2024 test knowledge 10-11-12-13-14

Question 1

Caroline is 38 and earns £35,000 a year as a department manager for a large firm. What is the maximum contribution that could be paid into her workplace pension to give her maximum tax relief and avoid any tax penalties?
a) £35,000 from Caroline only.
b) Up to £35,000 between Caroline and her employer.
c) £35,000 from Caroline and £25,000 from her employer.
d) £40,000 from Caroline only.

Answer 1

c) £35,000 from Caroline and £25,000 from her employer.
Caroline can pay in an amount up to her salary, and her employer can top it up to the annual allowance amount.

Question 1

Ali has been a member of his company’s 1/50th defined-benefit pension for 20 years and is about to retire. His pensionable salary is £30,000. What will Ali’s pension be?
a) £10,000.
b) £12,000.
c) £15,000.
d) £30,000.

Answer 1

b) £12,000. 20/50th of £30,000 = 20/50 × £30,000 = £12,000.

Question 2

To qualify for auto-enrolment, an employee must:
a) opt-in to the scheme.
b) be under age 60.
c) be aged at least 22.
d) earn more than £5,000.

Answer 2

c) be aged at least 22.

Question 3

Which statement best describes the uncrystallised funds pension lump sum option on a personal pension?
a) The whole fund must be taken, with 25% as a tax-free lump sum.
b) 25% of each withdrawal is tax free, with the balance taxed as income.
c) Each withdrawal will be tax free.
d) Each withdrawal is taxed as income in the owner’s hands.

Answer 3

b) 25% of each withdrawal is tax free, with the balance taxed as income.

Question 4

When does the Money Purchase Annual Allowance apply to pension contributions? If the plan holder:
a) takes benefits through the uncrystallised funds pension lump sum option.
b) earns more than the income threshold.
c) uses the fund to purchase an annuity.
d) takes benefits before the scheme retirement date.

Answer 4

a) takes benefits through the uncrystallised funds pension lump sum option.

Question 5

Which method of providing a personal pension income is free from investment risk?
a) Flexi-access drawdown.
b) Purchasing an annuity.
c) Taking regular withdrawals using the uncrystallised funds pension lump sum option.
d) Taking the 25% pension commencement lump sum and leaving the balance in the fund.

Answer 5

b) Purchasing an annuity.

Question 6

Alisha is just in the higher-rate tax band. She has a personal pension plan valued at £40,000 and wants to take all of it as one lump sum on her sixtieth birthday next month. How much of the withdrawal will be tax free?
a) It will all be taxable.
b) £30,000.
c) £20,000.
d) £10,000.

Answer 6

d) £10,000. 25% of the pension can be taken as a tax-free lump sum (£40,000 × 25% = £10,000).

Question 7

Which of the following is true regarding the NEST scheme?
a) It cannot run alongside an existing occupational scheme.
b) The minimum contribution per employee is 10% of earnings.
c) Benefits can be taken from age 55.
d) Contributions can only be made into the default fund.

Answer 7

c) Benefits can be taken from age 55.

Question 8

Which type of pension scheme is most likely to allow an individual to hold a direct investment in commercial property?
a) A self-invested personal pension.
b) A stakeholder pension.
c) A defined-contribution occupational pension.
d) A personal pension.

Answer 8

a) A self-invested personal pension.

Question 9

The ‘direct pay’ arrangement is where a personal scheme member pays the contributions directly to the pension provider.
a) True
b) False

Answer 9

b) False. It is where the employer collects the employee’s contribution from their pay and passes it on to the pension provider.

Question 10

During the lifetime of a full with-profits endowment, the death benefit will hopefully:
a) decrease.
b) increase.
c) stay level.
d) fluctuate.

Answer 10

b) increase.

Question 11

What add-on benefit will ensure a life assurance policy will continue to provide cover when premiums are suspended due to the policyholder’s illness preventing them from working?
a) Income protection benefit.
b) Temporary disability cover.
c) Waiver of premium benefit.
d) Terminal illness benefit.

