Topic 10: Pension Products

Question 1

Marta is 37 and pays 3 per cent of her salary into a pension scheme each month. The benefit that she will receive at retirement depends solely on the investment performance of the fund. Marta’s pension scheme is:

a) a defined‑benefit personal pension.
b) a final‑salary occupational pension.
c) a defined‑benefit occupational pension.
d) a defined‑contribution occupational or personal pension

Answer 1

d) Marta’s scheme is a defined‑contribution scheme, which could be either an occupational or a personal pension

Question 2

Explain what is meant by the term ‘lifetime allowance’.

Answer 2

The lifetime allowance is the total amount that an individual may hold in retirement benefits at the point where the benefits are crystallised without incurring a tax charge

Question 3

What rate of tax relief is applied to contributions to an individual’s pension plan?

a) Basic, higher or additional rate depending upon the contributor’s marginal rate of tax.
b) Always basic rate.
c) Always higher rate.
d) Basic, higher or additional rate depending upon the pension provider’s own rules

Answer 3

a) Basic, higher or additional rate depending upon the contributor’s marginal rate of tax.

Question 4

Contributions to AVCs are deducted from gross income. True or false?

Answer 4

True

Question 5

Which of the following statements is correct? An individual may be auto‑enrolled in a workplace pension scheme providing they:

a) were born in and are currently working in the UK.
b) are aged between 18 and 55
c) earn in excess of £10,000 a year.
d) are not liable to higher‑rate tax

Answer 5

c) Individuals must earn in excess of £10,000 per year to be auto‑enrolled into a workplace pension scheme

Question 6

Since April 2015 personal pension providers have been obliged to allow scheme members to access their retirement benefits? In the form of an uncrystallised funds lump sum (UFPLS) if the member wishes to do so. True or false?

Answer 6

False. Pension providers are not obliged to offer this facility, although scheme members are free to move to a different provider if they wish to access their funds in this way

Question 7

Which of the following in relation to stakeholder pensions is correct?

a) Charges must not exceed 2 per cent of the fund.
b) There must not be any entry or exit charges.
c) The minimum monthly contribution is £50.
d) The maximum contribution is £3,600 per annum in all case

Answer 7

b) There must not be any entry or exit charge

Question 8

John is using an uncrystallised funds lump sum to provide his pension benefits. The amount of each payment he takes that is free of tax is:

a) 50 per cent.
b) 100 per cent.
c) 25 per cent.
d) Nil.

Answer 8

c) 25 per cent of each UFPLS payment is tax‑free

Question 9

What previous form of income drawdown was converted to flexi‑access drawdown from 6 April 2015?

Answer 9

Flexible drawdown arrangements were all converted to FAD on 6 April 2015.

Question 10

Nicky is 60 years old and has a low appetite for risk. She is considering options for taking benefits from her pension fund and would like to be able to receive a guaranteed income, with her pension fund no longer exposed to any investment risk. Which method of providing retirement benefits should Nicky take?

Answer 10

Annuity provides a guaranteed income and there is no investment risk, so this would be a suitable option for Nicky.