Questions Flashcards
1
Q
Bill is eligible to receive an element of the State Graduated Pension Scheme at retirement. This is because he:
A. Was contracted out of SERPS/S2P
B. Was self-employed throughout his working life
C. Retired before 1961
D. Was employed in 1971
A
D. Was employed in 1971
2
Q
Jita wants to take a tax free ‘pensions advice allowance’ from her SIPP. She should be aware that:
A. The financial advice must be regarding her SIPP only
B. She can take £150 in a tax year subject to a maximum of three payments
C. She can take £500 each tax year until her selected retirement age
D. The payment must be paid directly to the financial adviser
A
D. The payment must be paid directly to the financial adviser
3
Q
In 2021/22, Paul receives a salary of £206,000. He has savings interest of £1,000 and dividend income of £40,000. Paul is a member of his employer’s occupational defined contribution pension scheme and contributions are paid via the net pay arrangement. In 2021/22, Paul pays £20,000 gross to the scheme and his employer pays £10,000.
What is Paul’s tapered annual allowance?
A. £31,500
B. £30,000
C. £28,000
D. £25,000
A
A. £31,500
Threshold income > £200,000
£206,000 + £1,000 + £40,000 = £247,000 - £20,000 = £227,000
Adjusted Income > £240,000
£247,000 + £10,000 = £257,000
£257,000 - £240,000
= £17,000 / 2 = £8,500
£40,000 - £8,500 = £31,500
4
Q
Alan, a basic rate taxpayer, is exercising his right to take all his benefits from his defined benefit pension scheme in the form of a lump sum under the Trivial Commutation rules. If his CETV is £12,000, what amount will Alan receive?
A. £9,600
B. £10,200
C. £7,200
D. £12,000
A
B. £10,200
Less than £30,000, can take as a lump sum.
£12,000 x 25% = £3,000 (tax-free)
£9,000 - (£9,000 x 20%) = £7,200
£3,000 + £7,200 = £10,200
5
Q
Martin’s registered pension fund is being transferred to a QROPS. The transfer is in excess of his lifetime allowance. What lifetime allowance charge will apply to the excess before the funds are transferred?
A. 55%
B. 45%
C. 40%
D. 25%
A
D. 25%
Not 55% as the individual is not deemed to have received the lump sum
6
Q
Sonia is a member of a defined benefit pension scheme. She has recently been offered the option of giving up future guaranteed increases to her pension in return for a higher initial pension with no future increases. This is known as pension:
A. Inflation
B. Increase exchange
C. Exchange
D. Inflation exchange
A
B. Increase exchange
7
Q
A PPF Section 179 valuation is to establish the:
A. Future value of a defined benefit scheme
B. Level of defined benefit scheme assets and liabilities
C. Number of deferred members of a defined benefit scheme
D. Basis of funding guidance for a defined benefit recovery plan
A
B. Level of defined benefit scheme assets and liabilities
8
Q
With only a few months to live, George’s pension fund is to be commuted for a lump sum. As George is aged 58 and a basic rate taxpayer, the net amount receivable from his £1,768,100 pension fund will be:
A. £1,385,850
B. £1,490,100
C. £1,594,350
D. £1,768,100
A
A. £1,385,850
£1,073,100 will be received tax-free
£1,768,100 - £1,073,100
= £695,000 x 55%
= £382,500
£1,768,100 - £382, 250
= £1,385,850
9
Q
ABC Ltd agreed to provide Dennis with pension term assurance, paid for by the company and this was put in place in October 2006. What was the impact on the company following the HM Revenue & Customs (HMRC) review in December 2006?
A. They had to cancel the term assurance for Dennis
B. They had to forego any tax relief on the premiums
C. They had to segregate the life cover
D. Their payments remained eligible for tax relief
A
D. Their payments remained eligible for tax relief
EMPLOYEE contributions no longer receive tax relief, but EMPLOYER contributions do
10
Q
Paula, age 56, has just left her employer’s occupational defined contribution scheme after three years’ pensionable service as her employment has been terminated, what does this mean for the benefits accrued in the fund to date?
A. She can apply for a short service refund of her personal contributions
B. As the scheme is not insured, it is likely the nature of charges may change
C. She can convert preserved benefits into retirement benefits
D. The preserved benefits will be based on employee contributions only
A
C. She can convert preserved benefits into retirement benefits
Short service refunds are only available for under 30 days service, therefore it can’t be A.
11
Q
In addition to defined contribution pension rights, Frank enjoys the benefits of an employer-sponsored group permanent health insurance plan. Should Frank become disabled:
A. His pension scheme membership will continue
B. Tax relief on pension contributions will be available up to £3,600 per annum
C. Any PHI income will be paid tax-free
D. The defined contribution pension is effectively made “paid up” for the duration of Frank’s illness
A
A. His pension scheme membership will continue
12
Q
Susan is a member of an occupational targeted money purchase scheme. Which of the following is NOT one of the features that apply to these schemes?
A. In the event of the employer’s insolvency, the trustees are able to claim against the employer’s assets, as long as all scheme contributions are up to date
B. The scheme is regarded as a “hybrid” between defined contribution and final salary schemes
C. The only underlying promise is the benefit derived from the defined contribution assets
D. This type of arrangement will incorporate regular reviews to monitor the intended benefit levels
A
A. In the event of the employer’s insolvency, the trustees are able to claim against the employer’s assets, as long as all scheme contributions are up to date
13
Q
From April 2010 and prior to April 2016, an individual qualified for the full basic State Pension if they had:
A. 30 years of payments (or credits) of National Insurance contributions
B. Lived in the UK 17 out of the last 20 tax years
C. Earnings within the lower earnings limit and the upper accrual point
D. 35 years of payment (or credits) of NICs
A
A. 30 years of payments (or credits) of National Insurance contributions
Not D. as this was increased post April 2016 as part of the new State Pension
14
Q
John is self employed and is wondering whether to purchase a buy-to-let property to help supplement his future retirement income. When considering what action to take, John should be aware that:
Tick all that apply!
A. Tax relief on mortgage interest is available at basic rate
B. He could suffer capital gains tax on a future sale
C. The property will not form part of his estate for inheritance tax purposes
D. The rate of stamp duty land tax is 3% above standard rates
A
A. Tax relief on mortgage interest is available at basic rate
B. He could suffer capital gains tax on a future sale
D. The rate of stamp duty land tax is 3% above standard rates
15
Q
Sophie is self-employed and a higher rate taxpayer. Her income tax bill for tax year 2019/20 was £12,000 and for 2020/21 it was £19,000. In July 2020, she made a gross pension contribution of £6,000. For the 2020/21 tax year, Sophie will make:
A. Two payments on account of £9,500
B. A balancing payment of £5,800 on 31 January 2022
C. A balancing payment of £7,000 on 31 January 2022
D. One payment on account of £12,000 on 31 January 2021
A
B. A balancing payment of £5,800 on 31 January 2022
2019/20 = £12,000
2 payments of £6,000
2020/21 = £19,000
£19,000 - £12,000 = £7,000 (balancing payment would be)
Due to pension contribution, eligible for further tax relief
£6,000 x 20% = £1,200
£7,000 - £1,200 = £5,800
16
Q
Kim is 60 and has no taxable income in 2021/22. She has a personal pension valued at £300,000 and she decides to take £40,000 of this fund as a UFPLS. What is the net payment that Kim will receive?