Answer 11

c) Waiver of premium benefit.

Question 12

The most appropriate life assurance policy to protect a repayment mortgage would be a form of:
a) decreasing term assurance.
b) level term assurance.
c) convertible term assurance.
d) increasing term assurance.

Answer 12

a) decreasing term assurance.

Question 13

Jim has a with-profits whole-of-life plan, and Jenny has a low-cost with-profits whole-of-life plan, both offering the same death benefit. The main difference in the two plans is that:
a) The value of units on Jenny’s plan will be lower.
b) Jenny’s policy will not benefit from regular bonuses.
c) Part of the death benefit on Jenny’s policy is on a reducing basis.
d) The fixed death benefit on Jim’s plan will be lower.

Answer 13

c) Part of the death benefit on Jenny’s policy is on a reducing basis.

Question 14

Which of the following is true of a unitised with-profits endowment?
a) The full unit value is payable on surrender of the policy.
b) Unit values cannot fall.
c) Only terminal bonuses are added.
d) It cannot be assigned to a lender.

Answer 14

b) Unit values cannot fall.

Question 15

In strong stock market conditions, which type of mortgage-linked endowment is most likely to allow early repayment of the mortgage?
a) Unit-linked.
b) Low-cost with profits.
c) Non-profits.
d) With-profits.

Answer 15

a) Unit-linked.

Question 16

What is the normal maximum age for exercising the renewal option on a renewable term assurance policy?
a) 50.
b) 55.
c) 60.
d) 65.

Answer 16

d) 65.

Question 17

A single parent wants to provide an income for his two children in the event of his death, payable until the youngest child is 21. What type of life assurance policy would suit his requirements and cost the least?
a) Low-cost endowment.
b) Family income benefit.
c) Level term assurance.
d) Whole-of-life assurance.

Answer 17

b) Family income benefit

Question 18

Jason has a flexible whole-of-life assurance policy on a maximum cover basis. This means that Jason’s:
a) premiums will be higher than those of a balanced cover policy.
b) sum assured will increase after ten years.
c) premiums are likely to increase after ten years.
d) plan will accumulate a higher investment value than a minimum cover policy.

Answer 18

c) premiums are likely to increase after ten years.

Question 19

Charu and Rajeev have written wills leaving everything to the survivor, and on their death the estate will pass to their children. They wish to provide a lump sum for the children to be able to settle any inheritance tax (IHT) liability on their estate. What life assurance arrangement would achieve their objective?
a) A joint-life second-death whole-of-life plan for the potential IHT liability, in trust.
b) A joint-life second-death gift inter vivos policy for the potential IHT liability, in trust.
c) A joint-life first-death whole-of-life plan for the potential IHT liability, in trust.
d) Two single whole-of-life plans, in trust, each for 50% of the potential IHT liability.

Answer 19

a) A joint-life second-death whole-of-life plan for the potential IHT liability, in trust.

Question 20

Andrea has private medical insurance, paid for by her employer as part of her employment package. Which of the following would not apply?
a) An income tax liability for Andrea on the value of the premiums.
b) Premiums qualify as business expenses for her employer.
c) An income tax liability for Andrea on payments made in the event of a claim.
d) Insurance premium tax on the premiums.

Answer 20

c) An income tax liability for Andrea on payments made in the event of a claim

Question 21

Payment protection insurance:
a) provides benefits in the event of death, accident, sickness or unemployment.
b) is not covered by the Financial Services Compensation Scheme.
c) pay outs are typically limited to 12 months.
d) can cover the applicant’s combined borrowing.

Answer 21

c) pay outs are typically limited to 12 months.

Question 22

Which of the following is the same for both accident, sickness and unemployment insurance and income protection insurance when taken out on an individual basis?
a) Deduction of state benefits from payments.
b) Deferred period.
c) Taxation of benefits.
d) Length of the policy term.

