Planit:UK Contribution Pension Plans Exercise Answer Key

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This case study is specific to financial planning in the United Kingdom, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:Calculating and Entering Contribution Pension Plans Exercise.

Question One:

Donna Woodhaven has a contribution pension at the bank where she works, with a total balance of £13,000. £2,000 of this is in a Jpm Europe fund (Product Code 864), with a starting value of £1,800. There is another £5,000 in Henderson Sec Loans (449695), with an initial value of £4,500, and finally £6,000 in some Global Fixed Income, originally £5,500.

Harold has his own Personal Pension with a balance of £24,000. It is made up of 25% cash, 35% fixed income, and 40% UK Equity. £2,000 of this account was from growth in investments.

As a banker, Donna earns £50,000 and 7% of this goes toward her pension. Her employer contributes an additional 8% of her salary amount. Harold’s salary fluctuates because of he his a business owner, but is usually about £40,000. He contributes £2,000 into his personal pension.

Answer:

In the Assets and Liabilities screen you will add the accounts for Donna’s contribution pension and Harold’s personal pension.

  1. Click New Account above the existing assets.
  2. Enter a Description and set the Ownership to 100% for Donna Woodhaven.
  3. The Account Type should be Defined Contribution Pension Schemes.
  4. Click Save
  5. Click on the “+” beside the new account if it is not already expanded.
  6. Click on New Asset under the account
  7. Enter the description as 864 and change the radio setting to Product Code
  8. Click Search
  9. Select the Jpm Europe fund
  10. Enter a description, and the Market Value as £2,000.
  11. Set the ACB to £1,800 as indicated.
  12. Click Save
  13. Click on New Asset under the account
  14. Enter the description as 449695 and change the radio setting to Product Code
  15. Click Search
  16. Select the Henderson Sec Loans
  17. Enter a description, and the Market Value as £5,000.
  18. Set the ACB to £4,500 as indicated.
  19. Click Save
  20. Click on New Asset under the account
  21. Use the Add Custom product.
  22. Enter a description for the Global Fixed Income and set the Market Value to £6,000.
  23. The ACB field should be £5,500
  24. On the right, set the Allocation Breakdown to 100 for Global Fixed Income and 0 for all other asset classes.
  25. Click Save

To add Harold’s Personal Pension:

  1. Click New Account above the existing assets.
  2. Enter a Description and set the Ownership to 100% for Harold Woodhaven.
  3. The Account Type should be Personal Pension Accounts.
  4. Click Save
  5. Click on the “+” beside the new account if it is not already expanded.
  6. Click on New Asset under the account
  7. Use the Add Custom feature
  8. Enter a description and set the Market Value to £24,000.
  9. The ACB field should be £22,000 (the £24,000 account - £2,000 in investment income).
  10. On the right, set the Allocation Breakdown to 25 for Cash, 35 for Fixed Income, and 40 for UK Equity.
  11. Click Save

Use the drop-down menu to enter your data for the Cash Flow screen.

  1. Enter Harold’s £40,000 salary in the Client’s Personal Income field.
  2. Enter Donna’s £50,000 salary in the Spouse’s Personal Income field.
  3. For the Client’s Pension Savings field, enter Harold's £2,000 personal pension savings.
  4. For the Spouse’s Pension Savings field, enter the 7% of contribution pension savings (£50,000 x 7% = £3,500).
  5. Click the Calculate button to save your work and calculate the current lifestyle and income taxes.
  6. Click the Next button to proceed to the next screen.

Use the drop-down menu to continue to the Savings screen

In the Savings screen you will add the employer contributions to the work pension. Click Edit beside the Donna’s Pension Savings stream.

1. Set the Matching Amount to £4,000 since the employer is contributing an additional 8% of Donna’s salary. (8% of £50,000 = £4,000)

2. Click Save

Note: You do not have to add a Matching Amount for Harold’s pension because it is a personal pension without an external employer making contributions.

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