R04 Corporate factors and attitudes to saving: free practice questions

1. Question 1 of 5

   Since October 2012, what must every employer do for its eligible jobholders?

   Option A: Offer them access to a designated stakeholder pension schemeOption B: Pay for independent pensions advice when they joinOption C: Provide a defined benefit pension linked to their salaryOption D: Automatically enrol them into a qualifying pension scheme

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   The answer is D: Automatically enrol them into a qualifying pension scheme

   Automatic enrolment requires employers to put eligible workers into a qualifying scheme, with minimum contributions.

   Why the other options are wrong

   A

   Offering stakeholder access was the weaker 2001 duty.

   B

   Employers may pay for advice, but there's no duty to.

   C

   No employer must provide a DB scheme.

2. Question 2 of 5

   How have modern employment patterns tended to affect people's pension outcomes?

   Option A: Moving employer automatically merges all previous pensionsOption B: Job mobility gives higher pensions through fresh guaranteesOption C: Several job moves leave small preserved pensions worth less in totalOption D: Self-employment periods are credited with employer contributions

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   The answer is C: Several job moves leave small preserved pensions worth less in total

   Many people now have several employers and periods of self-employment or unemployment, leaving a string of paid-up pensions that usually provide less in total.

   Why the other options are wrong

   A

   Previous pensions aren't merged automatically.

   B

   Fragmented service usually lowers total benefits.

   D

   No employer contributions are made during self-employment.

3. Question 3 of 5

   An employer offers pensions advice only to staff aged 55 and over, and offers it to everyone in that group. The cost is £650 per head. What is the position?

   Option A: £150 per head is taxable and subject to NICsOption B: The full £650 is taxable because not all staff are offered adviceOption C: Nothing is taxable as the advice is offered to a defined groupOption D: Only NICs are due on the excess of £150

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   The answer is A: £150 per head is taxable and subject to NICs

   Offering advice to a group defined by age is allowed if everyone in the group is offered it. The first £500 is exempt and the £150 excess is taxed and subject to NICs.

   Why the other options are wrong

   B

   Advice can be limited to groups such as by age, as long as all in the group are offered it.

   C

   Only the first £500 is exempt; the excess is taxable.

   D

   The excess is subject to income tax as well as NICs.

4. Question 4 of 5

   Which statement about limits on pension saving is correct?

   Option A: Saving is unlimited, but relief on individual contributions is limitedOption B: Individuals cannot contribute more than £3,600 gross a yearOption C: Total savings in a registered scheme are capped at a lifetime limitOption D: Contributions above the annual allowance are prohibited by law for everyone

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   The answer is A: Saving is unlimited, but relief on individual contributions is limited

   Anyone can pay in any amount, but only a limited amount of individual contributions attracts tax relief, which some see as a disincentive.

   Why the other options are wrong

   B

   £3,600 gross is the limit for people without relevant earnings to get relief, not a cap on contributions.

   C

   There's no cap on total savings; the lifetime allowance was abolished.

   D

   Contributions above the annual allowance are allowed but may face a tax charge.

5. Question 5 of 5

   What makes a pension different from other ways of saving such as an ISA?

   Option A: A pension guarantees a return on the money saved in itOption B: The package of tax advantages the Government gives itOption C: Only a pension is allowed to invest in shares and fundsOption D: Only a pension lets the money grow free of all taxes

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   The answer is B: The package of tax advantages the Government gives it

   A pension is simply saving for retirement. The full package of tax advantages is what sets it apart; an ISA, for example, also grows tax-free but lacks the other reliefs.

   Why the other options are wrong

   A

   DC pensions carry no guaranteed return.

   C

   ISAs and unit trusts can hold equities too.

   D

   An ISA also enjoys tax-free growth.

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