Friday Five Focus on Pensions – 5 Questions in 5 Minutes – 2 Oct 2026

Friday Five Focus on Pensions – 5 Questions in 5 Minutes Every Friday

What’s this all about?

Each week, we ask questions relating to one of these topics: Investments, Taxation, Pensions, Protection, or Regulation. This week, our Friday Five is relevant to Pensions; this is useful as you prepare for the CII’s R04, AF7, or J05 exams. The challenge is for you to answer them in 5 minutes. Answers at the bottom of the page.

Questions

IMPORTANT! These questions relate to examinable tax year 2026/27, examinable by the CII until 31 August 2027.

1. Alan used his £300,000 pension fund to buy a pension protected annuity. The annuity was £18,000 p.a. payable annually in arrears. Alan died age 72, having received 12 payments to that point. The annuity protection lump sum his dependants would receive is
   1. £54,600
   2. £84,000
   3. £37,800
   4. £126,900

2. Derek is curious about whether he should apply for a transitional tax-free amount certificate (TTFAC). He is most likely to benefit from this if he
   1. has not crystallised any benefits prior to 6 April 2024.
   2. took previous benefits under a higher lifetime allowance.
   3. took his full PCLS entitlement at each previous benefit crystallisation event (BCE).
   4. took benefits under a scheme with a set 3/80ths lump sum entitlement.

3. Why might an employer decide to provide death in service benefits through a separate insured scheme as opposed to through a defined benefit scheme?
   1. To maintain death in service benefits without draining the fund.
   2. To treat the death in service benefits as an allowable expense.
   3. If the employees were all below 45.
   4. As the defined benefit scheme is fairly large.

4. Sally is currently paying Class 3 National Insurance contributions (NICs). This would indicate that she is
   1. self-employed.
   2. employed.
   3. earning less than the Lower Earnings Threshold.
   4. rectifying a shortfall in her record of NICs.

5. Jim crystallised benefits from a personal pension five years ago and took a PCLS together with flexi-access drawdown income. During the current year, he has paid a gross amount of £15,000 into his SIPP and has also accrued £25,000 worth of defined benefit input. The £25,000 will be tested against the
   1. standard annual allowance.
   2. money purchase annual allowance.
   3. tapered annual allowance.
   4. alternative annual allowance.

Answers

1. B; See R04 Study Text, Chp 7; Rationale: The maximum annuity protection lump sum is calculated as follows: Fund used to buy annuity – gross payments paid = £300,000 – (£18,000 x 12 = £216,000) = £84,000. As Alan was under 75 when he died and the payment is within the lump sum allowance, no tax is payable.
2. D; See R04 Study Text, Chp 3; Rationale: The certificate would most likely be useful to someone with a 3/80ths PCLS entitlement as this would have meant the PCLS was less than 25% of the value of the lifetime allowance used. For all of the other options, the TTFAC would be likely to either make no difference or result in a lower remaining lump sum allowance.
3. A; See R04 Study Text, Chp 5; Rationale: An employer may choose to operate a separate death in service scheme (from their defined benefit scheme) as this would ensure death benefits would not drain the fund of the defined benefit scheme. This may happen particularly if death rates are higher than anticipated and has more of an impact on smaller companies.
4. D; See R04 Study Text, Chp 9; Rationale: Voluntary Class 3 NICs can be paid by individuals with a shortfall in their NICs record to increase their State pension entitlement.
5. D; See R04 Study Text, Chp 2; Rationale: Jim’s flexi-access drawdown income triggered his money purchase annual allowance, which was exceeded by his £15,000 input during the current tax year. Therefore, his scheme pension input would be tested against the alternative annual allowance of £50,000.

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