A. £30,000
B. £32,000
C. £36,384
D. £36,514
A
D. £36,514
£40,000 x 25% = £10,000 (PCLS)
£30,000 - £12,570 (personal allowance) @ 20% = £3,486
£40,000 - £3,486 = £36,514
17
Q
In June 2006, Alan crystallised a retirement annuity fund of £750,000 when the lifetime allowance was £1,500,000. A further crystallisation event takes place in 2021/22 when he takes a defined benefit scheme pension of £48,000 per annum and a PCLS of £129,050. If any excess over the lifetime allowance is taken as a lump sum, the tax charge will be:
A. £13,750
B. £92,400
C. £303,875
D. £310,750
A
C. £303,875
In 2006, he uses half of LTA therefore 50% remains.
£1,073,100 x 50% = £536,550
Pension benefit is £48,000 x 20
= £960,000 + £129,050
= £1,089,050 - £536,550
= £552,500 x 55%
= £303,875
18
Q
Who of the following might benefit from fixed protection 2016?
A. Marcus, who has previously applauded for primary protection but is concerned as his fund has now exceed £2,000,000
B. Siobhan, who has accrued a pension fund of just over £1,100,000 but has not applied for primary or enhanced protection
C. Cheryl, whose defined benefit scheme has exceed £2,300,000 and already has enhanced protection in place
D. Bill, whose fund stands at £800,000 but wishes to make contributions of the annual allowance over the next 5 years
A
B. Siobhan, who has accrued a pension fund of just over £1,100,000 but has not applied for primary or enhanced protection
Only available for people who have not previously applied for enhanced or primary protection
19
Q
Bob registered his £1,650,000 pension fund for primary protection. Assuming he draws all his benefits in 2021/22, he will entitled to a personal lifetime allowance of:
A. £1,250,000
B. £1,650,000
C. £1,980,000
D. £1,800,000
A
C. £1,980,000
(£1,650,000 - £1,500,000) / £1,500,000
= 0.10 or 10%
£1,800,000 x 110% = £1,980,000
20
Q
Under auto-enrolment rules, if ABC Ltd has employees who had previously opted out, they MUST re-enrol the eligible job holders at least every:
A. 12 months
B. 2 years
C. 3 years
D. 4 years
A
C. 3 years
21
Q
Farley Ltd’s occupational pension scheme is underfunded and The Pensions Regulator has concluded they are insufficiently resourced, what measure can they issue?
A. A contribution notice
B. A financial support direction
C. A financial penalty
D. A restoration order
A
B. A financial support direction
22
Q
Defined benefit pension schemes represent an open-ended liability for employers, but which factor does NOT directly contribute to their potentially liability?
A. Age and marital status
B. Number of deaths prior to retirement
C. Returns of the underlying investments
D. Company profits
A
D. Company profits
23
Q
The Trustees of a defined benefit pension scheme have developed a recover plan for the scheme. This would indicate that the scheme:
A. Is in deficit
B. Was contracted out of the State Second Pension
C. Has been taken over by the Protection Pension Fund
D. Is changing the benefit structure
A
A. Is in deficit
24
Q
Following 18 months of membership, Neil is leaving his firm’s defined benefit pension scheme. At the point of leaving, he had contributed £24,000 gross; a figure matched by his employer. Neil, a higher rate taxpayer, may be offered a net refund of:
A. £18,000
B. £14,400
C. £28,800
D. £36,000
A
A. £18,000
As he is leaving within 2 years of service, may be entitled to a refund of HIS contributions.
First £20,000 taxed @ 20%
Remaining is taxed @ 50%
(£20,000 x 80%) + (£4,000 x 50%)
= £18,000
25
Which of the following was introduced for occupational defined contribution pension schemes using master trusts as part of the Pension Schemes Act 2017?
A. Authorised schemes must submit monthly accounts to The Pensions Regulator
B. Schemes must submit monthly supervisory returns
C. FCA powers to withdraw authorisation from a failing scheme
D. To be authorised, those involved in the scheme must be ‘fit and proper’
D. To be authorised, those involved in the scheme must be ‘fit and proper’
26
Which of the following is a minimum standard on a recently established Stakeholder Pension?
A. The maximum initial charge is 1.5%
B. The scheme must accept transfer payments from another pension source
C. Transfer charges, out of the scheme, must not be more than 10%
D. The minimum permitted contribution cannot be higher than £25 net
B. The scheme must accept transfer payments from another pension source
(Minimum contribution is £20 per month, no transfer charges, max annual fund charge of 1.5% reducing to 1% after 10 years)
27
Which of the following is only payable from a scheme pension arising from a defined benefit pension scheme?
A. A defined benefits lump-sum death benefit
B. A pension protection lump-sum death benefit
C. An annuity protection lump-sum death benefit
D. An uncrystallised funds pension lump sum
B. A pension protection lump-sum death benefit
28
Edward, who has no transitional protection, crystallises the benefits from his employer’s occupational pension scheme. Edward’s fund is valued at £500,000. He intends to take £125,000 PCLS and use the remainder to buy an annuity. Alternatively, his employer would pay a scheme pension of £17,500, on top of the PCLS. If he takes the scheme pension, what is the value of benefits for lifetime allowance purposes?
A. £350,000
B. £475,000
C. £525,000
D. £550,000
B. £475,000
£17,500 x 20
= £350,000 + £125,000
= £475,000
29
In assessing her eligibility for State Pension Credit, Molly has declared savings of £14,000. This means that, on this information alone, she will:
A. Be unable to claim any Pension Credit
B. Be assumed to have, from own sources, a weekly income of £8
C. Be assumed to have, from own sources, a weekly income of £14
D. Be assumed to have, from own sources, a weekly income of £28
B. Be assumed to have, from own sources, a weekly income of £8
(£14,000 - £10,000) / 500
= £8
(To calculate eligibility for State Pension Credit, savings are deemed to provide an income of £1 for each £500 of savings over £10,000)
30
In making your client aware of pension contribution insurance (PCI) on his newly established defined contribution scheme, you correctly advise him that:
Tick all that apply!
A. Premiums will be eligible for tax relief
B. In the event of illness, the PCI will make contributions to the client’s scheme
C. Both member and employer contributions can be covered
D. Payments will begin after an agreed deferred period
B. In the event of illness, the PCI will make contributions to the client’s scheme
C. Both member and employer contributions can be covered
D. Payments will begin after an agreed deferred period
31
With regard to critical yields, a financial adviser should be aware that:
Tick all that apply !
A. There is no explicit regulatory requirement to produce critical yields on a drawdown illustration
B. Type A critical yield is the growth rate needed to provide an income equal to that under an equivalent immediate annuity
C. Type B illustrations must be accompanied by a type A illustrations
D. Type B illustrations must show annuity purchase at ages 70 and 75
A. There is no explicit regulatory requirement to produce critical yields on a drawdown illustration
B. Type A critical yield is the growth rate needed to provide an income equal to that under an equivalent immediate annuity
C. Type B illustrations must be accompanied by a type A illustrations
32
Your client has chosen fixed interest securities as a major component of their pension fund investment portfolio. She should be aware that:
Tick all that apply!
A. All fixed interest securities provide a guarantee of capital at maturity and during their term
B. Annuity rates are generally backed by gilts
C. They offer a fixed rate of interest
D. All fixed interest securities have a redemption date
B. Annuity rates are generally backed by gilts
C. They offer a fixed rate of interest
33
John’s pension fund is invested in with profits. John should be aware that:
Tick all that apply!
