Friday Five Focus on Pensions – 5 Questions in 5 Minutes – 30 Jan 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.

1. Rory, an additional rate taxpayer, has been given a refund of his employee pension contributions after leaving his company within six months of joining their defined benefit pension scheme. He receives a lump sum payment of £12,000. How much tax, if any, has been paid by the scheme administrator?
   1. None, Rory declares £12,000 through self-assessment and pays tax at 45%
   2. £3,000
   3. £9,818
   4. None, Rory declares £12,000 through self-assessment form and pays tax at 20%

2. Susan, age 62, earns a salary of £225,000 during the 2025/26 tax year along with dividend income of £30,000. Her employer also makes a pension contribution of £25,000 to its occupational pension scheme on her behalf.During the tax year, she takes a pension commencement lump sum (PCLS) of £50,000 from her personal pension, placing the remaining £150,000 into a flexi-access drawdown account. Susan’s annual allowance for the year 2025/26 will be
   1. £60,000
   2. £50,000
   3. £25,000
   4. £10,000

3. A scheme would be likely to qualify as a qualifying recognised overseas pension scheme (QROPS) if it is in a country which
   1. agrees to implement the same pension regulations that apply in the UK.
   2. has a double taxation agreement in place with the UK.
   3. agrees not to impose any pension flexibility.
   4. allows members to access their pensions no earlier than age 50.

4. Max is a client of yours who has always invested any surplus income directly in the stock market. He now wishes to set up a pension arrangement where he can continue to do this. The most suitable product for his needs would be
   1. A self-invested personal pension.
   2. A small self-administered scheme.
   3. A retirement annuity contract.
   4. A Stakeholder plan or personal pension.

5. Frank’s pension complaint has been accepted by the Financial Ombudsman Service (FOS) for investigation because Frank believes
   1. his State Pension forecast is incorrect.
   2. his pension plan was ill advised at inception 10 years ago.
   3. he was wrongly advised to transfer his pension.
   4. the information received from the trustees of his DB scheme is wrong.

Answers

1. B; See R04 Study Text, Chp 5; Rationale: As Rory left his defined benefits scheme within 2 years, he is entitled to a refund of his contributions, the tax position of the refund is 20% of the first £20,000, 50% thereafter. The tax is paid by the scheme administrator, so the refund is paid net. As Rory receives a net refund of £12,000, the scheme administrator has paid tax on £12,000/0.8 = £15,000. £15,000 @ 20% = £3,000.
2. B; See R04 Study Text, Chp 2; Rationale: Susan has threshold income of £255,000 (her £225,000 salary plus £30,000 dividends). Therefore, the adjusted income test also needs to be applied. Her adjusted income is the above plus her £25,000 employer pension contribution, hence £280,000. This exceeds the £260,000 threshold by £20,000. Therefore, the £60,000 annual allowance is reduced by £1 for every £2 excess, i.e., £10,000, which means the allowance is £50,000. Note that the PCLS is not counted towards either threshold or adjusted income and nor is the MPAA triggered, since no taxable income has been taken from the drawdown plan.
3. B; See R04 Study Text, Chp 3; Rationale: One of the criteria which may result in an overseas pension being considered a QROPS is being set up in a country (other than New Zealand) with which the UK has a double taxation agreement. There are restrictions around tax relief offered by the scheme and the minimum pension age must be 55 but not all UK pension legislation must be applied.
4. A; See R04 Study Text, Chp 6; Rationale: A self-invested personal pension (SIPP) would suit Max as a SIPP allows a wider investment choice than the others, which includes direct investment in company shares. A small self-administered scheme is set up by a company rather than an individual but, similarly to the SIPP, also offers wider investment choice.
5. C; See R04 Study Text, Chp 4; Rationale: If Frank was wrongly advised to transfer his pension, this would be a matter that the Financial Ombudsman Service (FOS) would accept. Answer d) is incorrect as an individual’s complaint against their workplace pension scheme would be dealt with by the Pensions Ombudsman. Answer b) would not be accepted by the FOS as the complaint relates to an event over 6 years ago, and answer a) is false as the FOS only investigates complaints about the sale and marketing of products from FCA regulated companies.

Grab the resources you need!

If this week’s questions felt familiar, it’s a good sign you’re ready to test your knowledge under exam-style conditions. Our CII R04 E-Mocks are designed to mirror the real exam format and help you identify gaps before exam day. Get access to the free R04 E-Mocks taster and see how they support focused, exam-relevant practice.

Found this quiz useful? Share it with your colleagues and help them prepare for their CII exams too.