R04 Government role, reforms and challenges: free practice questions

1. Question 1 of 5

   Which piece of legislation created the Pension Protection Fund?

   Option A: The Finance Act 2004Option B: The Pensions Act 1995Option C: The Welfare Reform Act 1999Option D: The Pensions Act 2004

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   The answer is D: The Pensions Act 2004

   The Pensions Act 2004 set up the PPF to give members some protection when an insolvent employer leaves a defined benefit scheme unable to pay the promised benefits.

   Why the other options are wrong

   A

   The Finance Act 2004 set up the A-Day tax regime rather than the PPF.

   B

   The 1995 Act brought in the minimum funding requirement and compulsory increases to pensions in payment, not the PPF.

   C

   The 1999 Act is best known for stakeholder pensions and pension sharing, not the PPF.

2. Question 2 of 5

   What replaced the lifetime allowance when it was abolished on 6 April 2024?

   Option A: A cap on the total fund that can be used to buy an incomeOption B: Limits on tax-free lump sums paid in lifetime and on deathOption C: A lower annual allowance for everyone with money purchase savingsOption D: A flat-rate charge on all funds above a fixed limit at age 75

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   The answer is B: Limits on tax-free lump sums paid in lifetime and on death

   The LTA went, replaced by rules capping tax-free lump sums in lifetime and on death. There is no limit on the funds that can be used to provide income.

   Why the other options are wrong

   A

   There's no limit on the amount of funds used to provide an income.

   C

   The annual allowance wasn't cut for everyone as a replacement for the LTA.

   D

   There's no age 75 charge on funds above a limit under the new rules.

3. Question 3 of 5

   Why were the transfer rules for defined benefit schemes changed when the 2015 flexibilities came in?

   Option A: So transfer values would be guaranteed by the PPF in futureOption B: So employers could require deferred members to transfer outOption C: So members get independent advice before giving up DB benefitsOption D: So DB members could take drawdown without transferring

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   The answer is C: So members get independent advice before giving up DB benefits

   The flexible options apply only to DC schemes. To protect DB members tempted to transfer, advice before transferring became a requirement.

   Why the other options are wrong

   A

   The PPF doesn't guarantee transfer values.

   B

   The change protected members; it didn't let employers force transfers.

   D

   Drawdown is a DC option; DB members must transfer to use it.

4. Question 4 of 5

   Over what period was women's State Pension age raised from 60 to 65?

   Option A: Eight years, ending on 6 November 2018Option B: Five years, ending in October 2020Option C: Ten years, ending in April 2020Option D: One single step on 6 April 2016

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   The answer is A: Eight years, ending on 6 November 2018

   From April 2010 women's SPA rose gradually from 60 to 65 over eight years, finishing on 6 November 2018. Both sexes then moved to 66 by October 2020.

   Why the other options are wrong

   B

   October 2020 is when SPA reached 66 for both sexes.

   C

   The equalisation finished in November 2018, not 2020.

   D

   It was gradual, not a single step, and not tied to April 2016.

5. Question 5 of 5

   If the Bank of England signals that it is about to cut interest rates, what is the most likely effect on annuity rates?

   Option A: No effect, as they're fixedOption B: They are likely to riseOption C: They are likely to fallOption D: They rise for older buyers only

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   The answer is C: They are likely to fall

   Annuity rates track gilt yields. A cut in interest rates, or signs of one, tends to lower yields and so lower annuity rates.

   Why the other options are wrong

   A

   Annuity rates are set by providers in the market, not by law.

   B

   Lower expected interest rates usually lower annuity rates, not raise them.

   D

   A rate cut doesn't raise rates for one age group only.

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