A. A terminal bonus is guaranteed to be paid on crystallisation of earlier death
B. Once added, revisionary bonuses cannot be taken away
C. The fund will only invest in cautious/low risk investment areas
D. Annual bonuses are aimed at “smoothing” returns over the terms
B. Once added, revisionary bonuses cannot be taken away
D. Annual bonuses are aimed at “smoothing” returns over the terms
34
Bob crystallises his two pension plans in the year 2021/22. Based on the below information, what will the lifetime allowance charge be if Bob draws the excess as a cash lump sum?
Final salary scheme pension of £50,000 plus a PCLS of £100,000
Personal pension of £550,000, which is all being used to purchase an immediate lifetime annuity
A. Nil
B. £144,225
C. £317,295
D. £454,795
C. £317,295
(£50,000 x 20) + £100,000
= £1,100,000 + £550,000
= £1,650,000 (total benefits)
£1,650,000 - £1,073,100
= £576,900 x 55%
= £317,295
35
At age 52, Craig has died before drawing any benefits from his registered pension schemes. His personal pension fund and lump sum death benefit from the plans total £1,750,000 in the 2021/22 tax year of death. Assuming all benefits are to be paid in the form of a cash lump sum, his widow can expect to receive a net amount of:
A. £1,377,705
B. £1,580,775
C. £1,625,000
D. £1,750,000
A. £1,377,705
£1,073,100 is tax free
£1,750,000 - £1,073,100
= £676,900 x 55%
= £372,295
£1,750,000 - £372,295
= £1,377,705
36
Which of the following would HMRC accept and an authorised payment under a registered pension scheme?
A. A loan to the employer company of the Managing Director who has a SIPP
B. Payment of a 30% PCLS where no transitional protection exists
C. Purchase of a commercial property by a SSAS from the Managing Director owner
D. Purchase of expensive wines and antique furniture as assets of a SIPP
C. Purchase of a commercial property by a SSAS from the Managing Director owner
B. Is false, would be 25% with no protection
A.&D. Classed as unauthorised payments
37
Sally was in capped drawdown on 5 April 2015. She took the maximum PCLS from a fund that was worth £385,000. Sally’s GAD rate is £53 per £1,000, what is the maximum income Sally is entitled to?
A. £15,304
B. £18,365
C. £22,956
D. £30,608
C. £22,956
£385,000 x 75% (because 25% has been took tax-free)
= £288,750 / 1000 x 53
= £15,303.75 x 150%
= £22,956 (rounded up)
38
Simon, who is a director-shareholder in the business, is retiring in the tax year 2021/22 and will receive a pension based on his 25 years’ service in a 1/60th defined benefit pension scheme. Simon’s total remuneration consists of:
Basic salary - £20,000
Commission - £10,000
Bonuses - £4,000
Dividends - £6,000
If the scheme’s definition of pensionable remuneration includes all of his earnings as an employee, Simon’s pension will be:
A. £16,667
B. £15,000
C. £14,167
D. £8.333
C. £14,167
£20,000 + £10,000 + £4,000
= £34,000 x 25/60
= £14,167
39
Nigel, age 66, had been in flexi-access drawdown for 18 months when he died suddenly in June 2021. Nigel was a basic rate taxpayer in the year of death. The death benefit is £50,000. If his widow, Debbie, a higher rate taxpayer, decides to take this as a lump sum, what is the net amount she will receive?
A. £27,500
B. £30,000
C. £40,000
D. £50,000
D. £50,000
Died before age 75 and was within the two year window
40
James has a SIPP valued at £1,200,000. He has applied for fixed protection 2016. He should be aware that:
A. He cannot also apply for individual protection 2016
B. He can make further contributions of up to £3,600 per year
C. He will be able to take a PCLS (25%) of £1,500,000
D. Contributions to his SIPP must have stopped
D. Contributions to his SIPP must have stopped
41
When the administrators of a defined benefit scheme calculate an early leaver transfer value, the process of converting the lump sum value of pension benefits at retirement to a capital value in today’s terms is known as:
A. Discounting
B. Revaluing
C. Capitalising
D. Securitising
A. Discounting
42
Which of the following is a correct statement regarding ‘in-specie’ contributions?
A. They are pension contributions in the form of an asset such as shares
B. The rules only apply to pension contributions of over £10,000
C. The scheme administrator recovers 40% tax from HMRC
D. They can only be made to unapproved schemes
A. They are pension contributions in the form of an asset such as shares
43
Which of the following are correct statements regarding the regulation of Stakeholder pensions?
A. The scheme must be registered with the Pensions Ombudsman
B. The Pensions Regulator is responsible for registration compliance
C. The ABI regulates the marketing of schemes
D. The Pensions Regulator supervises the fund manager
B. The Pensions Regulator is responsible for registration compliance
44
If an individual has total income above their personal allowance but is NOT working and has no other pension income, any tax due on their State Pension:
A. Is deducted at source
B. Cannot be collected and the payment is tax-free
C. Collected through self-assessment
D. Must be paid monthly by direct debit
C. Collected through self-assessment
45
Madeline has made a successful claim for Bereavement Support Payment at the higher rate. This is because she:
A. Has earnings under the primary contribution threshold
B. Is claiming child benefit for her two children
C. Has paid NICs at the higher rate for 25 weeks
D. Is over State Pension age and has been a UK resident for at least 12 months
B. Is claiming child benefit for her two children
46
Certain assets are not permitted holdings within a UK registered pension scheme. A scheme administrator should be aware that prohibited assets exclude:
Tick all that apply!
A. A caretaker’s hut
B. A beach hut
C. Student halls of accommodation
D. An office building
A. A caretaker’s hut
C. Student halls of accommodation
D. An office building
47
Which of the following clients may benefit from a lifetime allowance in excess of £1,000,000 this tax year?
A. Charlie, who is subject to a pension sharing order when she divorced last year
B. Kim, who is retiring this year and made a contribution in excess of the annual allowance last month
C. Wendy, whose pension benefits will all be derived from public sector pensions schemes
D. Jo, who registered for transitional relief relating to her benefits in a pre A-Day pension scheme
D. Jo, who registered for transitional relief relating to her benefits in a pre A-Day pension scheme
48
Which of the following clients could legitimately refer a complaint to the Pensions Onbudsman?
A. Ali, who believes he was wrongly advised to contract out of SERPS in 2001
B. Mel, who says risk was not adequately explained when he took out his personal pension last year
C. Jaz, who believes his employer misled him when he joined their pension scheme five years ago
D. Ben, an employer with an occupational pension scheme who feels that the trustees acted negligently two years ago
D. Ben, an employer with an occupational pension scheme who feels that the trustees acted negligently two years ago
49
An employer offers its employees a hybrid occupational pension scheme, with a defined contribution underpin. This means that on retirement, members receive:
A. The lower of the benefits calculated on a defined benefit basis and those available from a notional defined contribution account
B. Part of their benefits from a defined benefit account and part from a defined contribution account
C. The higher of the benefits available from a notional defined contribution account and the benefits calculated on the normal defined benefit basis
D. A defined contribution benefit with a minimum level of benefit related to their final salary
C. The higher of the benefits available from a notional defined contribution account and the benefits calculated on the normal defined benefit basis
50
A defined contribution occupational scheme can only pay a member a scheme pension provided that:
A. The member is aged over 65
B. A lifetime annuity has been offered first
C. It is the only option within the scheme rules
D. Index linking is fully guaranteed
B. A lifetime annuity has been offered first
51
Ian and his employer both make contributions to his personal pension plan. He tells you as his Financial Adviser that he is considering contracting out of S2P. You explain…
A. He must use an Appropriate Personal Pension and his decision is irrevocable
B. That he will pay full NICs but will receive a rebate
C. His employer will pay lower NICs but he will not
D. That it is not permitted under current legislation
D. That it is not permitted under current legislation
52
Maurice qualifies for pension credit even though he has £200,000 in investments. This indicates that he has invested in:
A. A guaranteed annuity
B. A fixed term savings bond
C. An investment bond
D. Stock and shares ISAs
C. An investment bond
53
Noreen reached State Pension Age during the 2015/16 tax year but elected to defer taking her State Pension benefits. Which of the following is UNTRUE?
