R04 Accumulating pension savings: free practice questions

1. Question 1 of 5

   Which of these factors are likely to shape a client's retirement planning needs? 1. When they want to retire 2. Whether they want a guaranteed income 3. Large capital outlays planned after retirement 4. Their employer's share price

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

   Show answer

   The answer is B: 1, 2 and 3 only

   Needs depend on timing, income pattern, guarantees, non-pension assets, capital needs, liabilities, beneficiaries and care or tax aims. The employer's share price isn't a planning need.

   Why the other options are wrong

   A

   Planned capital outlays also matter.

   C

   The employer's share price isn't a needs factor.

   D

   Statement 4 is wrong.

2. Question 2 of 5

   Which of these costs typically stop at or near retirement? 1. Mortgage repayments 2. National Insurance contributions 3. Income protection premiums 4. Medical insurance premiums

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

   Show answer

   The answer is A: 1, 2 and 3 only

   Mortgages, pension contributions, NICs and income protection premiums usually end. Medical insurance often rises after employer cover ends.

   Why the other options are wrong

   B

   Medical insurance costs often increase.

   C

   Statement 4 is wrong.

   D

   Income protection usually ends too.

3. Question 3 of 5

   Which benefits are especially exposed to inflation before retirement?

   Option A: Pre-1997 excess DB benefits in payment, which have no statutory increaseOption B: Index-linked annuities bought at retirementOption C: DB pension accrued after 2005, increasing by CPI to 2.5%Option D: The new State Pension

   Show answer

   The answer is A: Pre-1997 excess DB benefits in payment, which have no statutory increase

   Excess pension accrued before 1997 has no compulsory increases, and the 2009 cut in the revaluation cap to 2.5% also erodes preserved benefits.

   Why the other options are wrong

   B

   Index-linked annuities rise with prices.

   C

   Post-2005 DB pension has CPI increases up to 2.5%.

   D

   The State Pension has the triple lock.

4. Question 4 of 5

   Ken has a £70,000 inheritance and a £60,000 annual allowance. Why might he split the contribution across two tax years?

   Option A: Because relief is only given on contributions over two yearsOption B: To trigger the MPAA in only one yearOption C: Because no contribution in a year can exceed £40,000Option D: To keep it all within higher rate relief and avoid an allowance charge

   Show answer

   The answer is D: To keep it all within higher rate relief and avoid an allowance charge

   Spreading can keep the whole amount within relief at his marginal rate and within his annual allowance.

   Why the other options are wrong

   A

   There's no such rule.

   B

   Contributions don't trigger the MPAA.

   C

   There's no £40,000 cap.

5. Question 5 of 5

   Which of these are common capital needs at retirement? 1. Clearing a mortgage 2. Replacing a company car 3. Gifts to children 4. Paying income tax on the State Pension

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

   Show answer

   The answer is B: 1, 2 and 3 only

   Typical capital needs include repaying debt, home works, a holiday home, a car, holidays, gifts and an emergency fund. Tax on State Pension is an income matter.

   Why the other options are wrong

   A

   State Pension tax isn't a capital need.

   C

   A replacement car is also common.

   D

   Statement 4 is wrong.

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