Friday Five Focus on Pensions – 5 Questions in 5 Minutes – 24 Jul 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 2025/26, examinable by the CII until 31 August 2026. They do not relate to tax year 2026/27 which is only examinable by the CII from 1 September 2026.

1. Adam is 63 and is considering using his personal pension fund to purchase a lifetime annuity. According to HM Revenue & Customs (HMRC) requirements, what is the statutory escalation that must be included?
   1. There is no statutory escalation requirement.
   2. By RPI.
   3. By RPI or 2.5%.
   4. By CPI or 5%.

2. 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.

3. Tom has recently declared himself bankrupt. Once a bankruptcy order is made, who will be appointed to administer Tom’s estate?
   1. Trustee in Bankruptcy.
   2. Administrator.
   3. Personal representative.
   4. Legal executive.

4. The advantages of drawing benefits by way of phased retirement through capped drawdown pension rather than through a flexi-access drawdown plan would include that
   1. the member can take a full pension commencement lump sum at outset.
   2. funds can be used to provide unlimited withdrawal amounts.
   3. it will not usually trigger the money purchase annual allowance.
   4. the member will benefit from mortality drag.

5. Simon, whose relevant UK earnings for 2025/26 are £90,000, wishes to contribute to a personal pension. As Simon is self-employed, tax relief will be given by contributions
   1. paid gross and claimed as an expense against profits.
   2. paid net of 40%, as Simon is a higher-rate taxpayer.
   3. paid net of 20% and Simon claims extra relief via self-assessment.
   4. deducted from income before tax is levied; the net pay system.

Answers

1. A; See R04 Study Text, Chp 7; Rationale: There is no statutory escalation rate for a lifetime annuity purchased from a personal pension fund.
2. B; See R04 Study Text, Chp 3; Rationale: Where the member died before the age of 75 and funds are designated outside of the two-year time window, they will be subject to tax as the income of the beneficiary. It is 75 rather than 65 which is the trigger age for automatic taxation of benefits. Dependent status is irrelevant, and tax coding does not determine taxability of death benefits.
3. A; See R04 Study Text, Chp 4; Rationale: A Trustee in Bankruptcy is appointed to administer an individual’s bankrupt estate once a bankruptcy order is made. An administrator would deal with a company’s assets on administration.
4. C; See R04 Study Text, Chp 8; Rationale: Phased capped drawdown will not trigger the money purchase annual allowance rules as long as income stays within the capped limits. Crystallisation of pension funds is phased to meet the income requirements, and hence, the PCLS is also phased (and is often used to provide a tax-free element of the income).
5. C; See R04 Study Text, Chp 2; Rationale: All of a member’s contributions to a personal pension plan are paid net of basic rate tax (20%). The self-employed can claim any additional relief via self-assessment (usually by deducting the extra relief from their balancing payment).

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