A. The deferred entitlement is increased by 10.4% each year
B. As State Pension benefits are first being taken after 5 April 2016, Noreen can now elect to receive benefits under the new Single-Tier State Pension system
C. Noreen could elect to record her deferred payments as a lump sum
D. When pension benefits do commence, they will be taxable at Noreen’s marginal rate of income tax
B. As State Pension benefits are first being taken after 5 April 2016, Noreen can now elect to receive benefits under the new Single-Tier State Pension system
54
Alan’s pension has been in income withdrawal (capped drawdown) for 4 years. In considering how his income will be reviewed, he should note that:
Tick all that apply!
A. Income levels must be reviewed at least every 5 years
B. If he uses part of the fund to buy a lifetime annuity a review will be triggered
C. If income withdrawal continues reviews will automatically cease at age 75
D. The scheme administrator may agree to bring forward a review at any time
E. A review will take place if the fund becomes subject to a pension sharing order
B. If he uses part of the fund to buy a lifetime annuity a review will be triggered
D. The scheme administrator may agree to bring forward a review at any time
E. A review will take place if the fund becomes subject to a pension sharing order
55
What valuation factor is used to value income benefits paid out prior to A-Day to determine the amount of lifetime allowance already used?
A. 16:1
B. 20:1
C. 25:1
D. 30:1
C. 25:1
56
If an uncrystallised defined benefit pension valued at £16,000 is commuted to cash under the trivial commutation rules, which of the following is true?
A. The whole amount is paid out free of tax
B. Tax is payable at the recipient’s marginal rate if tax on the full amount
C. £16,000 is subject to capital gains tax of 18% or 28%
D. £4,000 is tax-free and the remainder is subject to income tax as pension income
D. £4,000 is tax-free and the remainder is subject to income tax as pension income
As it does not exceed £30,000, can be paid out via trivial commutation
£16,000 x 25% = £4,000 (PCLS)
57
Vic and Bev are using offset in deciding how their assets should be split on their divorce. Vic has no existing pension rights but Bev has 30 years service in a defined benefit pension scheme. In calculating the value of Bev’s pension to be offset:
A. Any death in service lump sum will always be ignored
B. The loss of any spouse’s pension is included
C. Tax-free cash is not taken into account
D. The future value of benefits at Bev’s normal retirement age is included
B. The loss of any spouse’s pension is included
58
Sid and Hettie are divorcing after many years of marriage. Sid has several pension rights and following mediation, a proportion of these will be subject to a Pension Sharing Order. Which of the following pension rights held by Sid cannot be included in the order?
A. S2P
B. AVCs
C. State Graduated Pension
D. Retirement Annuity Contract
C. State Graduated Pension
59
The Pensions Regulator believes that an employer is avoiding their responsibilities to their occupational pension scheme. Which of the following is NOT one of the formal notices the regular can issue?
A. A contribution notice
B. A compensation order
C. A financial support directive
D. A restoration order
B. A compensation order
60
Daria’s state pension benefits include an amount of SERPS. This indicates that she:
A. Was a member of an employer’s contracted-out defined benefit scheme
B. Was formerly entitled to a graduation pension
C. Paid employee NICs prior to 2002
D. Paid additional NICs to secure extra benefits
C. Paid employee NICs prior to 2002
61
Jan is a member of a Targeted Money Purchase Scheme. As a result:
Tick all that apply!
A. The target benefit is the minimum that will be paid out at retirement
B. The value of the fund at retirement will determine the benefits payable
C. If her employer becomes insolvent the insolvency practitioner will have no claim on the scheme’s assets
D. She will benefit from a guaranteed minimum pension entitlement
E. She will normal be entitled to preserved benefits if she leaves the scheme
B. The value of the fund at retirement will determine the benefits payable
C. If her employer becomes insolvent the insolvency practitioner will have no claim on the scheme’s assets
E. She will normal be entitled to preserved benefits if she leaves the scheme
62
Malcolm, aged 63, has a capped drawdown pension and his first review period needs in two years time. If he wants the income to be reviewed now:
A. His pension provided cannot refuse to do this
B. A new three year reference period will commence from the review date
C. The planned review in two years time will still take place
D. He may use the entire fund to purchase a lifetime annuity
E. This will automatically take place if there is a pension sharing order on the fund
B. A new three year reference period will commence from the review date
D. He may use the entire fund to purchase a lifetime annuity
E. This will automatically take place if there is a pension sharing order on the fund
63
Barney, aged 47, is discussing with his accountant the tax position following the sale of his first business, which he set up six years ago, for £3,200,000. His accountant will confirm:
Tick all that apply!
A. He will not have capital gains tax to pay
B. He qualifies for entrepreneur’s relief
C. He will receive a corporation tax rebate at the end of his normal trading year
D. If he dies, his estate will normally receive 100% IHT in this respect
B. He qualifies for entrepreneur’s relief
D. If he dies, his estate will normally receive 100% IHT in this respect
64
Olivia has a SIPP and is considering the full range of investments that can be held within it. She should be aware that:
Tick all that apply!
A. There are rules concerning investments that directly benefit members during the period they are held
B. She can hold a residential property within the SIPP provided that it is not her main residence
C. The SIPP cannot purchase assets from a ‘connected party’
D. The SIPP can contain shares in unlisted companies
E. She can make a loan from her SIPP to a sponsoring employer
A. There are rules concerning investments that directly benefit members during the period they are held
D. The SIPP can contain shares in unlisted companies
65
A SIPP holder has been advised that a property valued at £160,000 held by the scheme is an unauthorised asset. The total value of the SIPP is currently £780,000. As a result:
Tick all that apply!
A. Assuming the member pays the unauthorised member payment tax charge, the scheme administrator will have to pay a scheme sanction charge of £24,000
B. The holder will have to pay an unauthorised member payments charge of £64,000
C. There will be an unauthorised payments tax surcharge if £24,000 payable by the scheme administrator
D. The scheme will automatically be de-registered and a 40% charge will be levied on the total assets
A. Assuming the member pays the unauthorised member payment tax charge, the scheme administrator will have to pay a scheme sanction charge of £24,000
B. The holder will have to pay an unauthorised member payments charge of £64,000
£160,000 x 40% = £64,000 (unauthorised member payments charge)
£160,000 x 25% = £40,000
£64,000 - £40,000 = £24,000 (scheme sanction charge)
66
Stakeholder pensions were designed to support the Government’s aim of increasing pension contribution in the UK. Which of the following statements highlights the MAIN reason for them not achieving as much as was expected?
A. There was no requirement for employer contributions
B. Not every employer needed to set up a stakeholder pension
C. Employers did not collect the premiums for groups schemes
D. There was no automatic enrolment to stakeholder schemes
A. There was no requirement for employer contributions
67
Which of the following is it NEVER been possible to contract-out of?
A. Basic State Pension
B. State Earnings Related Pension
C. State Graduated Pension Scheme
D. State second pension
A. Basic State Pension
68
Lawrence has a pension debit against his defined benefit scheme, made in 2005 following his divorce. If he did not apply for transitional protection:
A. His lifetime allowance will effectively be reduced by the amount of the debit
B. The pension debit will not be included in any lifetime allowance calculation
C. He can apply to HMRC on crystallisation for an increased lifetime allowance
D. His ex-spouse will automatically have an increased lifetime allowance
B. The pension debit will not be included in any lifetime allowance calculation
69
Otis was receiving a non-increasing pension income of £13,500 per annum at A-Day. How much of his lifetime allowance has he already been deemed to have used?
