Chapter 1 Written Qs (CII)

Question 1

1.1) State pensions are funded on a ‘pay as you go basis’ what does this mean?

Answer 1

‘Pay as you go’ means that the National Insurance contributions of the current working population pay for today’s pensioners’ State Pensions.

Question 2

1.) As well as life expectancy, annuity rates are based on returns of which type of underlying investment ?

Answer 2

Expected returns from gilts.

Question 3

Outline four taxation incentives of making pension contributions ?

Answer 3

• income tax relief on contributions made by individuals;
• contributions made by employers are treated as a business expense for corporation tax or income tax purposes;
• the investment profits of the fund are exempt from income tax and capital gains tax; and
• the ability to take part of the proceeds as a tax-free cash lump sum, known as the pension commencement lump sum.