
A. How much inheritance tax would be levied on the estate if she died tomorrow? Up to 60 words. You MUST show your workings.
(5 marks)
B. Suggest strategies that Debbie might use to reduce the potential IHT liability. Up to 300 words.
(10 marks)
C. Debbie is planning to offer her oldest granddaughter a graduation present and repay a portion of her student loan. Discuss the appropriateness of repaying the student loan – is there any advantage of doing so? Up to 140 words.
(5 marks)
Question 5
Eleni is 78 and has recently been widowed. She has impaired mobility and requires some help at home with her basic needs as she lives on her own. She has a two-bedroom house currently worth £260,000 as well as a full New State Pension entitlement, and receives £7,500pa from her private pension. She would prefer to stay at home, but if her health deteriorates further she would consider going into residential care home.
Required:
A. Describe the long-term care provision available in England based on the current legislation. Under what circumstances could Eleni receive help from her Local Authority? Explain and evaluate her options, if she wants to continue living in her own home and/or move to a residential care come. Up to 300 words.
(12 marks)
B. Your older friend Jess cycles to work and likes climbing. Jess has a studio flat on repayment mortgage she bought thanks to a small inheritance she received two years ago. Jess has a very active lifestyle, likes socialising with friends and goes on regular city breaks. She can afford it, but usually has no money left a couple of days before her payday. Jess has recently witnessed an accident including a cyclist and started wondering what would happen to her finances if she was unable to work. She found her employment contract that refers to the Statutory Sick Pay and mentioned no other health covers. Suggest insurance policies that should be suitable for Jess, explain their characteristics, and make a recommendation. Up to 200 words
(8 marks)
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