A. £216,000
B. £202,500
C. £270,000
D. £337,500
D. £337,500
£13,500 x 25 = £337,500
70
A member of a funded defined contribution occupational pension scheme is subject to a Pension Sharing Order with their ex-spouse. As a result:
A. The existing scheme must offer the ex-spouse membership for their share of the member’s fund value
B. The existing scheme can offer a lump sum payment to buy out the ex-spouse’s rights at any time
C. The ex-spouse can always opt to transfer their share to a pension of their choice
D. The ex-spouse will be unable to take any benefits until the member crystallises their benefits
C. The ex-spouse can always opt to transfer their share to a pension of their choice
71
From 6 April 2016, it’s no longer possible for a UK based defined benefit occupational pension scheme to contract out. Which of the following is correct:
A. No further accrual is possible under a defined benefit occupational pension scheme
B. Previously contracted out benefits will automatically be bought back into the State Scheme
C. Guaranteed Minimum Pensions will revert to normal scheme rights
D. Employees and the employer will have to pay higher NI contributions
D. Employees and the employer will have to pay higher NI contributions
72
Lou and Aldo both have defined benefit occupational pension schemes. Lou’s scheme allows him to choose whether or not to take a PCLS whereas Aldo’s scheme will automatically pay him a PCLS. The most likely reason for this is that:
A. Lou’s scheme commenced before A-Day and Aldo’s commenced last year
B. Lou is UK domiciled but Aldo is not
C. Aldo works in the public sector and Lou does not
D. Aldo opted for a PCLS when he joined the scheme but Lou did not
C. Aldo works in the public sector and Lou does not
73
Charles has been advised that his company is introducing a ‘career average scheme’ to its members to replace the existing final salary one. What is the main benefit of this course of action?
A. A fairer system for all members based on length of service
B. The ability to increase the amount of pension in respect of long service
C. A reduction in the liabilities to the employer of the scheme
D. Improved staff loyalty and retention
C. A reduction in the liabilities to the employer of the scheme
74
Trevor, a higher rate tax-payer, has been given a refund of his contributions in May 2017 following leaving his company after 21 months membership of their pension scheme. Having received a net payment of £6,000 how much tax, if any, has he already paid on this sum?
A. None
B. £1,200
C. £1,500
D. £3,000
C. £1,500
£6,000 x 25% = £1,500
75
RST Ltd pension scheme has recently refunded contributions to a number of leavers from the scheme and now wants to refund the employer contributions to the company. Which of the following is correct in respect of the action that the scheme can take?
A. It can only refund the money if it has passed an appropriate resolution
B. The employer contributions can be refunded less a tax charge of 35%
C. The employer contributions can be refunded less a tax charge of 55%
D. It cannot refund any employer contributions unless the scheme is winding up
B. The employer contributions can be refunded less a tax charge of 35%
76
Pat had earnings of £31,000 per annum and is a member of her employer’s group personal pension scheme. She has taken out Pension Contribution Insurance to pay contributions to her scheme if she is ill and unable to work. She needs to be aware that in the event of a successful claim:
A. There will be a deferred period of one month before she begins to receive benefits
B. The benefits will be paid into her pension without deduction of tax
C. The benefits will be made as a single payment into the pension once she returns to work
D. Her policy is likely to restrict the payments to £3,600 per year
D. Her policy is likely to restrict the payments to £3,600 per year
77
Members of contract based pension schemes:
Tick all that apply!
A. Will receive full tax relief at source via the net pay method
B. Will need to claim any higher rate tax relief due to via self assessment
C. Will receive a refund of contributions if they leave the scheme within two years
D. Will either retain funds within the scheme, or transfer out, if they leave the scheme early
B. Will need to claim any higher rate tax relief due to via self assessment
D. Will either retain funds within the scheme, or transfer out, if they leave the scheme early
78
In undertaking required reviews of pension schemes that are using the capped drawdown pension method, the scheme administrator:
Tick all that apply!
A. Must start a new reference period if a pension sharing order is granted
B. May agree to bring forward a review if requested by a member
C. Must ensure that the income provided does not exceed 150% of the GAD rate
D. May make the require calculations up to 60 days prior to the due date
E. Must use an age of 70 for any member aged 70 or older
B. May agree to bring forward a review if requested by a member
C. Must ensure that the income provided does not exceed 150% of the GAD rate
D. May make the require calculations up to 60 days prior to the due date
79
Loans to employers made by a SSAS pension must:
Tick all that apply!
A. Not exceed 50% of the value of the scheme’s assets
B. Be unsecured
C. Be repaid in full within three years unless the employer is in financial difficulty
D. Charge interest at 1% above the average base rate of the main clearing banks
E. Be repaid by a series of equal annual payments
A. Not exceed 50% of the value of the scheme’s assets
D. Charge interest at 1% above the average base rate of the main clearing banks
E. Be repaid by a series of equal annual payments
80
Maggie is a member of an 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. The scheme will bear the investment risk and Maggie will bear the annuity risk
B. The scheme will bear both the investment risk and the annuity risk
C. Maggie will bear the investment risk and the scheme will bear the annuity risk
D. Maggie will bear both the investment risk and the annuity risk
D. Maggie will bear both the investment risk and the annuity risk.
81
Hideki is a sole trader who employs one member of staff. If he makes a contribution to his employee's personal pension plan, this will be treated as:
A. A business expense, which will be offset against Hideki's corporation tax liability
B. An employee contribution, which will be awarded tax relief at the employee's marginal rate of income tax
C. A business expense, which will be offset against Hideki's income tax liability
D. Salary sacrifice, which will reduce the employee's salary for income tax and national insurance purposes
C. A business expense, which will be offset against Hideki's income tax liability
82
When might a member of a defined contribution arrangement have unused funds?
A. At any age where they have yet to draw any income from the pension fund
B. They are aged under 75 and have taken the full pension commencement lump sum, but no income, from the pension fund
C. At any age where they have remaining lifetime allowance
D. They are aged over 75 and have not used all of the funds in the pension to provide an income
D. They are aged over 75 and have not used all of the funds in the pension to provide an income
83
In 2022/23 a company made an annual contribution of £400,000 to its pension scheme. In 2023/24 it increased its contribution to £1.43m. As a result, the tax relief will be awarded:
A. Over two accounting periods
B. Fully in 2023/24
C. Over three accounting periods
D. Over four accounting periods
A. Over two accounting periods
84
Isla, who is self-employed and a higher rate taxpayer, has paid a net pension contribution of £10,000 to her personal pension plan. Isla's higher and/or additional rate tax relief will be awarded by:
A. Adding the gross contribution to her basic and higher rate tax bands
B. Adding the net contribution to her basic and higher rate tax bands
C. Deducting the net contribution from her taxable profits
D. Deducting the gross contribution from her taxable profits
A. Adding the gross contribution to her basic and higher rate tax bands
85
When calculating a pension input for 2023/24, a member of a defined benefit pension scheme should be aware that:
A. Factor of 25 is used when calculating her total pension input
B. Investment growth must be included
C. A CPI increase is applied to the closing pension input value only
D. A CPI increase is applied to the opening pension input value only
D. A CPI increase is applied to the opening pension input value only
86
Why might salary sacrifice be attractive to an employee?
