Chapter 1 - MC Qs (RM)

Question 1

RM) HighTeck Ltd has arranged for a financial adviser to come and talk to each of their ten employees about pensions, at a cost to the company of £700 for each employee. What is the employees’ tax position in relation to these advice costs?

a. The employees will not incur a tax charge for this advice.
b. Each employee will incur a taxable benefit in kind of £500.
c. Each employee will incur a taxable benefit in kind of £200.
d. Each employee will incur a taxable benefit in kind of £700.

Answer 1

c. Each employee will incur a taxable benefit in kind of £200. (1D)

Question 2

RM) Under current legislation, a 52 year old employee is most likely to receive his State Pension:

a. at the age of 66.
b. after the age of 68.
c. at the age of 67.
d. at the age of 68.

Answer 2

The correct answer is: at the age of 67 (1A1)

Question 3

RM) What is the minimum age, if any, at which a member of a defined contribution pension scheme can take a tax free pensions advice allowance from their arrangement?

a. 50
b. 55
c. There is no minimum age.
d. 45

Answer 3

c. There is no minimum age (1D)

Question 4

RM) Contracting out was abolished for defined benefit schemes from 6 April 2016. As a result, the level of National Insurance Contributions paid have:

a. increased for both scheme members and the sponsoring employer.
b. reduced for scheme members but have increased for the sponsoring employer.
c. not changed for scheme members but have increased for the sponsoring employer.
d. increased for scheme members but have not changed for the sponsoring employer.

Answer 4

a. increased for both scheme members and the sponsoring employer. (1C)

Question 5

RM) Edward and Thomas both purchased a lifetime annuity at the age of 65. They were both in good health and both purchased a single life, level annuity with a pension fund of £200,000. Edward receives an income of £18,000 p.a. whilst Thomas only receives an income of £11,000 p.a. This is because Edward purchased his lifetime annuity in:

a. 2000 and Thomas purchased his lifetime annuity in 2019.
b. 2019 and Thomas purchased his lifetime annuity in 2000.
c. 1990 and Thomas purchased his lifetime annuity in 2000.
d. 2019 and Thomas purchased his lifetime annuity in 1990.

Answer 5

a.2000 and Thomas purchased his lifetime annuity in 2019. (1B1)

Question 6

RM) The level of income a member will receive from a defined benefit pension scheme is based on the following factors, EXCEPT:

a. their pensionable remuneration.
b. their pensionable service.
c. the investment returns on the fund.
d. the accrual rate.

Answer 6

c. the investment returns on the fund. (1E2)

Question 7

RM) The taxation of investment returns within a pension fund can best be described as:

a. liable for income tax, but exempt from capital gains tax.
b. liable for both income tax and capital gains tax.
c. liable for capital gains tax, but exempt from income tax.
d. exempt from income tax and capital gains tax.

Answer 7

d. exempt from income tax and capital gains tax. (1D)

Question 8

RM) Which Government initiative, introduced on 6 April 2015, is likely to act as an incentive for people to save towards their retirement?

a. The end of contracting out via defined benefit pension schemes.
b. The introduction of compulsory membership of occupational pension schemes.
c. The introduction of full flexibility in how pension benefits can be taken at retirement.
d. The introduction of the new State Pension.

Answer 8

c. The introduction of full flexibility in how pension benefits can be taken at retirement. (1C)

Question 9

RM) When death benefits are paid from a defined contribution pension plan, a nominee is defined as any individual:

a. other than a successor, nominated by a member to receive the death benefits.
b. nominated by a successor to receive the death benefits.
c. other than a dependant, nominated by a member to receive the death benefits.
d. nominated by a dependant to receive the death benefits.

Answer 9

c. other than a dependant, nominated by a member to receive the death benefits. (1E3A)

Question 10

RM) The UK is generally felt to have a shortfall in personal pension savings because:

a. tax relief on pension contributions is highly restricted.
b. there are a lack of pension providers.
c. people rely solely on high quality employer schemes.
d. people are living longer.

Answer 10

d. people are living longer (1A2)

Question 11

1. 2) Paul reached his State Pension age in March 2016. He had always been self-employed. Which State Pensions, if any, did Paul build up an entitlement to?
   a) No State Pensions
   b) Basic State Pension only
   c) Basic State Pension and SERPS only
   d) Basic State Pension, SERPS and the S2P

Answer 11

b) Basic State Pension only

Since Paul has always been self-employed, he has only built up an entitlement to the Basic State Pension.

Question 12

1. 3) Julia is about to retire and takes benefits from her company group personal pension plan. Which of the following factors will be used to determine the level of pension she receives in retirement
   a) The size of her fund
   b) Her final pensionable remuneration
   c) Her pensionable service with the company
   d) The schemes accrual rate

Answer 12

a) The size of her fund

A group personal pension plan is a defined contribution arrangement and the size of her fund will determine (to some extent) the amount of income she receives in retirement. If she chooses to purchase a lifetime annuity, then current annuity rates will also have an impact.

