R03 Pensions and structured products: free practice questions

1. Question 1 of 5

   Which of the following are tax privileges of a registered pension scheme? 1. Tax relief on contributions 2. No UK tax on income and gains within the fund 3. Up to 25% of the fund available tax-free, subject to the lump sum allowance 4. Pension income free of income tax after age 75

   Option A: 1, 2 and 3 onlyOption B: 2 and 3 onlyOption C: 1, 2 and 4 onlyOption D: 1, 2, 3 and 4

   Show answer

   The answer is A: 1, 2 and 3 only

   Pensions give relief on contributions, a fund free of UK tax on income and gains, up to 25% tax-free cash (capped by the lump sum allowance) and tax-free death benefits before 75. Pension income itself is taxed under PAYE, without NICs.

   Why the other options are wrong

   B

   Tax relief on contributions is also a privilege.

   C

   Pension income is taxable; the 25% tax-free cash is a privilege.

   D

   Pension income is taxable at any age.

2. Question 2 of 5

   Ray, with no protected allowances, crystallises his whole pension fund of £1.2m. What is the most he can take as a tax-free lump sum?

   Option A: £1,073,100Option B: £300,000Option C: £268,275Option D: £450,000

   Show answer

   The answer is C: £268,275

   The PCLS is usually 25% of the fund (£300,000), but capped by the lump sum allowance of £268,275 unless protection applies.

   Why the other options are wrong

   A

   That's the lump sum and death benefit allowance.

   B

   25% of the fund is capped by the lump sum allowance.

   D

   That's the maximum only with £1.8m lifetime allowance protection.

3. Question 3 of 5

   What is the normal minimum pension age, and when does it change?

   Option A: 57 already, from 6 April 2026Option B: 60, rising to 65 in 2030Option C: 55, rising to 57 from 6 April 2028Option D: 55, rising to 58 from 6 April 2027

   Show answer

   The answer is C: 55, rising to 57 from 6 April 2028

   Most people can draw pension benefits from 55, rising to 57 from 6 April 2028. Payments before then are generally unauthorised and penalised.

   Why the other options are wrong

   A

   The change takes effect in 2028.

   B

   The age is 55 now.

   D

   It rises to 57, from 6 April 2028.

4. Question 4 of 5

   Which of these structured product vehicles can be held in an ISA? 1. Shares in an offshore closed-ended investment company 2. Listed bonds or medium-term notes 3. An onshore insurance bond 4. An offshore insurance bond

   Option A: 3 and 4 onlyOption B: 1, 2, 3 and 4Option C: 1 and 2 onlyOption D: 1, 2 and 3 only

   Show answer

   The answer is C: 1 and 2 only

   Closed-ended investment company shares (taxed as dividends and gains) and MTNs (taxed as savings income and gains) can be held in ISAs. Onshore and offshore insurance bonds can't.

   Why the other options are wrong

   A

   These can't be held in ISAs; the other two can.

   B

   Insurance bonds can't be held in ISAs.

   D

   Insurance bonds used for structured products can't be held in ISAs.

5. Question 5 of 5

   A client in a pre-2015 capped drawdown arrangement takes more than the maximum income. What happens?

   Option A: The excess income is taxed at 55%Option B: The whole fund must be used to buy a lifetime annuityOption C: The fund becomes flexi-access drawdown and the £10,000 MPAA appliesOption D: Nothing changes, as capped drawdown is protected

   Show answer

   The answer is C: The fund becomes flexi-access drawdown and the £10,000 MPAA applies

   Capped drawdown can continue with a full £60,000 annual allowance if the maximum income isn't exceeded. Breaching it converts the fund to flexi-access drawdown and triggers the £10,000 MPAA.

   Why the other options are wrong

   A

   The excess is taxed as income, and the MPAA applies.

   B

   There's no requirement to buy an annuity.

   D

   Breaching the cap converts it and triggers the MPAA.

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