Learning objective 2 Flashcards
20/21 Q9 Terry has various debts, including a mortgage, a credit card, a secured personal loan and a hire
purchase finance agreement on his car. When considering how he might reduce his outgoings, he
should be aware that
A. the secured loan cannot be repaid until his mortgage is repaid.
B. debt consolidation may involve increasing the term of his repayments.
C. an introductory deal on a credit card is always available.
D. a hire purchase agreement cannot be repaid before the end of the term.
B
20/21 Q10 A client is considering mortgage payments for both capital and interest and interest-only
mortgages. He should be aware that if interest rates stay constant throughout the mortgage term,
compared to a capital and interest mortgage, an interest-only mortgage will result in
A. a lower monthly cost, but a higher overall borrowing cost.
20/21 Q11 Michael, aged 27, has recently purchased a property with a mortgage on a capital and interest
basis. He is single and has no dependants and is employed by the local authority. Michael’s main
priority is most likely to be arranging an
A. amount of life assurance that remains constant over the term of the loan.
B. amount of life assurance that reduces over the term of the loan.
C. amount of income protection insurance sufficient to continue meeting the mortgage payments.
D. investment vehicle to create a lump sum to repay the mortgage at the end of the term.
C - He has no dependants to protect against liability when he dies so it would be higher priority to insure against sickness for himself first.
20/21 Q12 Claire, aged 38, is concerned about funding the future further education costs for her children, aged
9 and 10. When considering an appropriate timescale for any investment and reflecting her
medium attitude to risk, she is most likely to consider using
A. instantly-accessible deposit accounts providing a guaranteed return.
B. a range of tax-efficient savings plans investing in a range of investment types.
C. contributing to a personal pension plan and drawing income to fund her children’s education
costs.
D. an equity release arrangement secured on her home to fund the education costs.
B
20/21 Q13 John, aged 64, is married to Margaret, aged 62, and they are both approaching retirement. They
have always worked for the same company and have both accrued pension benefits through the
company’s group money purchase scheme. If they both purchase annuities at retirement and both
wish to receive the maximum possible income level, they should both select
A. an index-linked annuity payable on a single-life basis with no guarantee.
B. an index-linked annuity payable on a joint-life basis with a 10-year guarantee.
C. a level annuity on a single-life basis with no guarantee.
D. a level annuity on a joint-life basis with a 10-year guarantee.
C - level annuities will give more income for their price. To illustrate a £100 index-linked might start at £2 p.a. whereas a level annuity might start at £2.
Be wary here - eventually an index linked would provide higher income than level.
20/21 Q14 Geoffrey and Andrew are brothers and have both retired. All of Geoffrey’s retirement income, but
only part of Andrew’s, is treated as earned income. This is because
A. Andrew was an employee, Geoffrey was self-employed.
B. Geoffrey is aged 59, Andrew is aged 69.
C. only Andrew receives two forms of State Pension.
D. only Andrew took out a purchased life annuity with the funds raised from his pension
commencement lump sum entitlement.
D - See purchased lifetime annuities [2/32]. Basically, PLA’s are split into interest and capital and there is a 20% tax advantage to them since they work under the assumption they were purchased with cash which was taxed when receiving salary. Andrew bought it with tax free PCLS which you are allowed to do.
20/21 Q15 When considering estate and Inheritance Tax planning for a retired couple, who have no
outstanding debts or liabilities and a substantial estate, their first priority should be
A. arranging a joint whole of life assurance policy under trust and payable on a second death basis
to cover the potential tax liability.
B. ensuring that they have sufficient resources to pay for long-term care.
C. starting to gift assets outside of the estate using annual exemptions.
D. writing a valid will.
D - Will writing is more important than tax assurance policy for those with big enough estates I guess.
20/21 Q16 Bob and Gillian, both aged 28, have recently arranged an interest-only mortgage on their first home
which they intend to repay with the proceeds of a trust fund that Bob will receive when he attains
the age of 35. To ensure that this loan is adequately protected in the event of death before the
trust fund is distributed, the most suitable arrangement is likely to be
B - a level term assurance policy on a joint-life basis for the outstanding mortgage amount.
Trust funds transfer to spouse on death, level since it is interest only.
20/21 Q17 Kim and Richard have two children, aged five and seven. They have no outstanding mortgage and
Richard is the sole wage earner. To ensure that Kim is able to continue looking after the children in
the event of Richard’s death, they should consider a family income benefit policy based on
C. Richard’s life and Kim’s income requirement
20/21 Q18 Jerry, a 37-year-old higher-rate taxpayer, is looking to provide a lump sum in the future, for the
benefit of his 15-year-old son, Paul, when he finishes further education at the age of 22. Jerry
wishes to invest £10,000 per annum. It is likely that the most tax-efficient method of achieving this
would be to consider
A. taking the pension commencement lump sum from his pension scheme.
B. arranging an onshore life assurance bond and assigning the value to Paul at the age of 22.
C. utilising his own ISA allowances and gifting the proceeds to Paul at the age of 22.
D. investing in a Junior ISA.
C - dont assume positives. If the question didn’t explicitly say he would be utilising his ISA allowance elsewhere, dont assume he is.
Unsure on this one, since the 25% tax free PCLS lump sum after tax free pension contributions seems like it would be the most tax efficient, the ISA withdrawal might be tax free but the contributions are after tax on salary.
20/21 Q19 Currently, maximum entitlement to the state pension is determined by
A. a complete National Insurance contribution record for the entire working life of the individual.
B. a complete National Insurance contribution record for a specific period of the working life of the
individual.
C. the amount of Class 2 National Insurance contributions that have been paid by the individual.
D. the amount of Class 4 National Insurance contributions that have been paid by the individual.
B
20/21 Q20 A self-employed jeweller wanting to purchase a shop using his pension scheme should consider a
A. Retirement Annuity Contract.
B. Section 32 buy-out bond.
C. self-invested personal pension (SIPP).
D. small self-administered scheme (SSAS).
C
2021 mock paper Q9 You are conducting a fact-find with your new client Brett, who has approached you specifically with regards to financial protection. He is reluctant to disclose his income to you. Why is income relevant in determining the amount of protection Brett needs?
A. Because income and expenditure analysis will determine the shortfall
B. Lower income levels suggest a lower standard of living
C. To determine the amount of cover required and affordability
D. Higher income levels are normally associated with higher employment benefits
C
2021 mock paper Q10 Irene has taken out an income protection policy. If she becomes incapacitated and unable to work. when will her benefits be paid?
A. After a deferred period chosen by her
B. From day one of her claim
C. After a deferred period stated by her insurer
D. Once her incapacity is proven permanent
A
2021 mock paper Q11 Leslie would like to know how the premiums for his payment protection insurance contract will be payable. You explain to him that under current rules. premiums for payment protection insurance contracts must be:
A. paid by monthly contribution added to the loan
B. paid by lump sum contribution added to the loan
C. paid monthly
D. paid weekly
C - Paid monthly obviously but can’t be added to loan need to be paid separately