A. The employee receives a higher rate of tax relief on the contributions they pay
B. The employer increases the employee's death in service benefits and the employee pays lower National Insurance contributions
C. National Insurance contributions are reduced for both the employer and employee, which are then used to increase the employee's salary
D. The employer pays a higher pension contribution and the employee pays lower National Insurance contributions
D. The employer pays a higher pension contribution and the employee pays lower National Insurance contributions
87
Why might someone applying for fixed protection 2016 in 2023/24 be told they are ineligible?
A. They already hold enhanced protection
B. Their pension benefits were valued at less than £1m as at 5 April 2016
C. They applied after 5 April 2019
D. Their pension benefits were valued at greater than £1.25m as at 5 April 2016
A. They already hold enhanced protection
88
Samir died in May 2023 at the age of 58. In July 2023 his widow received the death benefits from his employer's defined benefit scheme as a lump sum death benefit of £480,000 plus a dependant's scheme pension of £30,000 p.a. What is the amount that will be tested against Samir's lifetime allowance?
A. £600,000
B. £750,000
C. £480,000
D. £1,080,000
C. £480,000
89
An employee died on 1 March 2023 but his previous employer's pension scheme was not notified of his death until 1 December 2023. To avoid the lump sum death benefits payable from becoming taxable, the scheme must distribute these no later than:
A. 30 November 2024
B. 30 November 2025
C. 29 February 2025
D. 28 February 2024
B. 30 November 2025
This two-year window starts from the date the scheme administrator is notified of the death or, if earlier, the date the scheme administrator could reasonably be expected to know of the death.
90
A member receives an unauthorised payment of £12,000 from their pension scheme. How much will the unauthorised payments charge be?
A. £5,400
B. £1,800
C. £4,800
D. £3,000
C. £4,800
£12,000 x 40% = £4,800
91
A member who is aged 45 plans to transfer their uncrystallised personal pension plan to a Qualifying Recognised Overseas Pension Scheme [QROPS] in 2023/24. How will this be treated for lifetime allowance [LTA] purposes?
A. There will be a test against the member's LTA, but there will be no tax charge even if the transfer exceeds the member's available LTA
B. There will be a test against the member's LTA and any excess above the member's LTA will be taxed as the member's pension income via PAYE
C. There will not be a test against the member's LTA
D. The LTA test will only be carried out when the member reaches age 55
A. There will be a test against the member's LTA, but there will be no tax charge even if the transfer exceeds the member's available LTA
92
Hakim had pension benefits valued at £1.95m on 5 April 2006
and holds primary protection.
What will his personal lifetime allowance be in 2023/24?
A. £1,800,000
B. £2,340,000
C. £2,535,000
D. £1,950,000
B. £2,340,000
(£1,800,000 - £1,500,000) / £1,500,000
= 0.20 or 20%
£1,950,000 x 120% = £2,340,000
93
An earmarked periodic payment was agreed from Jill’s pension in favour of Jeff as part of their divorce settlement. If Jill were to die in payment, then the periodic payment will:
A. Be unaffected
B. Continue, but reduce by 50%
C. Be commuted to a lump sum
D. Cease
D. Cease
94
A member of a defined benefit pension scheme takes a period of unpaid paternity leave. Assuming his employer does the minimum required under legislation the period of unpaid leave will be:
A. Included when benefits are calculated, but the employment after return from the unpaid leave will be treated as a separate period of service
B. Ignored when benefits are calculated, and the employment before and after will be treated as separate periods of service
C. Included as continuous service when benefits are calculated
D. Ignored when benefits are calculated, but the employment before and after the unpaid leave will be treated as continuous service
D. Ignored when benefits are calculated, but the employment before and after the unpaid leave will be treated as continuous service
95
Following Sam being made bankrupt an income payments order came into payment on 1 June 2023. If it is for the maximum term possible, when will it cease?
A. 31 May 2025
B. 31 May 2024
C. 31 May 2028
D. 31 May 2026
D. 31 May 2026
96
As part of a divorce settlement, an earmarking order was put in place for Gwen against Chris’s pension benefits. What impact will this have in his lifetime allowance (LTA) if he crystallises his benefits in 2023/24?
A. There will be no change to Chris’s LTA, and all of the pension rights will be tested again this LTA even though some of the benefits are earmarked for Gwen
B. There will be a reduction made to Chris’s LTA equal to the pension benefits earmarked for Gwen
C. There will be no change to Chris’ LTA, and the value of the earmarked pension rights will be ignored when testing against it
D. There will be an increase made to Chris’ LTA equal to the value of the benefits earmarked for Gwen
A. There will be no change to Chris’s LTA, and all of the pension rights will be tested again this LTA even though some of the benefits are earmarked for Gwen
97
Pam was a member of her previous employer’s defined benefit scheme between 1992 and 2010. The scheme has recently entered the Pension Protection Fund and Pam should be aware that her deferred benefits will now be revalued in line with increases in CPI to a maximum of:
A. 5% per annum for service prior to 6 April 2005 and CPI to a maximum of 2.5% per annum for benefits accrued after this date
B. 5% per annum for service prior to 6 April 2009 and CPI to a maximum of 2.5% per annum for benefits accrued after this date
C. 2.5% per annum for all service after 5 April 1997 with no revaluation for benefits accrued prior to this date
D. 5% per annum for all service after 5 April 1997 with no revaluation for benefits accrued prior to this date
B. 5% per annum for service prior to 6 April 2009 and CPI to a maximum of 2.5% per annum for benefits accrued after this date
98
If a defined benefit scheme is underfunded, which option would NOT help reduce the deficit?
A. Increasing member contributions
B. Changing the scheme’s normal pension age 65 to 67
C. Changing the definition of pensionable salary from final salary to career average earnings
D. Changing the actual rate from 1/80th to 1/60th per annum
D. Changing the actual rate from 1/80th to 1/60th per annum
99
Which retirement option will always be offered by a defined contribution pension arrangement?
A. A scheme pension
B. An uncrystallised funds pension lump sum
C. A drawdown pension
D. A lifetime annuity
D. A lifetime annuity
100
What is the maximum term for a guarantee included in a scheme pension for a scheme member who is 68 when they crystallise their benefits?
A. Seven years
B. Five years
C. Ten years
D. Two years
C. Ten years
101
What is NOT a potential benefit for a defined benefit scheme that choose to pay scheme pensions directly from the scheme assets?
A. The scheme may choose to secure the income in future when annuity rates may have increased
B. The payments can be reduced if the funding position of the scheme worsens
C. If members [and/or their dependants] die sooner that expected the scheme will benefit from mortality gain
D. There is no immediate outflow of capital from the scheme
B. The payments can be reduced if the funding position of the scheme worsens
102
Which source of income is disregarded when calculations eligibility for the State Pension Credit?
A. Cash ISA valued at £9,200
B. Carer’s Allowance
C. Additional State Pension
D. Basic State Pension
A. Cash ISA valued at £9,200
103
The full rate of the new State Pension will always be set at a rate just in excess of the:
A. Additional State Pension
B. Guarantee Credit
C. Basic State Pension
D. Savings Credit
B. Guarantee Credit
104
Lisa, aged 70, moved abroad when she retired. She receives the UK State Pension, but it is not increased each year. This is most likely to be because she:
A. Is still classed as a UK resident because she spends six months a year in the UK
B. Lives in Switzerland
C. Is a resident outside of the EEA
D. Lives in Germany
C. Is a resident outside of the EEA
105
Jane was a member of an occupational money purchase scheme for eight months before she left the scheme last July. What options MUST the scheme offer her?
