R04 DB scheme types, rules and operation: free practice questions

1. Question 1 of 5

   How does a DB scheme with a DC underpin work?

   Option A: It reduces the pension at SPA to allow for the State PensionOption B: It pays a lump sum only, within old HMRC cash limitsOption C: It pays the higher of the DB benefit and a notional DC fundOption D: It pays a DC fund with a funded DB minimum

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   The answer is C: It pays the higher of the DB benefit and a notional DC fund

   The member gets the better of the normal DB benefit and the benefit from a notional DC account, which can help early leavers and short-service members.

   Why the other options are wrong

   A

   That describes an integrated scheme.

   B

   That describes a defined cash scheme.

   D

   That describes the mirror image: a DC scheme with a DB underpin.

2. Question 2 of 5

   A CARE scheme accrues 1/50th and revalues each year's pension at 2% a year to retirement. Kim earns £30,000 two years before retirement. What pension does that year's accrual provide at retirement?

   Option A: £612.00Option B: £624.24Option C: £600.00Option D: £636.00

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   The answer is B: £624.24

   £30,000 / 50 = £600, revalued for two years at 2%: £600 x 1.02 x 1.02 = £624.24.

   Why the other options are wrong

   A

   £612 revalues for only one year.

   C

   £600 ignores the revaluation.

   D

   £636 adds 6% simple interest (three years at 2%) instead of compounding for two years.

3. Question 3 of 5

   Who is an added years AVC most likely to suit?

   Option A: Someone expecting rapid salary growthOption B: Someone wanting flexible drawdown from the AVCOption C: Someone planning to leave the scheme soonOption D: Someone wanting separate AVC benefits

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   The answer is A: Someone expecting rapid salary growth

   Added years buy guaranteed extra service. The actuary's cautious assumptions mean they work best for those whose pay is expected to rise quickly.

   Why the other options are wrong

   B

   Added years provide scheme pension, not drawdown.

   C

   Contributions must stop on leaving pensionable service.

   D

   Added years can only be taken with the main benefits.

4. Question 4 of 5

   What is a bridging pension in a DB scheme?

   Option A: A temporary pension while a transfer is processedOption B: A higher pension paid until SPA, then reducedOption C: A pension paid to a child until age 23Option D: A temporary pension during a PPF assessment

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   The answer is B: A higher pension paid until SPA, then reduced

   Where normal pension age is below SPA, a scheme can pay more until SPA, then reduce it by an amount linked to the expected State Pension, within legal limits.

   Why the other options are wrong

   A

   It isn't connected with transfers.

   C

   That describes a child's dependant pension.

   D

   It isn't a PPF payment.

5. Question 5 of 5

   How often must the actuary review a DB scheme's funding rate at least?

   Option A: Every yearOption B: Every three years at leastOption C: Only when in deficitOption D: Every five years, alongside the valuation

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   The answer is B: Every three years at least

   The employer's commitment is open-ended, so the actuary recalculates the funding rate at least every three years.

   Why the other options are wrong

   A

   Annual review isn't the statutory minimum.

   C

   Reviews happen whatever the funding position.

   D

   Five years is too long.

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