Friday Five Focus on Pensions – 5 Questions in 5 Minutes – 28 Aug 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. At retirement, Bernice decides to buy a With Profit annuity. She selects an anticipated bonus rate of 5%. The same year, the provider declares a bonus rate less than this figure. The effect this has on the level of annuity payment she receives is that it will
   1. increase after 12 months.
   2. decrease immediately.
   3. decrease the following year.
   4. have no effect.

2. Harry, aged 25, inherits a flexi-access drawdown fund from his father Paul who died at the age of 60 without any dependents. If Harry wishes to purchase a nominee’s annuity, he should be aware that
   1. this is only possible from undrawn funds.
   2. the payments are always taxed as Harry’s income.
   3. he will not be able to draw a pension commencement lump sum (PCLS).
   4. he can only purchase a dependent’s annuity.

3. Guaranteed minimum pension (GMP) benefits for members of contracted-out defined benefit schemes between April 1978 and April 1988 who reached State pension age before 6 April 2016 were
   1. fully inflation proofed, paid entirely by the State.
   2. fully inflation proofed, with the State paying any RPI in excess of 3%.
   3. fully inflation proofed, paid entirely by the Scheme.
   4. inflation proofed, with the scheme paying up to a maximum of 2.5%.

4. Joy has been told she should apply for a State Pension benefit statement as this will provide her with
   1. information regarding how Class 3A National Insurance contributions (NICs) could improve her State Second Pension (S2P) rights.
   2. details of any contracted-out adjustment that has been made to her State Pension.
   3. a specific calculation showing how entitlement may be affected by further years being added to her NIC record.
   4. relevant contact details if information on Additional State pension is required.

5. Pension input periods run from
   1. 5 April – 6 April.
   2. 1 March – 29 February.
   3. 30 April – 29 March.
   4. 6 April – 5 April.

Answers

1. C; See R04 Study Text, Chp 7; Rationale: Under a With Profit annuity, if the provider’s bonus rate is less than that selected (5% in this example), the annuity payment will decrease the following year.
2. C; See R04 Study Text, Chp 3; Rationale: A PCLS is not payable from inherited funds, whether in drawdown or not. Harry is not a dependent, and as Paul was under age 75 at the date of death, the payments will be tax free provided the annuity is purchased within the two-year window. The annuity can be purchased from either uncrystallised or undrawn funds.
3. A; See R04 Study Text, Chp 5; Rationale: For those members reaching State pension age (SPA) before 6 April 2016, a scheme is not required to provide any statutory escalation for GMP benefits accrued between 1978 and April 1988. However, the benefits are fully inflation proofed, and this is paid for entirely by the State.
4. B; See R04 Study Text, Chp 9; Rationale: A State Pension benefit statement will help Joy to estimate her State Pension based on her National Insurance contributions record. It is useful for those who need to understand whether paying class 3 NICs would benefit them. It is also useful for those who have been contracted out to understand how much adjustment has been made in respect of this.
5. D; See R04 Study Text, Chp 2; Rationale: All pension input periods run in line with the tax year, i.e., between 6 April and 5 April each year.

Grab the resources you need!

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