Friday Five Focus on Pensions – 5 Questions in 5 Minutes – 23 Aug 2024

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 2023/24, examinable by the CII until 31 August 2024. They do not relate to tax year 2024/25 which is only examinable by the CII from 1 September 2024.

1. Mary dies at age 66 leaving her uncrystallised pension fund to Deborah. After considering her options, Deborah elects to take the fund in the form of a nominee’s flexi-access drawdown plan. Deborah is informed by the scheme administrator that the payment will be taxable as her earned income. This is most likely to be because
   1. Deborah is not classed as a dependent of Mary.
   2. the funds were designated three years after Mary’s death.
   3. Deborah is on a month 1 tax code.
   4. Mary was over the age of 65 at the time of her death.

2. Which of the following is a correct statement regarding ‘in-specie’ contributions?
   1. They are pension contributions in the form of an asset such as shares.
   2. The rules only apply to pension contributions of over £10,000.
   3. The scheme administrator recovers 40% tax from HM Revenue & Customs (HMRC).
   4. They can only be made to unapproved schemes.

3. Bob reaches State pension age in October 2023 but doesn’t think he will need the income from his State pension. Bob should be advised that
   1. he will only be able to defer once.
   2. any deferred income will be tax-free.
   3. benefits need to be deferred for at least a year to qualify for an increased income.
   4. he can elect to take his deferred benefits as a lump sum.

4. Bob has an annual income of £40,000. During the 2023/24 tax year, he takes an uncrystallised funds pension lump sum (UFPLS) of £25,000. As regards his lump sum he can take
   1. a 25% pension commencement lump sum (PCLS) with the remainder subject to income tax at his marginal rate.
   2. a 25% pension commencement lump sum (PCLS) with the remainder subject to income tax under pay as you earn (PAYE).
   3. 25% tax free with the remainder subject to income tax at the basic rate of income tax
   4. 25% tax free with the remainder subject to income tax under pay as you earn (PAYE).

5. Don is considering taking the benefits from his defined contribution pension plan in the form of a scheme pension. The scheme administrator must
   1. inform him that this is not possible with a defined contribution scheme.
   2. request evidence that he has taken independent advice.
   3. offer him the option of buying a lifetime annuity first.
   4. advise him of the commutation rate for his pension commencement lump sum. (PCLS)

Answers

1. B – See R04 Study Text, Chp 3
   Grab our taster mock exam paper for CII R04. Click here to download.

2. A – See R04 Study Text, Chp 6
   Grab our taster mock exam paper for CII R04. Click here to download.

3. A – See R04 Study Text, Chp 9
   Grab our taster mock exam paper for CII R04. Click here to download.

4. D – See R04 Study Text, Chp 3
   Grab our taster mock exam paper for CII R04. Click here to download.

5. C – See R04 Study Text, Chp 3
   Grab our taster mock exam paper for CII R04. Click here to download.

How did you find this week’s questions? Did you complete them in 5 minutes? Did you get them all correct? Do you disagree with any?

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