Tick all that apply!
A. Refund of her contributions
B. Preserved benefit
C. The scheme does not have to offer any preserved benefits
D. A transfer value
B. Preserved benefit
D. A transfer value
106
Jude is the director of his limited company and withdraws a salary of £220,000 and dividends of £2,000. Through the company, Jude invests £25,000 into his personal pension plan. As a result, what is Jude’s tapered annual allowance, if any?
A. There is no tapering as Jude’s adjusted income is below £200,000
B. £37,500
C. £36,500
D. £40,000
C. £36,500
Contribution is through the employer, therefore this is ignored for threshold income.
Threshold income = £222,000
Adjusted income
£220,000 + £2,000 + £25,000 = £247,000
£247,000 - £240,000
= £7,000 / 2
= £3,500
£40,000 - £3,500
= £36,500
107
Marcus is a member of his capped drawdown arrangement via his SIPP since May 2014. He was withdrawing a regular income from his SIPP but this ceased in 2016. He is now looking to utilise his annual allowance for the tax year 2022/23. Ignoring any previous allowances available to him from previous tax years, what is the maximum net contribution, without exceeding the annual allowance?
A. £2,880
B. £3,200
C. £32,000
D. £40,000
C. £32,000
Not subject to MPAA as it is a Capped Drawdown plan
Annual allowance = £40,000
(£32,000 / 0.8 = £40,000)
108
Martin, age 68, was a basic rate taxpayer when he passed away in January 2023. He was in receipt of a scheme pension which included 50% dependant pension. The scheme has confirmed that Martin’s wife, Mary, is entitled to his pension. Mary is age 66 and is a higher rate taxpayer. What rate if tax will Mary pay on the income received from the scheme pension?
A. Nil, as Martin passed away prior to age 75
B. Basic rate as the income will be taxed at the deceased’s rate
C. Higher rate as the income will be taxed at the recipient’s rate
D. 25% of the income will be tax-free, with the remainder taxable at the recipient’s rate
C. Higher rate as the income will be taxed at the recipient’s rate
Scheme pensions on death are ALWAYS taxable and it’ll be taxable on the recipient’s marginal rate
109
Alexus enjoyed an early retirement and is a Nil Rate Taxpayer when she had reached her State Pension age in January 2016. She has deferred her Basic State Pension which she now intends to take as a lump sum payment of £5,000. If her income form other sources is £500 below the Personal Allowance, how much tax, if any, will Alexus pay on the lump sum?
A. Alexus is unable to take her deferred pension as a lump sum
B. Nil
C. £900
D. £1,000
B. Nil
Pay tax (if any) on what the current tax status is before the lump sum payment
110
Nathan will attain State Pension age in 2019. He had been contracted-in most of his working life and is concerned about the additional pension entitlement that he has built up. He should be aware that:
A. Any entitlement to additional State Pension will cease
B. Part of his entitlement to additional State Pension may be paid in addition to the new State Pension
C. His full entitlement to additional State Pension will be paid in addition to the new State Pension
D. The rate of the new State Pension includes all additional State Pension
B. Part of his entitlement to additional State Pension may be paid in addition to the new State Pension
111
Paula, a higher rate taxpayer, has a SIPP scheme which is invested in a large commercial property fund. How much tax, if any, will the SIPP pay on the rental income?
A. None
B. 20% only
C. 32.5% only
D. 40% only
A. None
112
David, aged 57, is about to start a FAD pension. He has elected to take a small level of income withdrawal annually in arrears. In respect of the PCLS, he should be aware that under HMRC rules he:
A. Can defer taking the PCLS until the first three yearly scheme review
B. Can wait until he receives the income withdrawal before taking the PCLS
C. Must take the entire PCLS on moving into flexi-access withdrawal
D. Must take the entire PCLS within six months of moving into flexi-access withdrawal
B. Can wait until he receives the income withdrawal before taking the PCLS
113
Naomi received a regular income under an earmarking order. What event caused this income to cease?
A. Her ex-spouse remarried
B. Her ex-spouse was declared bankrupt
C. She emigrated to Australia
D. She remarried
D. She remarried
114
An adviser is preparing the Transfer Value Comparator for a client who is considering transferring from his defined benefit pension scheme to a SIPP. He should be aware that the MAIN assumptions prescribed by the FCA are that:
A. All adviser charges are deducted from the SIPP
B. The annuity purchased at NRD will be on a single life, level basis
C. The discount rate to calculate the cost uses current gilt yield investment returns and a product charge of 0.75% per annum
D. The maximum tax-free cash is taken at NRD
C. The discount rate to calculate the cost uses current gilt yield investment returns and a product charge of 0.75% per annum
115
An added years AVC scheme would be more beneficial to an employee who:
A. Expects their salary to decrease in the future
B. Expects their salary to increase in the future
C. Is on a fixed-term contract
D. Is on a part time contract
B. Expects their salary to increase in the future
116
Which aspect of public sector schemes may be found in private sector schemes but NOT generally in public service schemes?
A. They are funded
B. They are unfunded
C. There are transfer club facilities
D. Pensions in payment provide full retail prices escalation
A. They are funded
117
Liam’s income in the tax year 2019/20 is as follows
Salary - £52,000
Bonus - £8,000
Bank savings account - £500 (gross)
He has a preserved pension from an occupational scheme he left in 2002 but no other pension plans. He started a personal pension in May 2018 and contributes £1,000 per month. What is the maximum further gross contribution he may make in the tax year 2019/20 and obtain tax relief on the full amount?
A. £28,000
B. £40,000
C. £48,000
D. £48,500
C. £48,000
£52,000 + £8,000 = £60,000
£1,000 x 12 = £12,000
£60,000 - £12,000
= £48,000
118
Steve, a higher-rate taxpayer, has a pension fund of £500,000 and is moving into phased retirement. He has no transitional protection and an annual net income requirement of £20,000. Assuming a gross annuity rate of 7% per annum, how much of his fund will need to be crystallised to provide his first year’s income requirement?
A. £66,116
B. £68,493
C. £71,048
D. £72,398
C. £71,048
£200 of fund provides £50 PCLS plus
A gross income of £150 x 7% = £10.50
£10.50 x 60% (higher rate taxpayer) = £6.30
Net income of £50 + £6.30 = £56.30
Income of £56.30 for every £200 of fund
‘Annuity rate of 28.15%’
£20,000 / 0.2815 = £71,048 (rounded up)
119
Penelope retired in June 2019 and now receives the full State Pension. She has asked her financial adviser to explain how her pension payment will increase each year. Her financial adviser should explain that the State Pension will increase each year by the:
A. Higher of inflation or 2.5% only
B. Lower of inflation or 2.5% only
C. Higher of earnings growth, inflation or 2.5%
D. Lower of earnings growth, inflation or 2.5%
C. Higher of earnings growth, inflation or 2.5%
120
When applying for Pension Credit, how is an individual’s existing Personal Independence Payment treated when calculating their total weekly income?
A. One half is taken into account
B. It is taken into account in full
C. It is disregarded immediately
D. It is disregarded after 26 weeks
C. It is disregarded immediately
121
The directors of a limited company are considering whether to establish a defined contribution occupational pension scheme as their qualifying workplace pension scheme, either as a result or contract-based arrangement. They should be aware that:
Tick all that apply!