Answer 22

c) Taxation of benefits.

Question 23

Billie insured her house contents for £30,000 and accepted a £100 excess. Later that year she made a claim for £5,000 as a result of local flooding. The insurer has written to her, stating that the true value of her contents should have been £40,000 and that they are disputing her claim. How much is Billie likely to receive in settlement of her claim?
a) The insurer will reject her claim as she was underinsured.
b) Billie is likely to receive £3,650.
c) Billie is likely to receive £3,750.
d) The insurer is likely to pay the claim in full, as the underinsurance was unintentional.

Answer 23

b) Billie is likely to receive £3,650.

Question 24

Sean has been claiming on his income protection insurance policy for six months and has now been cleared to return to work on a part-time basis on a lower salary. What policy feature would solve his concern about the reduced income?
a) Increasing benefit.
b) Proportionate (pro-rata) benefit.
c) A shorter deferred period.
d) Suspension of premiums during a claim.

Answer 24

b) Proportionate (pro-rata) benefit

Question 25

The Road Traffic Act 1988 requires all vehicles to have at least:
a) third-party, fire and theft insurance.
b) third-party insurance.
c) comprehensive insurance.
d) Road Traffic Act insurance.

Answer 25

b) third-party insurance.

Question 26

Which of the following would be least likely to be covered on a critical illness assurance policy?
a) Angina.
b) Heart attack.
c) Kidney failure.
d) Breast cancer.

Answer 26

a) Angina.

Question 27

Which of the following statements is true in relation to income protection insurance (IPI)?
a) It is the same as an ASU policy, but without redundancy cover.
b) Benefits are paid for a maximum of 12 or 24 months.
c) A tax-free income benefit will be payable after a specified period of incapacity.
d) IPI provides a surrender value for early surrender.

Answer 27

c) A tax-free income benefit will be payable after a specified period of incapacity.

Question 28

In relation to insurance for commercial purposes, pecuniary loss is a loss resulting from:
a) injury, illness or death of an employee.
b) a defaulting creditor.
c) an interruption to a business’s operation.
d) criminal damage of vandalism.

Answer 28

b) a defaulting creditor.

Question 29

Which of the following is true in relation to long-term care insurance?
a) Any annuity payments from a long-term care plan are tax free.
b) Inability to move between rooms would be an activity of daily living for a claim.
c) Inability to carry out four or more activities of daily living is required for a successful claim.
d) Long-term care benefits are only payable when the insured is in a care home.

Answer 29

b) Inability to move between rooms would be an activity of daily living for a claim.

Question 30

Which of the following is incorrect for a discounted-rate mortgage?
a) The discount is from the lender’s standard variable rate.
b) The monthly mortgage payment can vary.
c) There is usually a penalty if the loan is repaid before a specified date.
d) The payable rate is directly linked to the Bank of England base rate.

Answer 30

d) The payable rate is directly linked to the Bank of England base rate.

Question 31

In relation to bridging finance:
a) closed bridging interest rates are higher than for open bridging.
b) open bridging is arranged on a long-term basis.
c) closed bridging has a feasible repayment strategy.
d) open bridging is less risky for the lender than closed bridging.

Answer 31

c) closed bridging has a feasible repayment strategy.

Question 32

Equity release is regulated by:
a) the Financial Conduct Authority and the Equity Release Council.
b) the Equity Release Council only.
c) the Prudential Regulation Authority only.
d) the Financial Conduct Authority only.

Answer 32

d) the Financial Conduct Authority only.

Question 33

Which of the following is true in relation to credit cards?
a) Credit card interest rates are higher than most other forms of borrowing.
b) The whole balance must be repaid each month, usually within 25 days of a statement.
c) Credit card companies make a small payment to the retailer for each transaction.
d) No additional charges apply to overseas credit card transactions.

Answer 33

a) Credit card interest rates are higher than most other forms of borrowing.

