You Can Never Do Too Many Pension Questions!
Due to take the CII R04 exam any time soon? Capped drawdown may not be an option for clients retiring today, but many individuals still hold this form of drawdown, and it is still very much part of the R04 syllabus. There is a good chance it could be tested in your exam, so we thought we’d talk you through a couple of typical R04 questions on this subject.
This article is relevant to examinable tax year 2023/24 and is correct as at 26 September 2023.
Question:
Sally entered capped drawdown in December 2014. She took the maximum PCLS from her fund and has since been taking the maximum income possible. At the time of her last review, Sally’s GAD rate was £53 per £1,000 and her fund value was £288,750, what is the maximum income Sally is entitled to?
- £15,304
- £18,365
- £22,956
- £30,608
Answer:
If Sally’s GAD rate is £53 per £1,000, applied to her fund this equates to £288,750/£1,000 x £53 = £15,303.75. The maximum income she can take in capped drawdown is 150% of GAD = £15,303.75 x 150% = £22,956 (rounded up). So the answer is C.
Here’s a typical multi-response question on capped drawdown:
Question:
Jeremy entered into a capped drawdown contract in December 2014. He should be aware that the GAD rates used for calculating the basis amount and the maximum income are based on gilt yields and a notional annuity which is (Tick all that apply.)
- level in payment.
- payable monthly in advance.
- guaranteed for 10 years.
- single life.
Answer:
GAD rates used for capped drawdown are based on the following annuity assumptions: level in payment, monthly in arrears (not advance), no guarantee, and single life. So, answers A & D are correct.
Grab the resources you need!
If you’re studying for your CII R04 exam, and you want to be prepared on exam day, grab our free taster to try out one of Brand Financial Training’s resources for yourself. Click the link to download the R04 Mock Paper taster now!