Question 13

CII) In recent years, the fastest population increase has been in the number of people aged:

a) under 16
b) under 35
c) 65 to 75
d) 85 and over

Answer 13

d) 85 and over

The fastest population increase has been in the number of people aged 85 and over.

Question 14

RM) Albert, who reached State Pension age in November 2015, was employed for his entire working life since the age of 16. He was never a member of a contracted out pension scheme. Which State Pensions are being paid to Albert?

a) Basic state pension only
b) SERPS and S2P only
c) Basic state pension, SERPS and S2P only
d) Basic State Pension, graduated pension scheme, SERPS and S2P

Answer 14

d) Basic State Pension, graduated pension scheme, SERPS and S2P

Albert reached the age of 65 in November 2015 and therefore was employed since 1966. He will have built up an entitlement to the Basic State Pension as well as the three earnings related State schemes, i.e. the Graduated pension scheme, SERPS and the S2P.

Question 15

RM) To be eligible for a full new State Pension at State Pension Age, how many years of National Insurance Contributions must an individual have paid or been credited with?

a. 40.
b. 45.
c. 35.
d. 30.

Answer 15

c. 35. (1A1)

Question 16

RM) Maggie is a member of her employer’s occupational defined contribution scheme and when she retires she plans to purchase a lifetime annuity. Who will bear the investment risk and the annuity risk?

a. Her employer will bear the investment risk and Maggie will bear the annuity risk.
b. Maggie will bear the investment risk and her employer will bear the annuity risk.
c. Her employer will bear both the investment risk and the annuity risk.
d. Maggie will bear both the investment risk and the annuity risk.

Answer 16

d. Maggie will bear both the investment risk and the annuity risk (1C)

Question 17

RM) Alice, who died recently at the age of 48, was a member of her company’s group personal pension plan. The level of death benefits paid to her beneficiaries will be determined by:

a. her length of service with the company.
b. the rules of the scheme.
c. her final salary on the date of her death.
d. the size of her fund

Answer 17

d. the size of her fund (1E3A)

Question 18

RM) The main reason that individuals do not save enough into a pension to provide an adequate income in retirement is:

a. preference for other savings vehicles.
b. distrust of the pensions industry.
c. poor investment returns.
d. lack of affordability.

Answer 18

d. lack of affordability (1D1)

Question 19

RM) The main reasons for the reduction in annuity rates in recent years are:

a. decreased longevity and increased gilt yields.
b. increased longevity and reduced gilt yields.
c. increased longevity and increased gilt yields.
d. decreased longevity and reduced gilt yields.

Answer 19

b. increased longevity and reduced gilt yields (1A2)

Question 20

RM) What was introduced by the Pensions Act 2004 to ensure that members of underfunded defined benefit schemes receive a certain minimum level of benefits if their employer becomes insolvent?

a. The Minimum Funding Requirement.
b. The Minimum Income Guarantee.
c. The Financial Assistance Scheme.
d. The Pension Protection Fund.

Answer 20

d. The Pension Protection Fund (1A1)

Question 21

RM) David is a sole trader. He employs one member of staff and as part of their remuneration package he makes a contribution to their personal pension plan. This contribution will be treated as:

a. salary sacrifice, which will reduce the employee’s salary for income tax and national insurance purposes.
b. a business expense, which will be offset against David’s corporation tax liability.
c. a business expense, which will be offset against David’s income tax liability.
d. an employee contribution, which will be awarded tax relief at the employee’s marginal rate of income tax.

Answer 21

c. a business expense, which will be offset against David’s income tax liability. (1D)

Question 22

RM) Andrew commenced employment in 1965 and remained with his employer until he became self-employed in December 2001. He reached State Pension Age in June 2015. Andrew is in receipt of the full Basic State Pension plus income from the:

a. State Graduated Pension scheme, the State Earnings Related Pension scheme and State Second Pension scheme.
b. State Earnings Related Pension scheme and the State Second Pension scheme only.
c. State Graduated Pension scheme and the State Earnings Related Pension scheme only.
d. State Graduated Pension scheme and the State Second Pension scheme only.

Answer 22

c. State Graduated Pension scheme and the State Earnings Related Pension scheme only (1E1)

Question 23

RM) Aditya only has an uncrystallised personal pension. If he wishes to access his benefits flexibly, he can take them in the form of a:

a. flexi-access drawdown or capped drawdown.
b. capped drawdown or UFPLS.
c. flexi-access drawdown or UFPLS
d. flexi-access drawdown, capped drawdown or UFPLS.

Answer 23

c. flexi-access drawdown or UFPLS (1E3A)

Question 24

RM) The Government has introduced the auto-enrolment rules in an attempt to:

a. increase the level of pension saving in the UK
b. force the self-employed to make greater provision for their retirement.
c. force employers to offer pension provision to all employees.
d. ensure that employees receive a pension in retirement that is guaranteed as a proportion of their final salary.

Answer 24

a. increase the level of pension saving in the UK (1C)