A. With a trust-based scheme, the trustees will have full responsibility for the selection of investment funds
B. Under a trust-based arrangement, member contributions are always deducted from pay after deduction of Income Tax & NICs
C. The contribution system for contract-based schemes will ensure that all employees benefit from tax relief on their contributions
D. Trust-based schemes must conform with regulations in respect of maximum charging levels
C. The contribution system for contract-based schemes will ensure that all employees benefit from tax relief on their contributions
D. Trust-based schemes must conform with regulations in respect of maximum charging levels
122
An active member of a defined benefit pension scheme dies before retirement. In respect of the income benefits that the spouse will receive, it:
Tick all that apply!
A. Cannot be more than 50% of the deceased member’s pension entitlement
B. Will be based upon the deceased member’s pensionable service
C. Will be based upon the deceased member’s pensionable salary
D. Will be reduced if the spouse is two years older than the deceased member
E. May cease if the spouse remarries
B. Will be based upon the deceased member’s pensionable service
C. Will be based upon the deceased member’s pensionable salary
E. May cease if the spouse remarries
123
A financial adviser who is considering a type A critical yield calculation in connection with a capped drawdown pension review, should be aware that the:
Tick all that apply!
A. Critical yield takes into account mortality drag
B. Critical yield takes into account the additional costs of a capped drawdown pension
C. Calculation assumes that, throughout the period of a capped drawdown pension, the annuity morality basis will fluctuate
D. Critical yield will typically below the underlying annuity interest rate
E. Critical yield is the return required on a capped drawdown pension fund to match the income that could be provided by a traditional annuity
A. Critical yield takes into account mortality drag
B. Critical yield takes into account the additional costs of a capped drawdown pension
E. Critical yield is the return required on a capped drawdown pension fund to match the income that could be provided by a traditional annuity
124
A section 32 buy-out policy includes provision for the employees contracted-out portion of SERPS by the provision of a GMP. If the fund value is insufficient to provide the GMP element, which party is liable for the shortfall?
A. The ceding employer
B. The ceding provider
C. The current provider
D. The individual
C. The current provider
125
Stan has two personal pensions and he took capped drawdown benefits from the first in September 2005. At 6 April 2006, the maximum drawdown income was £10,000 per annum. It has now increased to £12,000 per annum. He now intends to take benefits from the second pension. In terms of the lifetime allowance, the first pension will be valued at:
A. £200,000
B. £240,000
C. £250,000
D. £300,000
B. £240,000
£12,000 x 20 = £240,000
126
How does a higher-rate taxpayer receive tax relief when making contributions to an occupational pension scheme under a net pay arrangement?
A. At the basic tax rate as soon as the contribution is paid, with higher-rate relief paid via self-assessment
B. At the basic tax rate only as soon as the contribution is paid
C. At the employee’s marginal tax rate as soon as the contribution is paid
D. All tax relief is paid via self assessment
C. At the employee’s marginal tax rate as soon as the contribution is paid
127
Mary and Jim are in the process of divorcing. In respect of their pension funds, offsetting would involve:
A. Jim becoming a deferred member of Mary’s pension fund
B. Jim transferring an amount into Mary’s pension fund
C. Mary making a lump-sum contribution into Jim’s pension fund
D. Mary retaining her own pension fund by transferring other assets to Jim
D. Mary retaining her own pension fund by transferring other assets to Jim
128
Paul became a deferred member of a defined benefit occupation pension scheme in January 2014, after two years’ service. What minimum rate of revaluation, if any, will be applied to bud deferred benefits?
A. Any discretionary rate of revaluation agreed by the trustees may be applied
B. A minimum rate of 5% per annum or inflation, if higher, will be applied
C. A rate of 2.5% per annum or inflation, if higher, will be applied
D. There is no minimum revaluation rate
C. A rate of 2.5% per annum or inflation, if higher, will be applied
129
The technical provisions of a defined benefit occupational pension scheme are the:
A. Scheme’s actuarial assumptions
B. Scheme’s investment strategy
C. Amount of annual scheme contributions
D. Valuation of the scheme’s liabilities
D. Valuation of the scheme’s liabilities
130
Within what maximum period, if any, should a newly appointed trustee of a defined benefit occupational pension scheme reach the required level of trustee knowledge and understanding?
A. Prior to the appointment
B. Six months
C. One year
D. There is no time limit
B. Six months
131
What retirement options, if any, exist for an employee, aged 48, who has just been declared unfit to work through ill health?
A. Benefits may be paid in all circumstances subject to HMRC rules only
B. Benefits may be paid subject to the agreement of the scheme trustees acting in accordance with the scheme rules
C. Benefits may not paid in any circumstances until age 55
D. Benefits may not be paid unless the member has a life expectancy of less than 12 months
B. Benefits may be paid subject to the agreement of the scheme trustees acting in accordance with the scheme rules
132
Under a public sector pension scheme, what is normally the maximum permissible PCLS at retirement?
A. 120/80ths final pensionable salary only
B. 40/60ths final pensionable salary only
C. The lesser of 120/80ths final pensionable salary or 25% of the capitalised value of the pre-commutation pension
D. The greater of 120/80ths final pensionable salary or 25% of the capitalised value of the pre-commutation pension
A. 120/80ths final pensionable salary only
133
Nigel and Ellen are both due to reach State Pension age in 2023, at which point Nigel will have 35 qualifying years of NICs and Ellen will have 30 qualifying years. To what proportion of the State Pension will they be entitled?
A. Ellen will receive 30/35ths and Nigel will receive the full pension
B. Ellen will receive 30/39ths and Nigel will receive 35/39ths
C. Ellen will receive 30/44ths and Nigel will receive 35/44ths
D. Both will receive the full pension
A. Ellen will receive 30/35ths and Nigel will receive the full pension
134
John, aged 65 and a basic rate taxpayer, decides to start drawing benefits from his personal pension under phased retirement using an annuity. If annuity rates are 5.3% and he crystallised funds worth £20,000, what is his maximum total net income in year 1?
A. £848
B. £1,060
C. £5,636
D. £5,795
C. £5,636
£20,000 x 25% = £5,000 (pcls)
(£15,000 x 5.3%) x 0.80 (20% tax)
= £636
£5,000 + £636
= £5,636
REMEMBER TO DEDUCT TAX
135
Peter, a financial adviser, is looking for set up either a SSAS or SIPP for two directors of a company. When comparing the two types of pension arrangements, he should be aware that the:
Tick all that apply!
A. SIPP will be regulated by the FCA
B. SIPP would normally be set up under contract
C. SSAS will issue Statutory Money Purchase Illustrations at least annually
D. SSAS would normally be set up under a master trust
A. SIPP will be regulated by the FCA
B. SIPP would normally be set up under contract
136
Jeff, aged 63, just retired and has a capped drawdown pension. He also has a small occupational money purchase arrangement valued at £40,000, from which he wishes to take benefits immediately. With regards to his options, he should be aware that he will:
Tick all that apply!
A. Be able to take a UFPLS
B. Be able to use FAD
C. Not be able to purchase a flexible annuity
D. Not be able to use capped drawdown
A. Be able to take a UFPLS
B. Be able to use FAD
137
Ben is considering whether to join his employer’s group personal pension scheme or save for retirement using a stocks and shares ISA. He should be aware that:
Tick all that apply!
A. He will be able to draw a tax-free income from the ISA at retirement
B. He will receive tax relief under the net pay method on his pension contributions
C. The overall size of his fund at retirement is likely to be higher under the pension scheme compared to the ISA, assuming he makes the same net payments into both
D. Pension savings will become compulsory for most employees from the employer’s staging date
A. He will be able to draw a tax-free income from the ISA at retirement
C. The overall size of his fund at retirement is likely to be higher under the pension scheme compared to the ISA, assuming he makes the same net payments into both