Question 34

Second charge loans:
a) are charged at a higher rate than first charge loans.
b) are regulated under the Consumer Credit Act 2006.
c) do not require equity in the property.
d) become part of the existing mortgage.

Answer 34

a) are charged at a higher rate than first charge loans.

Question 35

Barbara, aged 70, has heard she can use her property to provide some extra cash as and when she needs it. She would like to leave as much of the property’s value to her two children as possible. Which arrangement would best satisfy her needs?
a) A home reversion plan.
b) A lifetime mortgage.
c) A drawdown lifetime mortgage.
d) A home income plan.

Answer 35

c) A drawdown lifetime mortgage.

Question 36

Secured lending can only be arranged on land or property.

a) True
b) False

Answer 36

b) False

Question 37

Brendon’s lender charged him a fee for an insurance policy because his new mortgage was more than a specified percentage of the property value. It is incorrect to say that:
a) The fee could be added to Brendon’s mortgage.
b) In the event of Brendon defaulting, the policy only protects the lender.
c) Brendon’s mortgage will be more than 75-80% of the property value.
d) Brendon will have no further liability if a claim is made on the policy.

Answer 37

d) Brendon will have no further liability if a claim is made on the policy.

Question 38

Jeff and Alison have just bought a flat with a mortgage, but will also be required to pay rent to a housing association. This arrangement is referred to as:
a) equity release.
b) shared ownership.
c) home reversion.
d) equity share.

Answer 38

b) shared ownership.

Question 39

What type of mortgage product interest rate can vary, but cannot rise above a pre-set limit?
a) Discounted rate.
b) Capped rate.
c) Base-rate tracker.
d) Fixed rate.

Answer 39

b) Capped rate.

Question 40

The FCA prescribes the format of the factfind and the information required.
a) True
b) False

Answer 40

b) False

Question 41

Which of the following best describes a customer’s capacity for loss?
a) Their feelings about taking investment risks.
b) How well they could cope financially with investment losses.
c) How they would cope with unemployment.
d) How much they have in emergency funds.

Answer 41

b) How well they could cope financially with investment losses.

Question 42

Which of the following is not a soft fact?
a) Potential changes in the customer’s circumstances.
b) The customer’s thoughts on their current arrangements.
c) The customer’s current employment and salary.
d) The customer’s objectives.

Answer 42

c) The customer’s current employment and salary.

Question 43

Which of the following is least likely to cause a firm to treat a customer as ‘vulnerable’?
a) Disability.
b) Bereavement.
c) Health.
d) Marital status.

Answer 43

d) Marital status.

Question 44

There is a well‑established pattern to the way in which most savers and investors build up and hold their assets. Which of the following is usually the last part of that pattern?
a) Fixed-term bonds.
b) Current account.
c) Short-notice deposits.
d) Equity-based products.

Answer 44

d) Equity-based products.

Question 45

What should an adviser treat as the first priority when addressing a customer’s financial situation?
a) Providing an income for them in retirement.
b) Tax efficiency of their savings and investments.
c) Build up investments to increase their value.
d) Financial protection for dependants in the event of their death.

Answer 45

d) Financial protection for dependants in the event of their death.

Question 46

When advising a self-employed customer, it is important to establish their:
a) regular overtime.
b) commission earnings.
c) basic salary.
d) net profits.

Answer 46

d) net profits.

Question 47

It is important to ensure that the customer agrees with the adviser’s assessment of their priorities.
a) True
b) False

Answer 47

b) False. Deciding a plan of action and agreeing its priority order is the customer’s decision, assisted by input from the adviser.

Question 48

Short-term accessible savings accounts are the most likely choice for which of the following?
a) Retired people.
b) Established families.
c) Mature households.
d) Young, employed adults.

Answer 48

d) Young, employed adults.

Question 49

For which product must a firm keep records of the advice given indefinitely?
a) Pension opt-outs.
b) Investments.
c) Personal pensions.
d) Life policies.

Answer 49

a) Pension opt-outs.